**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**Form 10-K**

| **(Mark One)** | ** ** | ** **                                                                                                                                            |
|----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**          | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED  DECEMBER 31, 2006** |
| **OR**         |
| **o**          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                               |

 

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| **Commission  File Number** | ** ** | **Exact  Name of Registrant as Specified in its Charter,  Principal Office Address and Telephone Number** | ** ** | **State of  Incorporation** | ** ** | **I.R.S.  Employer  Identification No.** |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------------------|
| 001-32427                   |       | Huntsman Corporation  500 Huntsman Way  Salt Lake City, Utah 84108  (801) 584-5700                        |       | Delaware                    |       | 42-1648585                               |
| 333-85141                   |       | Huntsman International  LLC  500 Huntsman Way  Salt Lake City, Utah 84108  (801) 584-5700                 |       | Delaware                    |       | 87-0630358                               |

 

**Securitiesregistered pursuant to Section 12(b) of the Exchange Act:**

| Registrant                 | ** ** | ** **                                                        | ** ** | **Title of each class** | ** ** | **Name of each exchange on  which registered** |
|----------------------------|------------|-------------------------------------------------------------------|------------|-------------------------|------------|------------------------------------------------|
| Huntsman Corporation       |       | Common Stock, par value  $0.01 per share                          |       | New York Stock Exchange |
|                       |       | Mandatory Convertible  Preferred Stock, par value $0.01 per share |       | New York Stock Exchange |
| Huntsman International LLC |       | None                                                              |       | None                    |

 

**Securitiesregistered pursuant to Section 12(g) of the Exchange Act:**

| **Registrant**             | ** ** | ** ** |   | **Title of  each class** |
|----------------------------|------------|------------|--------|--------------------------|
| Huntsman Corporation       |       | None       |
| Huntsman International LLC |       | None       |

 

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Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

| Huntsman Corporation       |   | YES x |   | NO o |
|----------------------------|--------|------------|--------|-----------|
| Huntsman International LLC |   | YES o |   | NO x |

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange Act.

| Huntsman Corporation       |   | YES o |   | NO x |
|----------------------------|--------|------------|--------|-----------|
| Huntsman International LLC |   | YES o |   | NO x |

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be 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.

| Huntsman Corporation       |   | YES x |   | NO o |
|----------------------------|--------|------------|--------|-----------|
| Huntsman International LLC |   | YES x |   | NO o |

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of the registrants’knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. o

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

| Huntsman Corporation       |   | Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer  o |
|----------------------------|--------|---------------------------|--------|---------------------|--------|-------------------------------|
| Huntsman International LLC |   | Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer  x |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

| Huntsman Corporation       |   | YES o |   | NO x |
|----------------------------|--------|------------|--------|-----------|
| Huntsman International LLC |   | YES o |   | NO x |

 

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On June 30,2006, the last business day of the registrant’s second fiscal quarter, theaggregate market value of voting and non-voting common equity held bynonaffiliates was as follows:

| Registrant                 | ** ** | ** **                    | ** ** | **Common Equity** | ** ** | **Market Value Held by Nonaffiliates** | ** ** |
|----------------------------|------------|-------------------------------|------------|------------------------|------------|------------------------------------------------------------|------------|
| Huntsman Corporation       |       | Common  Stock                 |       |                   | $          | 1,563,640,455(1)                                           |       |   |
| Huntsman International LLC |       | Units of Membership  Interest |       |                   | $          | 0(2)                                                       |       |   |

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(1)                Based on 221,572,172 outstanding shares ofthe registrant’s common stock and the closing price of $17.32 per share asquoted on the New York Stock Exchange.

(2)                All units of membership interest are heldby Huntsman Corporation, an affiliate.

On February 19,2007, the number of shares outstanding of each of the registrant’s classes ofcommon equity were as follows:

| Registrant                 | ** ** | ** **                    | ** ** | **Common Equity** | ** **  | **Outstanding** | ** ** |
|----------------------------|------------|-------------------------------|------------|------------------------|-------------|-----------------|------------|
| Huntsman Corporation       |       | Common  Stock                 |       |                   | 221,493,946 |            |       |
| Huntsman International LLC |       | Units of Membership  Interest |       |                   | 2,728       |            |       |

 

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This Annual Report on Form 10-Kpresents information for two registrants: Huntsman Corporation and HuntsmanInternational LLC. Huntsman International LLC is a wholly owned subsidiary ofHuntsman Corporation and is the principal operating company of Huntsman Corporation.The information reflected in this Annual Report on Form 10-K isequally applicable to both Huntsman Corporation and Huntsman International LLC,except where otherwise indicated.

Huntsman International LLCmeets the conditions set forth in General Instructions (I)(1)(a) and (b) ofForm 10-K and, to the extent applicable, is therefore filing thisform with a reduced disclosure format.

**DocumentsIncorporated by Reference**

Part III: ProxyStatement for the Annual Meeting of Stockholders of Huntsman Corporation to beheld on May 3, 2007.

 

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**HUNTSMAN CORPORATION AND SUBSIDIARIESHUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES2006 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS**

|               | ** ** |                                                                                                                    | ** ** | **Page** |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I   |       |                                                                                                               |       |     |
| ITEM 1.       |       | BUSINESS                                                                                                           |       | 1        |
| ITEM 1A.      |       | RISK  FACTORS                                                                                                      |       | 43       |
| ITEM 1B.      |       | UNRESOLVED STAFF COMMENTS                                                                                          |       | 51       |
| ITEM 2.  |       | PROPERTIES                                                                                                         |       | 52       |
| ITEM 3.  |       | LEGAL  PROCEEDINGS                                                                                                 |       | 54       |
| ITEM 4.  |       | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |       | 58       |
|          |       | EXECUTIVE OFFICERS OF THE REGISTRANT                                                                               |       | 58       |
| PART II  |       |                                                                                                               |       |     |
| ITEM 5.  |       | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |       | 62       |
| ITEM 6.  |       | SELECTED  FINANCIAL DATA                                                                                           |       | 62       |
| ITEM 7.  |       | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS                        |       | 64       |
| ITEM 7A. |       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK                                                        |       | 97       |
| ITEM 8.  |       | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                        |       | 99       |
| ITEM 9.  |       | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE                              |       | 99       |
| ITEM 9A. |       | CONTROLS AND PROCEDURES                                                                                            |       | 99       |
| ITEM 9B. |       | OTHER  INFORMATION                                                                                                 |       | 107      |
| PART III |       |                                                                                                               |       |     |
| ITEM 10. |       | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                 |       | 107      |
| ITEM 11. |       | EXECUTIVE COMPENSATION                                                                                             |       | 107      |
| ITEM 12. |       | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS                    |       | 107      |
| ITEM 13. |       | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                     |       | 107      |
| ITEM 14. |       | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                             |       | 107      |
| PART IV  |       |                                                                                                               |       |     |
| ITEM 15. |       | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                         |       | 108      |

 

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**HUNTSMAN CORPORATION AND SUBSIDIARIESHUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES2006 ANNUAL REPORT ON FORM 10-K**

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

All forward-looking statements, includingwithout limitation, management’s examination of historical operating trends,are based upon our current expectations and various assumptions. Ourexpectations, beliefs and projections are expressed in good faith and webelieve there is a reasonable basis for them, but there can be no assurancethat management’s expectations, beliefs and projections will result or beachieved. All forward-looking statements apply only as of the date made.We undertake no obligation to publicly update or revise forward-lookingstatements which may be made to reflect events or circumstances after the datemade or to reflect the occurrence of unanticipated events.

There are a number of risks and uncertainties thatcould cause our actual results to differ materially from the forward-lookingstatements contained in or contemplated by this report. Any forward-lookingstatements should be considered in light of the risks set forth in “Part I.Item 1A. Risk Factors” and elsewhere in this report.

This report includes information with respect tomarket share, industry conditions and forecasts that we obtained from internalindustry research, publicly available information (including industrypublications and surveys), and surveys and market research provided byconsultants. The publicly available information and the reports, forecasts andother research provided by consultants generally state that the informationcontained therein has been obtained from sources believed to be reliable, butthere can be no assurance as to the accuracy and completeness of suchinformation. We have not independently verified any of the data from third-partysources, nor have we ascertained the underlying economic assumptions reliedupon therein. Similarly, our internal research and forecasts are based upon ourmanagement’s understanding of industry conditions, and such information has notbeen verified by any independent sources.

For convenience in this report,the terms “Company,” “our,” “us,” or “we” may be used to refer toHuntsman Corporation and, unless the context otherwise requires, itssubsidiaries and predecessors. Any references to our “Company,” “we,” “us” or “our”as of a date prior to October 19, 2004 (the date of our formation) are toHuntsman Holdings, LLC and its subsidiaries (including their respectivepredecessors). In this report, “Huntsman International Holdings” refers toHuntsman International Holdings LLC (our 100% owned subsidiary that mergedinto Huntsman International LLC on August 16, 2005) and, unless thecontext otherwise requires, its subsidiaries; “Huntsman International” refersto Huntsman International LLC (our 100% owned subsidiary) and, unless thecontext otherwise requires, its subsidiaries; “Huntsman Advanced Materials” refersto Huntsman Advanced Materials Holdings LLC (our 100% owned indirectsubsidiary, the membership interests of which we contributed to HuntsmanInternational on December 20, 2005) and, unless the context otherwiserequires, its subsidiaries; “Huntsman LLC” refers to Huntsman LLC (our 100%owned subsidiary that merged into Huntsman International on August 16,2005); “HPS” refers to Huntsman Polyurethanes Shanghai Ltd. (our consolidatedsplitting joint venture with Shanghai Chlor-Alkali Chemical Company, Ltd); “SLIC”refers to 

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Shanghai LienghengIsocyanate Investment BV (our unconsolidated manufacturing joint venture withBASF AG and three Chinese chemical companies); “HMP” refers to HMP EquityHoldings Corporation (our 100% owned subsidiary that merged into us on March 17,2005); “HMP Equity Trust” refers to HMP Equity Trust (the holder ofapproximately 59% of our common stock); and “MatlinPatterson” refers toMatlinPatterson Global Opportunities Partners L.P., MatlinPatterson GlobalOpportunities Partners (Bermuda) L.P. and MatlinPatterson Global OpportunitiesPartners B, L.P. (collectively, an owner of HMP Equity Trust).

In this report, we mayuse, without definition, the common names of competitors or other industryparticipants. We may also use the common names or abbreviations for certainchemicals or products. Many of these terms are defined in the Glossary ofChemical Terms found at the conclusion of “Part I, Item 1. Business”below.

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**PART I**

**ITEM 1.**                BUSINESS

**HISTORY**

Our Company was formed in 2004 to hold the Huntsmanbusinesses. Jon M. Huntsman founded the predecessor to our Company in the early1970s as a small packaging company. Since then, we have grown through a seriesof significant acquisitions and now own a global portfolio of differentiatedand commodity businesses.

Huntsman International, our 100% owned subsidiary, wasformed in 1999 in connection with a transaction between Huntsman InternationalHoldings, Huntsman Specialty Chemicals Corporation (“Huntsman Specialty”) andICI. In that transaction, Huntsman International Holdings acquired ICI’spolyurethane chemicals, selected petrochemicals and titanium dioxide businessesand Huntsman Specialty’s PO business. Huntsman International Holdings alsoacquired BP’s 20% ownership interest in an olefins facility located at Wilton,U.K. and certain related assets. Huntsman International Holdings thentransferred the acquired businesses to Huntsman International and to itssubsidiaries.

A summary of ourother key acquisitions follows:

·       In1993, we purchased Monsanto’s LAB and maleic anhydride businesses.

·       In1994, we purchased Texaco’s global chemical business.

·       In1997, we purchased Texaco’s PO business. Also in 1997, we acquired RexeneCorporation, significantly increasing the size of our Polymers business.

·       In2000, we completed the acquisition of the Morton global TPU business from Rohmand Haas.

·       In2001, we completed our acquisition of Dow’s global ethyleneamines business, andwe completed our acquisition of the Albright & Wilson Europeansurfactants business from Rhodia.

·       In2003, we completed our acquisition of 88% of our advanced materials business(the “Huntsman Advanced Materials Transaction”) through the purchase ofVantico.

·       OnJune 30, 2006, we acquired Ciba’s global textile effects business (the “TextileEffects Acquisition”).

We have also divested certain businesses, includingour packaging subsidiary in 1997, our global styrenics business in 1998, ourU.S. butadiene and MTBE business operated by our Base Chemicals segment on June 27,2006, and our European base chemicals and polymers business on December 29,2006, which we sold to SABIC.

In February 2005, we completed an initial publicoffering of common stock and mandatory convertible preferred stock. Inconnection with our initial public offering, we completed a transaction inwhich our predecessor, Huntsman Holdings, LLC, became our wholly ownedsubsidiary, and the existing beneficial holders of the common and preferredmembers interests of Huntsman Holdings, LLC received shares of our common stockin exchange for their interests (the “Reorganization Transaction”).

Also during 2005,we completed a series of transactions designed to simplify our consolidatedgroup’s financing and public reporting structure, to reduce our cost offinancing and to facilitate other organizational efficiencies, including thefollowing:

·       OnAugust 16, 2005, Huntsman LLC merged into Huntsman International (the “HuntsmanLLC Merger”). At that time, Huntsman International Holdings also merged intoHuntsman International (collectively with the Huntsman LLC Merger, the “AffiliateMergers”). As a result of the Huntsman LLC Merger, Huntsman Internationalsucceeded to the assets, rights and obligations 

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of Huntsman LLC. HuntsmanInternational entered into supplemental indentures under which it assumed theobligations of Huntsman LLC under its outstanding debt securities. The HuntsmanInternational subsidiaries that guarantee Huntsman International’s outstandingdebt securities now provide guarantees with respect to these securities, andall of Huntsman LLC’s subsidiaries that guaranteed its debt securities continueto provide guarantees with respect to these debt securities. In addition,Huntsman LLC’s guarantor subsidiaries executed supplemental indentures toguarantee all of Huntsman International’s outstanding debt securities.

·       On December 20, 2005,we agreed to pay $125 million to affiliates of SISU Capital Limited andother third parties to acquire the 9.7% of the equity of Huntsman AdvancedMaterials that we did not already own. In conjunction with this acquisition, weamended our senior secured credit facilities (the “Senior Credit Facilities”)and increased our existing term loan B by $350 million. We used proceedsfrom the increased term loan, together with approximately $74 million ofcash on hand, to acquire the equity interest in Huntsman Advanced Materials, toredeem Huntsman Advanced Materials’ $250 million of outstanding 11% seniorsecured notes due 2010, to pay $35.6 million in call premiums plus accruedinterest, and to pay other related costs. We then contributed our 100%ownership interest in Huntsman Advanced Materials to Huntsman International(the “Huntsman Advanced Materials Minority Interest Transaction”).

**CORPORATESTRUCTURE**

Our Company is a Delaware corporation. HuntsmanInternational is a Delaware limited liability company, and we own all ofits membership interests. As a result of the transactions described in “—History”above, we now operate all of our businesses through Huntsman International, andsubstantially all of our debt obligations are obligations of HuntsmanInternational and/or its subsidiaries.

HMP Equity Trust holdsapproximately 59% of our common stock. Jon M. Huntsman and Peter R. Huntsmancontrol the voting of the shares of our common stock held by HMP Equity Trust.However, the shares of our common stock held by HMP Equity Trust will not bevoted in favor of certain fundamental corporate actions without the consent ofMatlinPatterson, through its representatives David J. Matlin or Christopher R.Pechock, and Jon M. Huntsman and Peter R. Huntsman have agreed to cause all ofthe shares of our common stock held by HMP Equity Trust to be voted in favor ofthe election to our board of directors of two nominees designated byMatlinPatterson.

**RECENTDEVELOPMENTS**

**Senior SubordinatedNote Offering**

At the end of February 2007, we closed onsubstantially all of a direct private placement of $147.0 million in aggregateprincipal amount of U.S. dollar denominated 7.875% senior subordinated notesdue November 15, 2014. These notes were issued at a premium of 104% ofprincipal amount for a yield of 7.01% and were issued under the same indentureand are of the same series as an original placement of dollar denominated notesissued by us in November 2006. We intend to use the expected net proceedsof approximately $151.7 million to redeem all (approximately €114million) of our remaining outstanding euro denominated 10.125% seniorsubordinated notes due 2009, which are being called for redemption onMarch 27, 2007 at a call price of 101.688% plus accrued interest. Thisrefinancing is expected to reduce our annual interest expense by approximately$5 million.

**Agreement to SellU.S. Base Chemicals and Polymers Business**

On February 15, 2007, we entered into anagreement with Flint Hills Resources, a wholly owned subsidiary of Koch, whichprovides that Flint Hills Resources will acquire our U.S. base chemicals andpolymers business (the “Pending U.S. Petrochemicals Disposition”). We expect torealize a total value 

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from the sale ofapproximately $761 million. Under the agreement, Flint Hills Resources willacquire our U.S. base chemicals and polymers manufacturing assets forapproximately $456 million in cash, plus the value of inventory on the date ofclosing (approximately $286 million at December 31, 2006). We will retainother elements of working capital, including accounts receivables, accountspayable and certain accrued liabilities (net, approximately $19 million at December 31,2006), which will be liquidated for cash immediately following the closing.Subject to customary regulatory approvals and other closing conditions, thetransaction is expected to close during the third quarter of 2007, followingthe re-start of our Port Arthur, Texas, olefins manufacturing facility. Formore information, see “Note 22. Casualty Losses and Insurance Recoveries—PortArthur, Texas Plant Fire” to our consolidated financial statements includedelsewhere in this report. We expect to use the net proceeds from thistransaction to repay debt.

The transaction includesour olefins and polymers manufacturing assets located at five U.S. sites: PortArthur, Odessa and Longview, Texas; Peru, Illinois; and Marysville, Michigan.The business employs about 900 associates. The captive ethylene unit at ourretained Port Neches, Texas, site of our Performance Products segmentoperations is not included in the sale. This asset, along with a long-termpost-closing arrangement for the supply of ethylene and propylene from FlintHills to us, will continue to provide feedstock for our downstream derivativeunits.

**Declaration ofDividend**

On February 14, 2007,we announced that our board of directors had approved initiation of a quarterlycash dividend on our common stock, and further announced the declaration of a$0.10 per share cash dividend, payable on March 30, 2007, to shareholdersof record as of March 15, 2007. We have not previously paid dividends onour common stock.

**Formation ofPolyurethanes Joint Venture in Russia and Former Soviet States**

On February 1, 2007,we announced the creation of a new Russian-based joint venture to manufactureand sell polyurethane systems to adhesives, coatings, elastomers and insulationmarkets in Russia and other areas of the former Soviet Union.

**Sale of AustralianPolyester Resins Assets**

On January 4, 2007,we completed the sale of our Australian polyester resins assets to Nuplex forA$9.6 million (approximately $7.5 million) in cash, plus the value of inventoryat the sale date, for a total transaction value of A$20.3 million(approximately $15.8 million), subject to post closing adjustments. Thetransaction further includes additional consideration to be received over athree year period upon achieving certain associated earnings targets. The saleincludes our Australian polyesters, vinylesters and gelcoats manufacturingassets. In connection with the sale agreement, we also entered into a tollingagreement with Nuplex whereby we will continue to manufacture product using theAustralian polyester resins assets. Nuplex will own the assets located on oursite. The tolling agreement expires January 2009.

**Sale of EuropeanBase Chemicals and Polymers Business**

On December 29, 2006, we sold all of theoutstanding equity interests of Huntsman Petrochemicals (UK) Limited to SABICfor an aggregate purchase price of $685 million in cash, plus theassumption by SABIC of approximately $126 million in unfunded pensionliabilities (the “U.K. Petrochemicals Disposition”). The final sales price issubject to agreement by SABIC on adjustments relating to working capital,investment in the LDPE plant currently under construction at Wilton, U.K. andunfunded pension liabilities. We used the net proceeds from the transaction to legallydefease the remaining $250 million outstanding principal amount of our 9.875%senior notes due 2009 and to repay $400 million of debt under our Senior CreditFacilities.

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As a result of the U.K.Petrochemicals Disposition, SABIC acquired our European base chemicals andpolymers business. The results of operations of our European base chemicals andpolymers business for current and prior periods have been classified asdiscontinued operations in our financial statements. The transaction did notinclude our Teesside, U.K.-based Pigments operations or the Wilton, U.K.-basedaniline and nitrobenzene operations of our Polyurethanes segment. For moreinformation, see “Note 3. Discontinued Operations” and “Note 4. BusinessDispositions and Combinations” to our consolidated financial statementsincluded elsewhere in this report.

**OVERVIEW**

We are among the world’slargest global manufacturers of differentiated chemical products; we alsomanufacture inorganic and commodity chemical products. Our products comprise abroad range of chemicals and formulations, which we market in more than 100countries to a diversified group of consumer and industrial customers. Ourproducts are used in a wide range of applications, including those in theadhesives, aerospace, automotive, construction products, durable andnon-durable consumer products, electronics, medical, packaging, paints andcoatings, power generation, refining, synthetic fiber, textile chemicals anddye industries. We are a leading global producer in many of our key productlines, including MDI, amines, surfactants, epoxy-based polymer formulations,textile chemicals, dyes, maleic anhydride and titanium dioxide. Ouradministrative, research and development and manufacturing operations areprimarily conducted at the 75 facilities that we own or lease. Our facilitiesare located in 24 countries and we employ approximately 15,000 associatesworldwide. Our businesses benefit from large production scale in certainproducts and proprietary manufacturing technologies, which allow us to maintaina low-cost position. We had revenues for the years ended December 31, 2006and 2005 of $10,623.6 million and $10,676.9 million, respectively.

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**Our Products andSegments**

Our business is currently organized around our sixsegments: Polyurethanes, Materials and Effects, Performance Products, Pigments,Polymers and Base Chemicals. Upon the anticipated closing in the third quarter2007 of the Pending U.S. Petrochemicals Disposition, we expect to operate ourbusiness in four segments: Polyurethanes, Materials and Effects, PerformanceProducts and Pigments.

Ourcurrent segments can be divided into three broad categories: differentiated,inorganic and commodity. Our Polyurethanes, Materials and Effects andPerformance Products segments produce differentiated products, our Pigmentssegment produces inorganic products and our Polymers and Base Chemicalssegments produce commodity chemicals. Growth in our differentiated products hasbeen driven by the substitution of our products for other materials and by thelevel of global economic activity. Accordingly, the profitability of ourdifferentiated products has been somewhat less influenced by the cyclicality thattypically impacts the petrochemical industry. Our Pigments business, whilecyclical, is influenced largely by seasonal demand patterns in the coatingsindustry. Certain products in our Polymers segment also follow different trendsthan petrochemical commodities as a result of our niche marketing strategy forsuch products that focuses on supplying customized formulations. Theprofitability of our commodity products has historically been cyclical innature. Our six operating segments are all impacted, to a greater or lesserdegree, by economic conditions, prices of raw materials and global supply anddemand pressures.

| ***2006 Segment Revenues**** |   | ***2006  Segment EBITDA**** |
|------------------------------|--------|-----------------------------|

 

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*                    Percentageallocations in the segment revenues chart above reflect the allocation of allinter-segment revenue eliminations to our Base Chemicals segment.Percentage allocations in the segment EBITDA chart above do not give effect to$149.8 million of corporate and other unallocated items and exclude$19.8 million of restructuring, impairment and plant closing costs and $24.7 millionof EBITDA from discontinued operations and gains/losses from disposition ofassets. For a detailed discussion of our revenues, total assets and EBITDA bysegment, see “Note 28. Operating Segment Information” to our consolidatedfinancial statements included elsewhere in this report. For a discussion ofEBITDA and a reconciliation of EBITDA to net income and cash provided byoperating activities, see “Part II. Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Resultsof Operations.”

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Thefollowing table identifies the key products, their principal end markets andapplications and representative customers of each of our segments:
| Segment               | ** ** | ** **                                                                                                                                                                                   | ** ** | **Products**                                                                                                                                                                               | ** ** | **End Markets and  Applications**                                                                                                                  | ** ** | **Representative Customers** |
|-----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|
| Polyurethanes         |       | MDI, PO, polyols, PG,  TPU, aniline and MTBE(1)                                                                                                                                              |       | Refrigeration and  appliance insulation, construction products, adhesives, automotive, footwear,  furniture, cushioning, specialized engineering applications and fuel  additives          |       | BMW, Electrolux,  Firestone, GE, Haier, Lear, Louisiana Pacific, Shell, Weyerhauser, Nobel,  Chevron                                               |
| Materials and Effects |       | epoxy resin  compounds and formulations; cross-linking, matting and curing agents;  epoxy, acrylic and polyurethane-based adhesives, tooling resin  formulations, textile chemicals and dyes |       | adhesives,  aerospace, electrical power transmission, consumer electronics, civil  engineering, wind power generation, automotive, apparel, home and technical  textiles                   |       | ABB, Akzo, BASF,  Boeing, Bosch, Cytec, Hexcel, Rohm & Haas, Russel, Sara Lee, Sherwin  Williams, Wellspun,Hanesbrands, Milliken, Russell |
| Performance Products  |       | amines,  surfactants, LAB, maleic anhydride, other performance chemicals, EG 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, Huish, Monsanto, Procter & Gamble, Unilever,  Lubrizol, Reichhold                                        |
| Pigments              |       | titanium dioxide                                                                                                                                                                             |       | paints and  coatings, plastics, paper, printing inks, fibers and ceramics                                                                                                                  |       | Akzo, Sigma  Kalon, 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, Berry,  Kimberly Clark, Pliant, Polymer Group, PolyOne, Sealed Air                                                                        |
| Base Chemicals(2)     |       | ethylene, propylene and  cyclohexane                                                                                                                                                         |       | packaging film,  polyester and nylon fibers, PVC and polymer resins                                                                                                                        |       | Ineos, Dow, DuPont,  Invista, Nova, Shell, Solutia                                                                                                 |

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(1)          ThePO/MTBE operations in our Polyurethanes segment were not included in the saleof our U.S. butadiene and MTBE business (operated in our Base Chemicalssegment).

(2)          On February 15,2007, we entered into an agreement to sell our U.S. base chemicals and polymersassets. See “—Recent Developments—Agreement to Sell U.S. Base Chemicals andPolymers Business” above. On December 29, 2006, we sold our European basechemicals and polymers business. See “—Recent Developments—Sale of EuropeanBase Chemicals and Polymers Business” 

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above. On June 27,2006, we sold our U.S. butadiene and MTBE business operated in our BaseChemicals segment.

**Polyurethanes**

***General***

We are a leading global manufacturer and marketer of abroad range of polyurethane chemicals, including MDI products, PO, polyols, PGand TPU. Polyurethane chemicals are used to produce rigid and flexible foams,as well as coatings, adhesives, sealants and elastomers. We focus on the higher-margin,higher-growth markets for MDI and MDI-based polyurethane systems. Growthin our Polyurethanes segment has been driven primarily by the continuedsubstitution of MDI-based products for other materials across a broad range ofapplications. We operate five primary Polyurethanes manufacturing facilities inthe U.S., Europe and China. We also operate 12 Polyurethanes formulationfacilities, which are located in close proximity to our customers worldwide. Wehave a significant interest in a manufacturing joint venture that has recentlycompleted construction of a low-cost, world-scale, integrated MDIproduction and finishing facilities near Shanghai, China.

Our customers produce polyurethane products throughthe combination of an isocyanate, such as MDI or TDI, with polyols, which arederived largely from PO and EO. While the range of TDI-based products is relativelylimited, we are able to produce over 2,000 distinct MDI-based polyurethaneproducts by varying the proportion and type of polyol used and by introducingother chemical additives to our MDI formulations. As a result, polyurethaneproducts, especially those derived from MDI, are continuing to replacetraditional products in a wide range of end-use markets, including insulationin construction and appliances, cushioning for automotive and furniture,adhesives, wood binders, footwear and other specialized engineeringapplications.

We are a leading NorthAmerican producer of PO. We and some of our customers process PO intoderivative products, such as polyols for polyurethane products, PG and variousother chemical products. End uses for these derivative products includeapplications in the home furnishings, construction, appliance, packaging,automotive and transportation, food, paints and coatings and cleaning productsindustries. We also produce MTBE as a co-product of our PO manufacturingprocess. MTBE is an oxygenate that is blended with gasoline to reduce harmfulvehicle emissions and to enhance the octane rating of gasoline. See “—Environmental,Health and Safety Matters—MTBE Developments” below and “—Risk Factors” belowfor a discussion of legal and regulatory developments that have resulted in thecurtailment and potential elimination of MTBE in gasoline in the U.S. andelsewhere. Also see, “—Manufacturing and Operations” below and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” for adiscussion of material changes concerning sales of MTBE. We sold our U.S.butadiene and MTBE business operated in our Base Chemicals segment in June 2006;however, the PO/MTBE operations in our Polyurethanes segment were not includedin this transaction.

In 1992, we were the firstglobal supplier of polyurethane chemicals to open a technical service center inChina. We have since expanded this facility to include an integratedpolyurethanes formulation facility. In January 2003, we entered into tworelated joint ventures to build MDI production and finishing facilities nearShanghai, China. Production at our MDI finishing plant near Shanghai, Chinaoperated by HPS, our consolidated subsidiary, was commissioned on June 30,2006. Production at our MNB, aniline and crude MDI plants operated by SLIC, ourunconsolidated joint venture, commenced on September 30, 2006. These world-scalefacilities strengthen our ability to service our customers in the criticalChinese market and will support the significant demand growth that we believethis region will continue to experience.

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***Products and Markets***

MDI is used primarily inrigid foam applications and in a wide variety of customized higher-valueflexible foam and coatings, adhesives, sealants and elastomers. Polyols,including polyether and polyester polyols, are used in conjunction with MDI andTDI in rigid foam, flexible foam and other non-foam applications. Propyleneoxide is one of the principal raw materials for producing polyether polyols.The following chart illustrates the range of product types and end uses forpolyurethane chemicals.

****

Polyurethane chemicals are sold to customers whocombine the chemicals to produce polyurethane products. Depending on theirneeds, customers will use either commodity polyurethane chemicals produced formass sales or polyurethane systems tailored for their specific requirements. Byvarying the blend, additives and specifications of the polyurethane chemicals,manufacturers are able to develop and produce a breadth and variety ofpolyurethane products.

***MDI.******  ***MDI has asubstantially larger market size and a higher growth rate than TDI. This isprimarily because MDI can be used to make polyurethanes with a broader range ofproperties and can therefore be used in a wider range of applications than TDI.We believe that future growth of MDI is expected to be driven by the continuedsubstitution of MDI-based polyurethane for fiberglass and other materialscurrently used in rigid insulation foam for construction. We expect that othermarkets, such as binders for reconstituted wood board products, specialtycushioning applications and coatings will further contribute to the continuedgrowth of MDI.

The U.S. and European markets currently consume thelargest quantities of MDI. With the recent rapid growth of the developing Asianeconomies, the Asian markets are becoming an increasingly important market forMDI, and we currently believe that per-capita demand for MDI in Asia willcontinue to increase as its less-developed economies continue to grow.

There are four major global producers of MDI: Bayer,our Company, BASF and Dow. While there are also some regional producers in Asiaand Europe, we believe it is unlikely that any new global producers of MDI willemerge in the foreseeable future due to the substantial requirements for entry,such as the limited availability of licenses for MDI technology and thesubstantial capital commitment and integration that is required to develop boththe necessary technology and the infrastructure to manufacture and market MDI.

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***TPU.******  ***TPU is ahigh-quality, fully formulated thermal plastic derived from the reaction of MDIor an aliphatic isocyanate with polyols to produce unique qualities such asdurability, flexibility, strength, abrasion-resistance, shock absorbencyand chemical resistance. We can tailor the performance characteristics of TPUto meet the specific requirements of our customers. TPU is used in injectionmolding and small components for the automotive and footwear industries. It isalso extruded into films, wires and cables for use in a wide variety ofapplications in the coatings, adhesives, sealants and elastomers markets.

***Polyols.******  ***Polyols arecombined with MDI, TDI and other isocyanates to create a broad spectrum ofpolyurethane products. Demand for specialty polyols has been growing atapproximately the same rate at which MDI consumption has grown.

***Aniline.******  ***Aniline is anintermediate chemical used primarily to manufacture MDI. Generally, mostaniline is either consumed internally by the producers of the aniline or issold to third parties under long-term supply contracts. We believe that thelack of a significant spot market for aniline means that in order to remaincompetitive, MDI manufacturers must either be integrated with an anilinemanufacturing facility or have a long-term cost-competitive aniline supplycontract.

***PO.******  ***Propyleneoxide is an intermediate chemical used mainly to produce a wide range ofpolyols and PG. Demand for PO depends largely on overall economic demand,especially that of consumer durables. The following chart illustrates theprimary end markets and applications for PO.

***MTBE.***   MTBE is an oxygenate that is blended with gasoline toreduce harmful vehicle emissions and to enhance the octane rating of gasoline.The use of MTBE is controversial, and it has been effectively eliminated in theU.S. market. See “—Environmental, Health and Safety Matters—MTBE Developments”below and “—Risk Factors” below. We continue to sell MTBE for use as a gasolineadditive, substantially all of which is sold for use outside the U.S. See“—Manufacturing and Operations” below and “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations.”

We sold our U.S. butadiene and MTBE business operatedin our Base Chemicals segment in June, 2006; however, the PO/MTBE operations inour Polyurethanes segment were not included in this transaction.

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***Sales and Marketing***

We manage a global sales force, with 40 locations in35 countries, which sells our polyurethane chemicals to over 2,000 customers inmore than 90 countries. Our sales and technical resources are organized tosupport major regional markets, as well as key end-use markets which require amore global approach. These key end-use markets include the appliance,automotive, footwear, furniture and coatings, construction products, adhesives,sealants and elastomers industries.

We provide a wide variety of polyurethane solutions ascomponents (i.e., the isocyanate or the polyol) or in the form of “systems” inwhich we provide the total isocyanate and polyol formulation to our customersin ready-to-use form. Our ability to deliver a range of polyurethane solutionsand technical support tailored to meet our customers needs is critical to ourlong term success. We have strategically located our polyurethane formulationfacilities, commonly referred to in the chemicals industry as “systems houses,”close to our customers, enabling us to focus on customer support and technicalservice. We believe this customer support and technical service systemcontributes to customer retention and also provides opportunities foridentifying further product and service needs of customers. We manufacturepolyols primarily to support our MDI customers’ requirements.

We believe that theextensive market knowledge and industry experience of our sales teams andtechnical experts, in combination with our strong emphasis on customerrelationships, have facilitated our ability to establish and maintain long-termcustomer supply positions. Due to the specialized nature of our markets, oursales force must possess technical knowledge of our products and theirapplications. Our strategy is to continue to increase sales to existingcustomers and to attract new customers by providing innovative solutions,quality products, reliable supply, competitive prices and superior customerservice.

***Manufacturing and Operations***

Our MDI production facilities are located in Geismar,Louisiana, Rozenburg, Netherlands and, through our joint ventures, Shanghai,China. These facilities receive aniline, which is a primary material used inthe production of MDI, from our facilities located in Geismar, Wilton, U.K. andShanghai, China. We believe that this relative scale and product integration ofour large facilities provide a significant competitive advantage over otherproducers. In addition to reducing transportation costs for our raw materials,integration helps reduce our exposure to cyclical prices.

Thefollowing table sets forth the annual production capacity of polyurethanechemicals at each of our polyurethanes facilities:
|                          | ** ** | **MDI(1)**                         | ** ** | **Polyols**                     | ** ** | **TPU** | ** ** | **Aniline** | ** ** | **Nitrobenzene** | ** ** | **PO** | ** ** | **PG** | ** ** | **MTBE(2)** | ** ** |
|--------------------------|------------|------------------------------------|------------|---------------------------------|------------|---------|------------|-------------|------------|------------------|------------|--------|------------|--------|------------|-------------|------------|
| ** **               | ** ** | **(millions of pounds)** | ** ** | **(millions of  gallons)** | ** ** |
| Geismar,  Louisiana      |       |                               | 890        |                            |       |    | 160        |        |       |             |       |   |       |   | 715        | (3)         |       |   | 935 | (3) |   |   |   |   |   |   |   |   |   |
| Port Neches,  Texas      |       |                               |       |                            |       |    |       |        |       |             |       |   |       |   |       |        |       |   |   |   |   | 525 |   | 145 |   |   | 260 |   |   |
| Ringwood,  Illinois      |       |                               |       |                            |       |    |       |        |       |             | 20         |   |       |   |       |        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Rozenburg, Netherlands   |       |                               | 750        |                            |       |    | 120        |        |       |             |       |   |       |   |       |        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Wilton, U.K.             |       |                               |       |                            |       |    |       |        |       |             |       |   |       |   | 670        |        |       |   | 880 |   |   |   |   |   |   |   |   |   |   |
| Osnabrück,  Germany |       |                               |       |                            |       |    | 20         |        |       |             | 30         |   |       |   |       |        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    |       |                               | 1,640      |                            |       |    | 300        |        |       |             | 50         |   |       |   | 1,385      |        |       |   | 1,815 |   |   | 525 |   | 145 |   |   | 260 |   |   |

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(1)          Inaddition to the production referenced, we also are entitled to 50% of the MDIoutput (265 million pounds) from SLIC, our unconsolidated Chinese jointventure.

(2)          ThePO/MTBE operations in our Polyurethanes segment are not included in therecently completed sale of our U.S. butadiene and MTBE business (operated inour Base Chemicals segment).

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(3)          Representsour approximately 78% share of capacity under our Rubicon LLC manufacturingjoint venture with Chemtura Corporation.

At both our Geismar and Rozenburg facilities weutilize sophisticated proprietary technology to produce our MDI. Thistechnology, which is also used in our world-scale joint venture inShanghai, China, contributes to our position as a low cost MDI producer. Inaddition to MDI, we use a proprietary manufacturing process to manufacture PO.We own or license all technology, know-how and patents developed and utilizedat our PO facility. Our process combines isobutane and oxygen in proprietaryoxidation (peroxidation) reactors, thereby forming TBHP and TBA, which arefurther processed into PO and MTBE, respectively. Because our PO productionprocess is less expensive relative to other technologies and allows all of ourPO co-products to be processed into saleable or useable materials, we believethat our PO production technology possesses several distinct advantages overits alternatives.

We also operate polyurethane systems houses inDeerpark, Australia; Shanghai, China; Cartagena, Colombia; Deggendorf, Germany;Thane (Maharashtra), India; Ternate, Italy; Tlalnepantla, Mexico; Mississauga,Ontario; Kuan Yin, Taiwan; and Samuprakam, Thailand.

During 2006 (andconcluding by the first quarter of 2007), our long-term MTBE sales agreementshave or will be terminated. In 2006, we marketed approximately 81% of our MTBEto customers located in the U.S. for use as a gasoline additive, substantiallyall of which is sold for use outside the U.S. Sales of MTBE for use outside theU.S. have produced a lower level of cash flow than our former sales of MTBE foruse in the U.S. We may elect to use all or a portion of our precursor TBA toproduce saleable products other than MTBE. If we opt to produce products otherthan MTBE, necessary modifications to our facilities will require significantcapital expenditures and the sale of such other products may produce a lowerlevel of cash flow than historically produced through sales of MTBE.

***Joint Ventures***

***Rubicon JointVenture.******  ***We and Chemtura Corporation ownRubicon LLC, which owns aniline, nitrobenzene and DPA manufacturing facilitiesin Geismar, Louisiana. We are entitled to approximately 78% of the nitrobenzeneand aniline production capacity of Rubicon LLC, and Chemtura Corporation isentitled to 100% of the DPA production. In addition to operating the jointventure’s owned aniline, nitrobenzene and DPA facilities, Rubicon LLC alsooperates our wholly owned MDI and polyol facilities at Geismar and isresponsible for providing other auxiliary services to the entire Geismarcomplex. As a result of this joint venture, we are able to achieve greater scaleand lower costs for our products than we would otherwise have been able toobtain. We began consolidating Rubicon LLC in our financial statements as of January 1,2005.

***Chinese MDI JointVentures.******  ***In January 2003, we entered intotwo related joint venture agreements to build MDI production facilities nearShanghai, China. SLIC, our manufacturing joint venture with BASF AG and threeChinese chemical companies, built three plants that manufacture MNB, anilineand crude MDI. We effectively own 35% of SLIC and it is our unconsolidatedaffiliate. HPS, our splitting joint venture with Shanghai Chlor-AlkaliChemical Company, Ltd, has constructed a plant to manufacture pure MDI,polymeric MDI and MDI variants. We own 70% of HPS and it is our consolidatedaffiliate.

These projects have beenfunded by a combination of equity invested by the joint venture partners andborrowed funds. As of project completion, our equity investment in the jointventures was approximately $82 million, of which approximately $40 millionwas an investment in our unconsolidated affiliate, SLIC, and approximately$42 million was an investment in our consolidated affiliate, HPS. Totalcapital expenditures at HPS through project completion totaled approximately$126 million. SLIC and HPS commenced operations during 2006. The totalproduction capacity of the SLIC facilities is expected to be 530 millionpounds per year of MDI and the production capacity of the HPS facility is270 million pounds per year of pure MDI, polymeric MDI and MDI variants.

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***Raw Materials***

The primary raw materialsfor MDI-based polyurethane chemicals are benzene and PO. Benzene is a widelyavailable commodity that is the primary feedstock for the production of MDI andaniline. Historically, benzene has been the largest component of our rawmaterial costs. We use the benzene produced in our Base Chemicals segment andpurchase benzene from third parties to manufacture nitrobenzene and aniline,almost all of which we then use to produce MDI. Our vertical integrationprovides us with a competitively priced supply of feedstocks and reduces ourexposure to supply interruption.

A major cost in theproduction of polyols is attributable to the costs of PO. The integration ofour PO business with our polyurethane chemicals business gives us access to acompetitively priced, strategic source of PO and the opportunity to developpolyols that enhance our range of MDI products. The primary raw materials usedin our PO production process are butane/isobutane, propylene, methanol andoxygen, which accounted for 52%, 31%, 14% and 2%, respectively, of total rawmaterial costs in 2006. We purchase our raw materials primarily under long-termcontracts. While most of these feedstocks are commodity materials generallyavailable to us from a wide variety of suppliers at competitive prices in thespot market, all the propylene used in the production of our PO is producedinternally and delivered through a pipeline connected to our PO facility.

***Competition***

Our major competition inthe polyurethane chemicals market includes BASF, Bayer, Dow and Lyondell. Whilethese competitors and others produce various types and quantities ofpolyurethane chemicals, we focus on MDI and MDI-based polyurethane systems. Wecompete based on technological innovation, technical assistance, customerservice and product reliability. Our polyurethane chemicals business competesin two basic ways: (1) where price is the dominant element of competition,our polyurethane chemicals business differentiates itself by its high level of customersupport including cooperation on technical and safety matters; and (2) elsewhere,we compete on the basis of product performance and our ability to react quicklyto changing customer needs and by providing customers with innovative solutionsto their needs.

The market in which ourPolyurethanes segment operates is highly competitive. Among our competitors inthis market are some of the world’s largest chemical companies and majorintegrated petroleum companies that have their own raw material resources. Someof these companies may be able to produce products more economically than wecan. In addition, some of our competitors in this market have greater financialresources, which may enable them to invest significant capital into theirbusinesses, including expenditures for research and development. If any of ourcurrent or future competitors in this market develops proprietary technologythat enables them to produce products at a significantly lower cost, ourtechnology could be rendered uneconomical or obsolete.

**Materials and Effects**

***General***

On June 30, 2006, wecompleted the Textile Effects Acquisition in order to expand our differentiatedchemicals business portfolio. For more information, see “—History” above. Ourtextile effects business is a leading global supplier of textile solutions,manufacturing a broad range of dye and chemical products that enhance the colorof finished textiles and improve such performance characteristics as wrinkleresistance and the ability to repel water and stains. The business hasapproximately 4,000 employees and operates 13 primary manufacturingfacilities located in seven countries. It serves over 10,000 customers locatedin 80 countries. The operating results of the textile effects business areconsolidated with our operating results beginning on July 1, 2006, and thetextile effects operations are reported with our advanced materials operationsas part of our Materials and Effects segment.

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Our Materials and Effects segment is also a leadingglobal manufacturer and marketer of technologically advanced epoxy, acrylic andpolyurethane-based polymer products and textile chemicals and dyes. Wefocus on formulations and systems that are used to address customer-specificneeds in a wide variety of industrial and consumer applications. Our productsare used either as replacements for traditional materials, such as metal, wood,clay, glass, stone, ceramics and natural fibers, or in applications where traditionalmaterials do not meet demanding engineering specifications. For example,structural adhesives are used to replace metal rivets and advanced compositesare used to replace traditional aluminum panels in the manufacture of aerospacecomponents. Revenue growth for much of our product portfolio has historicallybeen in excess of global GDP growth. Our Materials and Effects segment ischaracterized by the breadth of our product offering, our expertise in complexchemistry, our long-standing relationships with our customers and our abilityto develop and adapt our technology and our applications expertise for newmarkets and new applications.

Weoperate 22 synthesis, formulating and production facilities in NorthAmerica, Europe, Asia, South America and Africa. We market over 6,000 productsto more than 5,000 customers in over 20 end-markets, which are grouped asfollows:

| **Market Groups**                     | ** ** | ** **                                                                                                                                                                                                  | ** ** | **End Markets** |
|---------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| Coatings, Construction  and Adhesives |       | civil engineering, shipbuilding and marine maintenance, consumer appliances,  food and beverage packaging, industrial appliances, consumer/do it yourself  (“DIY”), aerospace, DVD, LNG transport |
| Power and Electronics                 |       | electrical power  transmission, distribution and generation, printed circuit boards, consumer  and industrial electronics                                                                                   |
| Design and Composites  Engineering    |       | aerospace, wind power generation, automotive, recreational sports equipment,  medical appliances, design studios and prototype manufacturers                                                                |
| Textile Effects                       |       | consumer fashion  apparel, sportswear, career and uniform apparel, military, automotive, home  textiles and furnishings, carpet and other functional textiles                                               |

 

Since completing the Huntsman Advanced MaterialsTransaction in June 2003, we have initiated a comprehensive restructuringprogram designed to reduce our costs and transform our advanced materialsbusiness from a product-driven business to a market-focusedbusiness. This program includes optimization of our global supply chain,reductions in general and administrative costs and the consolidation andcentralization of support functions across advanced materials business and withour other businesses. We have closed manufacturing facilities in Quillan,France, Thomastown, Australia and Kaohsiung, Taiwan and have significantlyreduced the scale of our operations in Bergkamen, Germany and East Lansing,Michigan. We have also closed sales and administrative offices in sevenlocations.

In October 2006, weannounced a restructuring of our textile effects business. This restructuringis necessary to allow our Materials and Effects segment to adapt to the dynamicbusiness shifts that have occurred in the textile market. We intend to spendnearly $150 million over the next three years to significantly expand resourcesand capacity in Asia, while refocusing and consolidating resources in Europeand North America. Other elements of our plan include simplifying globaldistribution networks, enhancing research and development activities andcontinuing investments in environmental, health and safety projects to ensurethat all of our acquired manufacturing units are operating in accordance withour standards.

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***Products andMarkets***

***Coatings, Construction and Adhesives.******  ***Our productsare used for the protection of steel and concrete substrates, such asfloorings, metal furniture and appliances, buildings, linings of storage tanksand food and beverage cans, and the primer coat of automobile bodies and ships,among other applications. Epoxy-based surface coatings are among the mostwidely used industrial coatings, due to their structural stability and broadapplication functionality combined with overall economic efficiency. We focusour efforts in coating systems applications in utilizing our applicationsexpertise and broad product range to provide formulated polymer systems to ourcustomers. We believe our range of curing agents, matting agents, accelerators,cross-linkers, reactive diluents and thermoplastic polyamides, togetherwith our basic and advanced epoxy resin compounds, distinguish us in thevarious end markets for coating systems.

Thestructural adhesives market requires high-strength “engineering” adhesives foruse in the manufacture and repair of items to bond various engineeringsubstrates. Our business focus is on engineering adhesives based on epoxy, polyurethane,acrylic and other technologies which are used to bond materials, such as steel,aluminum, engineering plastics and composites in substitution of traditionaljoining techniques. Our Araldite® brand name has considerable value in theindustrial and consumer adhesives markets. In many countries, Araldite® issynonymous with high-performance adhesives, and we generally believe that thisis the value-added segment of the market where recognition of ourlong-standing Araldite® brand is a key competitive advantage. We also believethat products marketed under the Araldite® name are generally less price-sensitivethan the brands of our competitors. Packaging is a key characteristic of ouradhesives products. Our range of adhesives is sold in a variety of packs andsizes, specifically targeted to three specific end-markets and sold throughspecifically targeted routes to market:

·       *General industrial bonding*.   We sella broad range of advanced formulated adhesives to a broad base of small-tomedium-sized customers, including specialist distributors, who generallyrequire relatively small quantities of easy-to-use products and a moderatelevel of instruction and support.

·       *Industry specific*.   We sell ouradhesive products into diverse, global industry-specific markets, whichinclude the DVD, LNG transport, filterbonding, trailers and solar cellapplications markets. Our target markets are chosen because we believe it isworthwhile to utilize our highly trained direct sales force and applicationsexperts to tailor products and services to suit the needs and performancespecifications of the specific market segments. We often provide a turnkeysolution and the customer often commits to an investment in capital equipmentto use the materials provided.

·       *Consumer/DIY*.   We package and sellconsumer adhesives through strategic distribution arrangements with a number ofthe major marketers of consumer/DIY adhesives, such as Bostik and Shelleys.These products are sold globally through a number of major retail outlets, oftenunder the Araldite® brand name.

***Power and Electronics.******  ***Our electricalmaterials are formulated polymer systems, which make up the insulationmaterials used in equipment for the generation, transmission and distributionof electrical power, such as transformers, switch gears, ignition coils,sensors, motors, and magnets, and for the protection of electrical andelectronic devices and components. The purpose of these products is toinsulate, protect or shield either the environment from electrical current orelectrical devices from the environment, such as temperature or humidity. Ourelectrical insulating materials target two key market segments, the heavyelectrical equipment market and the light electrical equipment market.

Products for the heavyelectrical equipment market segment are used in power plant components, devicesfor power grids and insulating parts and components. In addition, there arenumerous devices, such as motors and magnetic coils used in trains and medicalequipment, which are manufactured using epoxy and related technologies.Products for the light electrical equipment market segment are used inapplications such as industrial automation and control, consumer electronics,car electronics and electrical 

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components.The end customers in the electrical insulating materials market encompass therelevant original equipment manufacturer (“OEM”) as well as numerousmanufacturers of components used in the final products.

Wealso develop, manufacture and market materials used in the production ofprinted circuit boards. Our products are ultimately used in industries rangingfrom telecommunications and personal computer mother board manufacture toautomotive electronic systems manufacture. In printed circuit boardtechnologies, we have three product lines:

·       soldermasks,which are heat, chemical and environmentally resistant coatings that allowvarious components and circuitry to be soldered to the surface of printedcircuit boards;

·       liquidinner layer resists, which are temporary, photo-imageable materials whichenable the generation of circuitry on the inner layers of printed circuitboards; and

·       dielectricmaterials, which are materials with electrical insulation properties thatconstitute an insulating layer in high-density, multi-layer printedcircuit boards.

Soldermasks are our mostimportant product line in printed circuit board technologies, particularly inEurope. Sales are made mainly under the Probimer®, Probimage®, and Probelec®trademarks. Probimer® is a widely recognized brand name for soldermasks.

***Design and Composites Engineering.***   Astructural composite is made by combining two or more different materials, suchas fibers, resins and other specialty additives to create a product withenhanced structural properties. Specifically, structural composites arelightweight, high-strength, rigid materials with high resistance to chemicals,moisture and high temperatures. Our product range comprises basic and advancedepoxy resins, curing agents, other advanced chemicals and additives orformulated polymer systems utilizing a variety of these products used inreinforced structures. The four key target markets for our structuralcomposites are aerospace, windmill blades for wind power generation, otherindustrial and automotive applications, and recreational (mainly sportsequipment such as skis and tennis racquets). Structural composites continue tosubstitute for traditional materials, such as metals and wood, in a widevariety of applications due to their light weight, strength and durability. Akey industry trend is the increased emphasis on customer collaboration,especially in the aerospace industry, where consistent quality of products isessential. Customers are increasingly seeking higher performancecharacteristics, such as improved temperature resistance. We also produceindustry-specific adhesives for aerospace, wind turbines and industrialapplications. These products offer superior bonding properties as compared toother joining techniques.

We produce mainlypolyurethane-based and epoxy formulated polymer systems used in theproduction of models, prototypes, patterns, molds and a variety of relatedproducts for design, prototyping and short-run manufacture. Our products areused extensively in the automotive, aerospace and industrial markets asproductivity tools to quickly and efficiently create accurate prototypes anddevelop experimental models, and to lower the cost of manufacturing items inlimited quantities primarily using computer-aided-designtechniques. Our tooling and modeling materials are used because of theirstrength, resilience, high temperature resistance or dimensional stabilitycoupled with low shrinkage and ease of cure. In applications where ease andspeed of processing, size of finished product and low abrasion are moreimportant, polyurethane resins are gaining increasing recognition. We separatethe overall tooling and modeling materials market into two distinct groups:standard tooling and modeling materials and stereolithography technology.

Our standard tooling andmodeling materials are polymer-based materials used by craftsmen to makethe traditional patterns, molds, models, jigs and fixtures required by thefoundry, automotive, ceramics and other such industries. Techniques haveevolved with computer-aided-design and modern engineeringprocesses. Customers wishing to produce a model of a design require a rapidmethod of producing such a 

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model.We provide consumables to be used in high technology machinery made bymanufacturers to produce these models. In developing these solutions, we haveworked closely with consumers to meet their demands. We are well-placed todrive the development of the market through our strong leadership position andwide breadth of application expertise.

Stereolithography is atechnology that is used to accurately produce physical three-dimensionalmodels directly from computer-aided-design data without cutting,machining or tooling. The models are produced by selectively curing a light-sensitiveliquid resin with a laser beam. Stereolithography is the most accuratetechnology commercially available for producing complex three-dimensionalmodels. Models produced using this technology have a high-quality finish withfine detail. Stereolithography can be used for a variety of applications,including the production of concept models, master models, prototypes used forfunctional testing, tools and for short-run production parts. We sell ourstereolithography products to customers in the aerospace, appliance,automotive, consumer, electronics and medical markets.

***Textile Effects.******  ***Textiles generally involve a complex matrixof fibers, effects and functionality, and the resulting products range fromfashion apparel to bulletproof vests, home linens to air and water filters, andupholstery to automotive interiors. Our broad range of dyestuffs and chemicalsenhance both the aesthetic appearance of these products and the functionalityneeded to ensure that they perform in their end-use markets. Since therequirements for these markets vary dramatically, our business strategy focuseson the two major markets—apparel and technical textiles. We work to provide theright balance of products and service to meet the technical challenges in eachof these markets.

The apparel market, whichalso includes our home interiors products, focuses on products that provide anaesthetic effect and/or improve the processing efficiency within the textilemill. We offer a complete range of colors for cotton, polyester and nylon thatcover the range of shades needed for sportswear, intimate apparel, towels,sheeting and casual wear. Our dyes have been developed to ensure that theyoffer the highest levels of wash fastness currently available in the market.Optical brighteners and other pretreatment products provide “bright white”effects for apparel, towels and sheeting. Pretreatment and dyeing auxiliariesensure that these fabrics are processed efficiently and effectively—cleaningthe fabrics with fewer chemicals, less energy and less water and therebyminimizing the environmental footprint and reducing the processing costs. Siliconesofteners may be used to enhance the feel of products.

Technical textiles includeautomotive textiles, carpet, military fabrics, mattress ticking and nonwovenand other technical fabrics. Though the product groups may differ in theirend-uses, the articles must provide a high-level of functionality andperformance in their respective markets. High-lightfast dyes and UV absorbersare used in automotive interiors and outdoor furnishings to provide colors thatdon’t fade when exposed to sunlight and heat. Powerful stain repellent andrelease technology imparts durable protection for upholstery, military andmedical fabrics, without affecting the color, breathability or feel of thefabric. Specialized dyes and prints create unique camouflage patterns formilitary uniforms, backpacks and tarps that won’t fade through wash and wear orduring exposure to the elements.

***Sales and Marketing***

We maintain multipleroutes to market to service our diverse customer base. These routes to marketrange from using our own direct sales force to targeted, technically-orienteddistribution to mass general distribution. Our direct sales force targets salesand specifications to engineering solutions decision-makers at majorcustomers who purchase significant amounts of products from us. We usetechnically-oriented specialist distributors to augment our sales effortin niche markets and applications where we do not believe it is appropriate todevelop direct sales resources. We use mass general distribution channels tosell our products into a wide range of general applications where technicalexpertise is less important to the user of the products to reduce our overallselling expenses. We believe our use of multiple routes to market enables us toreach a broader customer base at an efficient cost.

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We conduct the salesactivities for our market groups through separate dedicated regional salesforces in the Americas, Europe, Africa and the Middle East (“EAME”) and Asia.Our global customers are covered by key account managers who are familiar withthe specific requirements of their clients. The management of long-standingcustomer relationships, some of which are 20 to 30 years old, is at theheart of the sales and marketing process. We are also supported by a strongnetwork of distributors. We serve a highly fragmented customer base.

For our consumeradhesives, we have entered into exclusive branding and distributionarrangements with, for example, Bostik in Europe and Shelleys in Australia.Under these arrangements, our distribution partners fund advertising and salespromotions, negotiate and sell to major retail chains, own inventories andprovide store deliveries (and sometimes shelf merchandising) in exchange for areliable, high-quality supply of Araldite® branded, ready-to-sell packagedproducts.

For our textile effectsproducts, we focus on providing effect competence and process competence to ourcustomers. Effect competence—delivering value-added effects to our customer’sproducts—enables us to capitalize on new and innovative technologies and toassist our customers in their efforts to differentiate themselves fromcompetitors. Process competence—applying know-how and expertise to improvecustomers’ processes—allows us to utilize our technical service to reduce costand enhance efficiency.

***Manufacturing and Operations***

We area global business serving customers in three principal geographic regions:EAME; North and South America; and Asia Pacific. To service our customersefficiently, we maintain 13 manufacturing plants around with the world with astrategy of global, regional and local manufacturing employed to optimize thelevel of service and minimize the cost to our customers. The table belowsummarizes the plants that we operate:

| **Location**                         | ** ** | ** **                     | ** ** | **Description of Facility** |
|--------------------------------------|------------|--------------------------------|------------|-----------------------------|
| Bergkamen,  Germany                  |       | Synthesis Facility             |
| Monthey,  Switzerland                |       | Resins and Synthesis  Facility |
| Pamplona, Spain                      |       | Resins and Synthesis  Facility |
| McIntosh, Alabama                    |       | Resins and Synthesis  Facility |
| Chennai, India(2)                    |       | Resins and Synthesis  Facility |
| Bad Saeckingen,  Germany(1)          |       | Formulating Facility           |
| Duxford, U.K.                        |       | Formulating Facility           |
| Sadat City, Egypt                    |       | Formulating Facility           |
| Taboão da Serra,  Brazil        |       | Formulating Facility           |
| East Lansing,  Michigan              |       | Formulating Facility           |
| Istanbul,  Turkey(1)                 |       | Formulating Facility           |
| Los Angeles,  California             |       | Formulating Facility           |
| St. Fons,  France(1)                 |       | Synthesis Facility             |
| Langweid am  Leich, Germany(1)       |       | Formulating Facility           |
| Basel,  Switzerland(1)               |       | Synthesis Facility             |
| Schweizerhalle,  Switzerland(1)      |       | Formulating Facility           |
| Panyu, China(1)(3)                   |       | Production Facility            |
| Qingdao, China(1)                    |       | Synthesis Facility             |
| Samutsakorn  (Mahachai), Thailand(1) |       | Synthesis Facility             |
| Atoto, Mexico                        |       | Synthesis Facility             |
| Charlotte, North  Carolina(1)        |       | Formulating Facility           |
| St. Gabriel,  Louisiana(1)           |       | Synthesis Facility             |

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(1)          Leased land and/orbuilding.

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(2)          76%-ownedmanufacturing joint venture with Tamilnadu Petroproducts Limited.

(3)          95%-ownedmanufacturing joint venture with Guangdong Panyu Shilou Town EconomicDevelopment Co. Ltd.

Our facilities in Asia arewell-positioned to take advantage of the market growth that is expected in thisregion. Furthermore, we believe that we are the largest producer of epoxy resincompounds in India.

***Raw Materials***

The principal raw materials we purchase for themanufacture of basic and advanced epoxy resins are epichlorohydrin, bisphenolA, tetrabromobisphenol A and BLR. We also purchase amines, polyols,isocyanates, acrylic materials, hardeners and fillers for the production of ourformulated polymer systems and complex chemicals and additives. The manufactureof textile effects products requires a wide selection of raw materials(approximately 3,000 different chemicals), including amines, fluorochemicalsand sulfones. No one raw material represents greater than 2% of our textileeffects raw material expenditures. Raw material costs constitute a sizeablepercentage of sales for certain applications. We have supply contracts with anumber of suppliers, including, for example, Dow. The terms of our supplycontracts vary. In general, these contracts contain provisions that set forththe quantities of product to be supplied and purchased and formula-basedpricing.

Additionally, we produce some of our most importantraw materials, such as BLR and its basic derivatives, which are the basicbuilding blocks of many of our products. We are the third largest producer ofBLR in the world. Approximately 50% of the BLR we produce is consumed in theproduction of our formulated polymer systems. The balance of our BLR is sold asliquid or solid resin in the merchant market, allowing us to increase theutilization of our production plants and lower our overall BLR production cost.We believe that manufacturing a substantial proportion of our principal rawmaterial gives us a competitive advantage over other epoxy-based polymersystems formulators, most of whom must buy BLR from third-partysuppliers. This position helps protect us from pricing pressure from BLRsuppliers and aids in providing us a stable supply of BLR in difficult marketconditions.

We consume certain aminesproduced by our Performance Products segment and isocyanates produced by ourPolyurethanes segment, which we use to formulate advanced materials products.In some cases, we use tolling arrangements with third parties to convert ourBase Chemicals products into certain of our key raw materials.

***Competition***

The market in which our Materials and Effects segmentoperates is highly competitive. Among our competitors in this market are someof the world’s largest chemical companies and major integrated petroleumcompanies that have their own raw material resources. Some of these companiesmay be able to produce products more economically than we can. In addition,some of our competitors in this market have greater financial resources, whichmay enable them to invest significant capital into their businesses, includingexpenditures for research and development. If any of our current or futurecompetitors in this market develops proprietary technology that enables them toproduce products at a significantly lower cost, our technology could berendered uneconomical or obsolete.

***Coatings,Construction and Adhesives.***   Competition in coatingsystems is primarily driven by product performance, service and customercertification. We believe that the competitive strengths of our coating systemsproduct lines are our strong technology base, broad range of value-addedproducts, leading market positions, diverse customer base and reputation forcustomer service. Our major competitors for formulated polymer systems andcomplex chemicals and additives used in coatings systems are Air Products,Arizona, Hexion, Cognis, Cray Valley and Degussa.

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Competition in basic liquid and solid epoxy resins isprimarily driven by price. There are two major manufacturers of basic epoxyresins used in industrial protective coatings, Dow and Hexion. Otherparticipants in this market include Air Products, BASF, Kukdo, Leuna and NanYa.Competition in coating systems is increasingly becoming more global, withtrends toward industry consolidation and the emergence of new competitors inAsia. Our competitors are considerably more fragmented in Asia than in Europeand North America.

We face substantial competition for the sale of ourproducts for adhesives applications. Competition in the industry specificmarket segments is based on an understanding of the relevant industry sectorand the ability to provide highly reliable and tailored engineering solutions,applications expertise and ease of use with the customer’s processingequipment. Competition in the consumer market segment is based on branding,packaging and making widely available, easy-to-use products on which ourcustomers can rely. We believe that our competitive strengths and our focus ondefined market needs, provision of a high level of service and recognition as aquality supplier in the chosen sectors, all of which are exemplified by ourstrong Araldite® brand name. The principal participants in the structuraladhesives market include Henkel/Loctite, ITW, National Starch, Sika, 3M andmany other regional or industry specific competitors.

***Power andElectronics.******  ***Competition for electrical insulatingmaterials applications is based on technology, know-how, applicationsexpertise, formulations expertise, reliability, performance and price.Manufacturers of heavy electrical equipment place more importance on reliabilityand level of support, while manufacturers of light electrical equipment choosematerials offering the lowest cost, but also the required quality andperformance. As a result, epoxy products, which offer a combination of priceand performance superior to competing polyurethane and silicone andconventional glass and ceramic products, are widely used in heavy electricalequipment, and both epoxy and cheaper polyurethane products are used in lightelectrical equipment.

We believe that our competitive strengths in theelectrical materials market are our long-standing customer relationships,product reliability and technical performance. Our key products used in heavyelectrical and light electrical applications, such as resins, hardeners andauxiliaries, are tested and certified according to industry standardsestablished by Underwriters Laboratories, International ElectrotechnicalCommission, or Cenelec, and also to customer-specific requirements. Ourmain competitors in the electrical insulating materials market segment includeAltana, Hexion, Schenectady, Wuxi, Dexter-Hysol, Hitachi Chemical, NagaseChemtex and Toshiba Chemical.

Competition in the printed circuit board materialsmarkets is based on price, technological innovation and the ability to provideprocess expertise and customer support. Consolidation among our customers hasled to increased pricing pressure. We believe that our competitive strengthsare our fully developed technology, our application technology center in Basel,Switzerland and our technology center under construction in Panyu, China, ourglobal presence and long-standing relationships with key customers and OEMs,and the approval of our products by global OEMs. Major competitors of oursoldermask products include Atotec, Coates, Cookson, Goo, Peters, Taiyo Ink andTamura. Major competitors for our liquid resist products include Chung Yu,Eternal and Shipley.

***Design andComposites Engineering.******  ***Competition instructural composites applications varies but is primarily driven bytechnology, know-how, applications expertise, formulations expertise, productperformance, customer service and customer certification. We believe that ourcompetitive strengths are our strong technology base, broad range of value-addedproducts, leading market positions, diverse customer base and reputation forcustomer service. Pricing dynamics differ greatly among the variousend-markets, largely due to their differing structures. Pricing in theaerospace market very much reflects the advanced technology and applicationsknow-how which we provide to customers. Pricing is typically more competitivein the industrial and recreational markets due to the more standardized requirementsof the end-user market and higher sales volumes compared to those of theaerospace market. Competition in the 

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electrical laminatesindustry is largely price-driven due to the standard nature of theproducts supplied, the highly price-sensitive nature of the electronicsindustry and the ability of customers to source globally. Our competitors inthe structural composites markets include Hexion, DIC, Dow, Mitsui andSumitomo. In the aerospace market, we compete principally with Mitsui andSumitomo. Our competitors in the automotive, industrial and recreationalmarkets include Dow and Hexion. Finally, our competitors in the laminatesmarket include all of these companies as well as NanYa.

Competition in standard tooling and modeling solutionsis based on quality of service, technical solutions, range, competitive pricesand prompt supply, including 24-hour delivery if required. This marketsegment is generally characterized by pricing pressure and intense competition.Competition in stereolithography is driven by the requirement for innovativesolutions. We believe that our competitive strength is our broad range ofproducts, which we make available on a global basis, covering all of the needsof both our standard tooling and modeling and stereolithography customers. Afew large manufacturers (including Axson, DSM and Sika), as well as many small,local manufacturers provide a limited product range to local regions in theplastic tooling and modeling solutions market but none have our breadth ofproduct offering.

***Textile Effects.***   Weare the leading global market share provider for textile chemicals and dyes.Competition within the textile chemicals and dyes markets is generallyfragmented with few competitors who offer complete solutions for both markets.Our major competitors are Dystar, Clariant, BASF, Cognis and Lanxess. Webelieve that our competitive strengths include our product offering, which ischaracterized by its broad range; high quality; significant integration betweenproducts and service;  reliable technicalexpertise; long-standing relationships with customers; and strong businessinfrastructure in Asia. We believe that we have more customer service capacityand account management capacity than any of our competitors worldwide.

**Performance Products**

***General***

Our Performance Products segment is organized aroundthree market groups, performance specialties, performance intermediates andmaleic anhydride and licensing, and serves a wide variety of consumer andindustrial end markets. In performance specialties, we are a leading globalproducer of amines, carbonates and certain specialty surfactants. Growth indemand in our performance specialties market tends to be driven by theend-performance characteristics that our products deliver to our customers.These products are manufactured for use in a growing number of niche industrialend uses and have been characterized by growing demand and stableprofitability. For example, we are one of two significant global producers ofpolyetheramines, for which our sales volumes have grown at a compound annualrate of over 10% in the last ten years due to strong demand in a number ofindustrial applications, such as epoxy curing agents, agrochemicals, fueladditives and civil construction materials. In performance intermediates, weconsume internally produced and third-party-sourced basepetrochemicals in the manufacture of our surfactants, LAB and ethanolaminesproducts, which are primarily used in detergent and consumer productsapplications. We also produce EG, which is primarily used in the production ofpolyester fibers and PET packaging. We believe we are North America’s largestand lowest-cost producer of maleic anhydride. Maleic anhydride is the buildingblock for UPRs, mainly used in the production of fiberglass reinforced resinsfor marine, automotive and construction products. We are the leading globallicensor of maleic anhydride manufacturing technology and are also the largestsupplier of catalyst used in the manufacture of maleic anhydride. Our licensinggroup also licenses technology on behalf of our other businesses. We operate 15Performance Products manufacturing facilities in North America, Europe andAustralia.

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We have the annual capacity to produce approximately1.1 billion pounds of more than 250 amines and other performance chemicals. Webelieve we are the largest global producer of polyetheramines, propylenecarbonates, ethylene carbonates, DGA® agent and morpholine, the second-largestglobal producer of ethyleneamines and the third-largest North Americanproducer of ethanolamines. We also produce substituted propylamines. Ourproducts are manufactured at our Port Neches, Conroe and Freeport, Texasfacilities and at our facilities in Llanelli, U.K. and Petfurdo, Hungary. Weuse internally produced ethylene, EO, EG and PO in the manufacture of many ofour amines. Our amines are used in a wide variety of consumer and industrialapplications, including personal care products, polyurethane foam, fuel andlubricant additives, paints and coatings, solvents and catalysts. Our keyamines customers include Akzo, ChevronTexaco, Cognis, Hercules, Monsanto andPPG.

We have the capacity to produce approximately2.4 billion pounds of surfactant products annually at our eight facilitieslocated in North America, Europe and Australia. We are a leading globalmanufacturer of nonionic, anionic, cationic and amphoteric surfactants productsand are characterized by our breadth of product offering and market coverage.Our surfactant products are primarily used in consumer detergent and industrialcleaning applications. In addition, we manufacture and market a diversifiedrange of mild surfactants and specialty formulations for use in baby shampoosand other personal care applications. We are also a leading European producerof powder and liquid laundry detergents and other cleaners. In addition, weoffer a wide range of surfactants and formulated specialty products for use invarious industrial applications such as leather and textile treatment, foundryand construction, agrochemicals, polymers and coatings. Our key surfactantscustomers include Ecolab, Huish, L’Oreal, Monsanto, Nufarm, Procter &Gamble and Unilever.

We are North America’s second-largest producerof LAB, with capacity of 375 million pounds per year at our plant inChocolate Bayou, Texas. LAB is a surfactant intermediate which is convertedinto LAS, a major anionic surfactant used worldwide for the production ofconsumer, industrial and institutional laundry detergents. We have alsodeveloped a process for the manufacture of a higher-molecular-weightLAB product to be used as an additive to lubricants. Our key customers for LABinclude Colgate, Henkel, Lubrizol, Procter & Gamble and Unilever.

We are North America’s largest producer of maleicanhydride, a highly versatile chemical intermediate that is used to produceUPRs, which are mainly used in the production of fiberglass reinforced resinsfor marine, automotive and construction products. We have the capacity toproduce approximately 240 million pounds annually at our facility locatedin Pensacola, Florida. We also own a 50% interest in Sasol-Huntsman GmbH &Co. KG, which is accounted for using the equity method. This joint venture ownsand operates a facility in Moers, Germany with an annual capacity of 137 millionpounds. We supply our catalysts to licensees and to worldwide merchantcustomers, including supplying catalyst to two of the three other U.S. maleicanhydride producers. As a result of our long-standing research and developmentefforts aided by our pilot and catalyst preparation plants, we havesuccessfully introduced six generations of our maleic anhydride catalysts.Revenue from licensing and catalyst comes from new plant commissioning, as wellas current plant retrofits and catalyst change schedules. Our key maleicanhydride customers include AOC, Oronite, Cook Composites, Dixie, Lubrizol andReichhold.

We also have the capacityto produce approximately 945 million pounds of EG annually at ourfacilities in Botany, Australia and Port Neches, Texas.

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***Products and Markets***

***Performance Specialties.******  ***The followingtable shows the end-market applications for our performance specialtiesproducts:

| **Product Group**                            | ** ** | ** **                                                                                                                                                  | ** ** | **Applications** |
|----------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|
| Specialty Amines                             |       | liquid soaps; personal  care; lubricant and fuel additives; polyurethane foams; fabric softeners;  paints and coatings; refinery processing; water treating |
| Polyetheramines                              |       | polyurethane  foams and insulation; construction and flooring; paints and coatings;  lubricant and fuel additives; adhesives; epoxy composites              |
| Ethyleneamines                               |       | lubricant and  fuel additives; epoxy hardeners; wet strength resins; chelating agents;  fungicides                                                          |
| Morpholine/DGA® agent  and Gas Treating |       | hydrocarbon processing; construction chemicals; synthetic rubber; water  treating; electronics applications; gas treatment and agriculture                  |
| Carbonates                                   |       | lubricant and  fuel additives; agriculture; electronics applications; textile treatment                                                                     |
| Specialty Surfactants                        |       | agricultural herbicides;  construction; paper de-inking                                                                                                     |

 

Our performance specialties products are organizedaround the following end markets: coatings, polymers and resins; processadditives; resources, fuels and lubricants; and agrochemicals.

*Amines.**  *Amines broadly refers to the familyof intermediate chemicals that are produced by reacting ammonia with variousethylene and propylene derivatives. Generally, amines are valued for theirproperties as a reactive, emulsifying, dispersant, detergent, solvent orcorrosion inhibiting agent. Growth in demand for amines is highly correlatedwith GDP growth due to its strong links to general industrial and consumerproducts markets. However, certain segments of the amines market, such aspolyetheramines, have grown at rates well in excess of GDP growth due to newproduct development, technical innovation, and substitution and replacement ofcompeting products. For example, polyetheramines are used by customers whodemand increasingly sophisticated performance characteristics as an additive inthe manufacture of highly customized epoxy formulations, enabling the customersto penetrate new markets and substitute for traditional curing materials. Asamines are generally sold based upon the performance characteristics that theyprovide to customer-specific end use application, pricing does notgenerally fluctuate with movements in underlying raw materials. We announced onSeptember 14, 2005 our plans to build a world scale polyetheraminemanufacturing facility in Jurong Island, Singapore. We expect the facility,which will have an annual capacity of approximately 30 million pounds, tobe operational by July 2007. On June 29, 2005, we signed a memorandumof understanding with the Al-Zamil Group of Riyadh, Saudi Arabia to form ajoint venture to build an ethyleneamines manufacturing facility in JubailIndustrial City, Saudi Arabia. We expect this facility to come on line in early2009 with annual capacity of 60 million pounds.

*Morpholine/DGA®agent.**  *Morpholineand DGA® agent are produced as co-products by reacting ammonia with DEG.Morpholine is used in a number of niche industrial applications includingrubber curing (as an accelerator) and flocculants for water treatment. DGA®agent is primarily used in gas treating, electronics, herbicides andmetalworking end-use applications.

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*Carbonates.**  *Ethylene and propylene carbonatesare manufactured by reacting EO and PO with carbon dioxide. Carbonates are usedas solvents and as reactive diluents in polymer and coating applications. Theyare also increasingly being used as a photo-resist solvent in themanufacture of printed circuit boards, LCD screens and the production oflithium batteries. Also, propylene carbonates have recently received approvalby the U.S. Environmental Protection Agency for use as a solvent in certainagricultural applications. We expect these solvents to replace traditionalaromatic solvents that are increasingly subject to legislative restrictions andprohibitions.

***Performance Intermediates.******  ***The followingtable sets forth the end markets for our performance intermediates products:

| **Product Group**        | ** ** | ** **                                                                                                                                                                        | ** ** | **End Markets** |
|--------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| *Surfactants*            | * *   | * *                                                                                                                                                                          |
| Alkoxylates              |       | household  detergents; industrial cleaners; anti-fog chemicals for glass; asphalt  emulsions; shampoos; polymerization additives; de-emulsifiers for  petroleum production        |
| Sulfonates/Sulfates      |       | powdered  detergents; liquid detergents; shampoos; body washes; dishwashing liquids;  industrial cleaners; emulsion polymerization; concrete superplasticizers;  gypsum wallboard |
| Esters and Derivatives   |       | shampoo; body  wash; textile and leather treatment                                                                                                                                |
| Nitrogen Derivatives     |       | bleach  thickeners; baby shampoo; fabric conditioners; other personal care products                                                                                               |
| Formulated Blends        |       | household  detergents; textile and leather treatment; personal care products;  pharmaceutical intermediates                                                                       |
| EO/PO Block  Co-Polymers |       | automatic  dishwasher detergents                                                                                                                                                  |
| *Ethanolamines*          |       | wood  preservatives; herbicides; construction; gas treatment; metalworking                                                                                                        |
| *LAB*                    |       | consumer  detergents; industrial and institutional detergents; synthetic lubricants                                                                                               |
| *EG*                     |       | polyester fibers and PET  bottle resins; antifreeze                                                                                                                               |

 

*Surfactants.**  *Surfactants or “surface activeagents” are substances that combine a water-soluble component with awater insoluble component in the same molecule. While surfactants are mostcommonly used for their detergency in cleaning applications, they are alsovalued for their emulsification, foaming, dispersing, penetrating and wettingproperties in a variety of industries.

Demand growth for surfactants is relatively stable andexhibits little cyclicality. The main consumer product applications forsurfactants can demand new formulations with improved performancecharacteristics which affords considerable opportunity for innovativesurfactants manufacturers like us to provide surfactants and blends withdifferentiated specifications and properties. For basic surfactants, pricingtends to have a strong relationship to underlying raw material prices andusually lags raw material price movements. However, pricing in recent years hasalso been adversely affected by the growing purchasing power of “soapers,” suchas Procter & Gamble and Unilever. The “big box” stores, such asWal-mart and Costco, have also placed pricing pressure along the surfactantvalue chain.

*Ethanolamines.**  *Ethanolamines are a range ofchemicals produced by the reaction of EO with ammonia. They are used asintermediates in the production of a variety of industrial, agricultural and 

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consumer products. Thereare a limited number of competitors due to the technical and cost barriers toentry. Growth in this sector has typically been higher than GDP and in the lastfew years has benefited in particular from the conversion to ethanolamines inthe formulation of wood treatment products. We believe the ethanolamines marketin North America is tight with industry operating rates currently running inexcess of 90% of stated capacity. We are currently expanding the manufacturingcapacity of our Port Neches, Texas facility by 70 million pounds per year.We expect this new capacity to come on line in mid-2007 . Some of ourcompetitors have announced their intention to debottleneck their facilities tomeet the continuing growing demand for ethanolamines.

*LAB.**  *LAB is a surfactant intermediatewhich is produced through the reaction of benzene with either normal paraffinsor linear alpha olefins. Nearly all the LAB produced globally is converted intoLAS, a major anionic surfactant used worldwide for the production of consumer,industrial and institutional laundry detergents.

Four major manufacturers lead the traditionaldetergency market for LAB in North America: Procter & Gamble, Henkel,Unilever and Colgate Palmolive. We believe that two-thirds of the globalcapacity lies in the hands of seven producers, with two or three major playersin each of the three regional markets. Although the North American market forLAB is mature, we expect the South American market to grow as detergent demandgrows at a faster rate than in more developed countries.

From a competition perspective, compounds derived fromalcohol and its derivatives can be used in place of LAB in certain detergentformulations. In the past several years, a significant amount of new alcoholproduction capacity has come on stream resulting in lower prices for these alcohol-basedcompounds. As a result, LAB has become less attractive to buyers who have theoption to formulate their products with either of these two raw materials, andas a result, margins for LAB producers have come under pressure.

*EG.**  *We consume our internally producedEO to produce three types of EG: MEG, DEG and TEG. MEG is consumed primarily inthe polyester (fiber and bottle resin) and antifreeze end markets. EG is alsoused in a wide variety of industrial applications including syntheticlubricants, plasticizers, solvents and emulsifiers.

***Maleic Anhydride and Licensing.******  ***The followingtable sets forth the end markets for our maleic anhydride products:

| **Product Group**                                   | ** ** | ** **                                                                                                                 | ** ** | **End Markets** |
|-----------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| Maleic anhydride                                    |       | boat hulls; automotive; construction; lubricant and  fuel additives; countertops; agrochemicals; paper; and food additives |
| Maleic anhydride  catalyst and technology licensing |       | maleic anhydride and BDO manufacturers                                                                                     |

 

Maleic anhydride is a chemical intermediate that isproduced by oxidizing either benzene or normal butane through the use of acatalyst. The largest use of maleic anhydride in the U.S. is in the productionof UPRs, which we believe account for approximately 57% of U.S. maleicanhydride demand. UPR is the main ingredient in fiberglass reinforced resins,which are used for marine and automotive applications and commercial andresidential construction products.

Our maleic anhydride technology is a proprietary fixedbed process with solvent recovery and is characterized by low butaneconsumption and an energy-efficient, high-percentage-recoverysolvent recovery system. This process competes against two other processes, thefluid bed process and the fixed bed process with water recovery. We believethat our process is superior in the areas of feedstock and energy efficiencyand solvent recovery. The maleic anhydride-based route to BDO manufactureis currently 

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the preferred processtechnology and is favored over the other routes, which include PO, butadieneand acetylene as feedstocks. As a result, the growth in demand for BDO hasresulted in increased demand for our maleic anhydride technology.

Total U.S. demand for maleic anhydride isapproximately 600 million pounds. Over time, demand for maleic anhydridehas generally grown at rates that slightly exceed GDP growth. However, givenits dependence on the UPR market, which is heavily influenced by constructionend markets, demand can be cyclical. Pricing for maleic anhydride in NorthAmerica over the past several years has been increasing. Generally, changes inprice have resulted from changes in industry capacity utilization as opposed tochanges in underlying raw material costs.

On February 27, 2006,we announced a proposal to build a new 100 million pounds-per-year maleicanhydride facility at our Geismar, Louisiana site. We expect the new facilityto come on stream during the third quarter of 2008.

***Sales and Marketing***

We sell over 2,000 products to over 4,000 customersglobally through our Performance Products marketing group, which has extensivemarket knowledge, considerable chemical industry experience and well establishedcustomer relationships.

Our performance specialties markets are organizedaround end-use market applications, such as coatings, polymers and resins andagrochemical. In these end uses, our marketing efforts are focused on how ourproduct offerings perform in certain customer applications. We believe thatthis approach enhances the value of our product offerings and createsopportunities for on-going differentiation in our development activities withour customers. Our performance intermediates and maleic anhydride marketsorganize their marketing efforts around their products and geographic regionsserved. We also provide extensive pre-and post-sales technical service supportto our customers where our technical service professionals work closely withour research and development functions to tailor our product offerings to meetour customers unique and changing requirements. Finally, these technicalservice professionals interact closely with our market managers and businessleadership teams to help guide future offerings and market approach strategies.

In addition to our focuseddirect sales efforts, we maintain an extensive global network of distributorsand agents that also sell our products. These distributors and agents typicallypromote our products to smaller end use customers who cannot be served costeffectively by our direct sales forces.

***Manufacturing and Operations***

Our Performance Products segment has the capacity toproduce approximately 6.0 billion pounds annually of a wide variety ofspecialty, intermediate and commodity products and formulations at 15manufacturing locations in North America, Europe and Australia.

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Theseproduction capacities are as follows:

| ** **                   | ** ** | **Current capacity**          | ** ** |
|------------------------------|------------|------------------------------------|------------|
| **Product Area**        | ** ** | ** **                         | ** ** | **North  America** | ** ** | **Europe** | ** ** | **Australia** | ** ** | **Total** | ** ** |
| ** **                   | ** ** | **(millions of pounds)** | ** ** |
| *Performance  Specialties*   |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Amines                       |       |                               | 596        |   |   |   | 119 | (1) |   |   |   |   |   | 715 |   |
| Specialty surfactants        |       |                               | 100        |   |   |   | 175 |   |   |   | 100 |   |   | 375 |   |
| Carbonates                   |       |                               | 69         |   |   |   |   |   |   |   |   |   |   | 69 |   |
| *Performance  Intermediates* |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Ethylene                     |       |                               | 400        | (2) |   |   |   |   |   |   |   |   |   | 400 |   |
| Propylene                    |       |                               | 300        | (2) |   |   |   |   |   |   |   |   |   | 300 |   |
| EO                           |       |                               | 1,000      |   |   |   |   |   |   |   | 100 |   |   | 1,100 |   |
| EG                           |       |                               | 890        |   |   |   |   |   |   |   | 55 |   |   | 945 |   |
| Surfactants                  |       |                               | 470        |   |   |   | 1,520 |   |   |   |   |   |   | 1,990 |   |
| Ethanolamines                |       |                               | 320        |   |   |   |   |   |   |   |   |   |   | 320 |   |
| LAB                          |       |                               | 375        |   |   |   |   |   |   |   |   |   |   | 375 |   |
| *Maleic anhydride*           |       |                               | 240        |   |   |   | 137 | (3) |   |   |   |   |   | 377 |   |
|                              |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Includes up to30 million pounds of ethyleneamines that are made available from Dow’sTerneuzen, Netherlands facility by way of a long-term tolling arrangement.

(2)          In the fourth quarter of2006, our Port Neches olefins facility was transferred from the Base Chemicalssegment to our Performance Products segment.

(3)          Represents totalcapacity of a facility owned by Sasol-Huntsman GmbH & Co. KG, ofwhich we own a 50% interest and Sasol owns the remaining 50% interest.

Our surfactants and amines facilities are locatedglobally, with broad capabilities in amination, sulfonation and ethoxylation.These facilities have a competitive cost base and use modern manufacturingunits that allow for flexibility in production capabilities and technicalinnovation. Through the major restructuring of our surfactant operations, wehave significantly improved the competitiveness of our surfactants business. Wereduced the workforce in our European surfactants business by approximately 320employees. The restructuring activity included the closure of our Whitehaven,U.K. manufacturing facility, consolidation of our European drying capacity inCastiglione, Italy and streamlining of our administrative and site supportactivities across all of our European facilities. Elsewhere, we closed ourGuelph, Ontario surfactants facility and transferred the manufacture of keyproducts to other facilities in North America.

Our primary ethylene, propylene, EO, EG andethanolamines facilities are located in Port Neches, Texas. The Port Neches,Texas facility benefits from extensive logistics infrastructure, which allowsfor efficient sourcing of other raw materials and distribution of finishedproducts.

Our LAB facility in Chocolate Bayou, Texas and ourmaleic anhydride facility in Pensacola, Florida are both located within large,integrated petrochemical manufacturing complexes operated by Solutia. Webelieve this results in greater scale and lower costs for our products than wewould be able to obtain if these facilities were stand-alone operations.

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***Raw Materials***

We have the capacity to use approximately850 million pounds of ethylene produced each year at our Port Arthur andPort Neches, Texas facilities in the production of EO and ethyleneamines. Weconsume all of our EO in the manufacture of our EG, surfactants and aminesproducts. We also use internally produced PO and DEG in the manufacture ofthese products. In the fourth quarter of 2006, our Port Neches olefinsfacility, with a capacity of 400 million pounds of ethylene and 300 millionpounds of propylene, was transferred to our Performance Products segment fromour Base Chemicals segment. This transfer has been reflected in this report forall periods presented. All of the ethylene is used in the production of EO andsubstantially all of the propylene is consumed by the PO unit at Port Nechesoperated by our Polyurethanes business.

In addition to internally produced raw materials, ourperformance specialties market purchases over 250 compounds in varyingquantities, the largest of which includes ethylene dichloride, caustic soda,synthetic alcohols, paraffin, nonyl phenol, ammonia, methylamines andacrylonitrile. The majority of these raw materials are available from multiplesources in the merchant market at competitive prices.

In our performance intermediates market, our primaryraw materials, in addition to internally produced and third-party sourcedEO, are synthetic and natural alcohols, paraffin, benzene and nonyl phenol. Allof these raw materials are widely available in the merchant market atcompetitive prices.

Maleic anhydride isproduced by the reaction of n-butane with oxygen using our proprietarycatalyst. The principal raw material is n-butane which is purchased pursuant tolong-term contracts and delivered to our Pensacola, Florida site by barge. Ourmaleic anhydride catalyst is toll-manufactured by BASF under a long-termcontract according to our proprietary methods. These raw materials areavailable from multiple sources at competitive prices.

***Competition***

In our performance specialties market, there are fewcompetitors for many of our products due to the considerable customization ofproduct formulations, the proprietary nature of many of our productapplications and manufacturing processes and the relatively high research anddevelopment and technical costs involved. Some of our global competitorsinclude BASF, Air Products, Dow and Akzo. We compete primarily on the basis ofproduct performance, new product innovation and, to a lesser extent, on thebasis of price.

There are numerous global producers of many of ourperformance intermediates products. Our main competitors include globalcompanies such as Dow, Sasol, BASF, Petresa, Equistar, Shell, Cognis, Stepanand Kao, as well as various smaller or more local competitors. We compete onthe basis of price with respect to the majority of our product offerings and,to a lesser degree, on the basis of product availability, performance andservice with respect to certain of our more value-added products.

In our maleic anhydride market, we compete primarilyon the basis of price, customer service and plant location. Our competitorsinclude Lanxess, Koch, Marathon, Lonza and BASF. We are the leading globalproducer of maleic anhydride catalyst. Competitors in our maleic anhydridecatalyst market include Scientific Design and BP. In our maleic anhydridetechnology licensing market, our primary competitor is Scientific Design. Wecompete primarily on the basis of technological performance and service.

The market in which ourPerformance Products segment operates is highly competitive. Among ourcompetitors in this market are some of the world’s largest chemical companiesand major integrated petroleum companies that have their own raw materialresources. Some of these companies may be able to produce products moreeconomically than we can. In addition, some of our competitors in this markethave greater 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 in this 

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marketdevelops proprietary technology that enables them to produce products at asignificantly lower cost, our technology could be rendered uneconomical orobsolete.

**Pigments**

***General***

We are a leading global manufacturer and marketer oftitanium dioxide, which is a white pigment used to impart whiteness, brightnessand opacity to products such as paints, plastics, paper, printing inks, fibersand ceramics. We operate eight chloride-based and sulfate-basedtitanium dioxide manufacturing facilities located in North America, Europe,Asia and Africa. The global titanium dioxide market is characterized by a smallnumber of large, global producers and a growing compliment of smaller regionalproducers.

We offer an extensive range of products that are soldworldwide to approximately 1,500 customers in all major titanium dioxide endmarkets and geographic regions. The geographic diversity of our manufacturingfacilities allows our Pigments segment to service local customers, as well asglobal customers that require delivery to more than one location. Our diversecustomer base includes Ampacet, A. Schulman, Akzo Nobel, BASF, Cabot, Clariant,ICI, Jotun, PolyOne and Sigma Kalon. Our pigments business has an aggregateannual nameplate capacity of approximately 550,000 tonnes at our eightproduction facilities. Five of our titanium dioxide manufacturing plants arelocated in Europe, one is in North America, one is in Asia, and one is in SouthAfrica. Our North American operation consists of a 50% interest in amanufacturing joint venture with Kronos Worldwide, Inc.

Our Pigments segment isfocused on improving our competitive position. Actions taken to date toincrease our competitive position include idling 55,000 tonnes of uneconomicnameplate capacity in 2004, the optimization of the geographic distribution ofour sales, the consolidation of back-office functions and the continuedreduction of our fixed and variable costs at each of our manufacturingfacilities. Through these measures, we have improved our cost position andenhanced our ability to compete in the global marketplace. To further upgradeour competitive and market position we announced in August 2006 that wewould expand our Greatham, U.K. chloride-based facility by 50% by early 2008,increasing capacity to 150,000 tonnes per annum.

***Products and Markets***

Historically, global titanium dioxide demand growthrates tend to closely track global GDP growth rates. However, the demand growthrate and its relationship with the GDP growth rate varies by region. Developedmarkets such as the U.S. and Western Europe exhibit higher absolute consumptionbut lower demand growth rates, while emerging markets such as Asia exhibit muchhigher demand growth rates. The titanium dioxide industry experiences someseasonality in its sales reflecting the high exposure to seasonal coatings enduse markets. Coating sales generally peak during the spring and summer monthsin the northern hemisphere, resulting in greater sales volumes during thesecond and third quarters of the year.

There are two manufacturing processes for theproduction of titanium dioxide, the sulfate process and the chloride process.Most recent capacity additions by the five major producers have employed thechloride process technology whilst those by smaller producers have generallyused the sulphate process technology. We currently believe that the chlorideprocess accounts for approximately 60% of global production capacity. However,the global distribution of sulfate- and chloride-based titaniumdioxide capacity varies by region, with the sulfate process being predominantin Europe, our primary market. The chloride process is the predominant processused in North America, and both processes are used in Asia. While most end-useapplications can use pigments produced by either process, regional marketpreferences typically favor products that are locally available. We believe thechloride and sulfate manufacturing processes compete effectively in themarketplace.

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The titanium dioxide industry currently has five majorproducers and a large number of small regional or local producers. Titaniumdioxide supply has historically kept pace with increases in demand as producersincreased capacity through low cost incremental debottlenecks and efficiencyimprovements. During periods of low titanium dioxide demand, the industryexperiences high stock levels and consequently reduces production to manageworking capital. Pricing in the industry is driven primarily by supply/demand balance.The last major greenfield titanium dioxide capacity addition was in 1994. Basedupon current price levels and the long lead times for planning, governmentalapprovals and construction, we do not expect significant additional greenfieldcapacity in the near future. Longer term DuPont has announced that it plans toconstruct a greenfield plant in China for start up in 2010 or beyond to supplythe rapidly growing Chinese market.

We believe that demand fortitanium dioxide increased approximately 3% during 2006 as compared to 2005,with robust growth in Asia Pacific and European markets offset by a smalldecline in North America consumption.

***Sales and Marketing***

Approximately 85% of our titanium dioxide sales aremade through our direct sales and technical services network, enabling us tocooperate more closely with our customers and to respond to our increasinglyglobal customer base. Our concentrated sales effort and local manufacturingpresence have allowed us to achieve our leading market shares in a number ofthe countries where we manufacture titanium dioxide.

In addition, we havefocused on marketing products to higher growth industries. For example, webelieve that our pigments business is well-positioned to benefit from theprojected growth in the plastics sector which we expect to grow faster than theoverall titanium dioxide market over the next several years.

***Manufacturing and Operations***

Ourpigments business has eight manufacturing sites in seven countries with a totalcapacity of approximately 550,000 tonnes per year. Approximately 72% of ourtitanium dioxide capacity is located in Western Europe. The following tablepresents information regarding our titanium dioxide facilities:

| Region          | ** ** | ** **                  | ** ** | **Site**     | ** ** | **Annual  Capacity** | ** ** | **Process** | ** ** |
|-----------------|------------|-----------------------------|------------|--------------|------------|----------------------|------------|-------------|------------|
| ** **      | ** ** | ** **                  | ** ** | **(tonnes)** | ** ** | ** **           | ** ** |
| Western Europe  |       | Greatham,  U.K.             |       |         | 100,000    |                 |       | Chloride    |       |
|                 |       | Calais,  France             |       |         | 95,000     |                 |       | Sulfate     |       |
|                 |       | Huelva,  Spain              |       |         | 80,000     |                 |       | Sulfate     |       |
|                 |       | Scarlino,  Italy            |       |         | 80,000     |                 |       | Sulfate     |       |
|                 |       | Grimsby,  U.K.              |       |         | 40,000     |                 |       | Sulfate     |       |
| North America   |       | Lake  Charles, Louisiana(1) |       |         | 70,000     |                 |       | Chloride    |       |
| Asia            |       | Teluk  Kalung, Malaysia     |       |         | 60,000     |                 |       | Sulfate     |       |
| Southern Africa |       | Umbogintwini,  South Africa |       |         | 25,000     |                 |       | Sulfate     |       |
| Total           |       |                        |       |         | 550,000    |                 |       |        |       |

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(1)          This facility is ownedand operated by Louisiana Pigment Company, L.P., a manufacturing joint venturethat is owned 50% by us and 50% by Kronos Worldwide. The capacity shownreflects our 50% interest in Louisiana Pigment Company L.P.

We are currently expandingour Greatham, U.K. facility by 50,000 tonnes. We are also well positioned toselectively invest in new plant capacity based upon our ICON chloridetechnology. ICON technology allows for the construction of new capacity withworld-scale economics at a minimum nameplate size of 

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65,000tonnes. We believe competing chloride technologies typically require a minimumcapacity of 100,000 tonnes to achieve comparable economics. Our chlorideadditions can be more easily absorbed into the market, which provides higherinvestment returns than larger capacity additions.

***Joint Ventures***

We own a 50% interest inLouisiana Pigment Company L.P., a manufacturing joint venture located in LakeCharles, Louisiana. The remaining 50% interest is held by our joint venturepartner, Kronos Worldwide. We share production offtake and operating costs ofthe plant equally with Kronos Worldwide, though we market our share of theproduction independently. The operations of the joint venture are under thedirection of a supervisory committee on which each partner has equalrepresentation. Our investment in Louisiana Pigment Company L.P. is accountedfor using the equity method.

***Raw Materials***

The primary raw materials used to produce titaniumdioxide are titanium-bearing ores. We purchase the majority of our oreunder long-term supply contracts with a number of ore suppliers. The majorityof titanium-bearing ores are sourced from Australia, South Africa andCanada. Ore accounts for approximately 40% of pigment variable manufacturingcosts, while utilities (electricity, gas and steam), sulfuric acid and chlorinecollectively account for approximately 25% of our variable manufacturing costs.

Rio Tinto and Iluka accountfor approximately 40% of the global supply of titanium-bearing ores. Bothcompanies produce a range of ores for use in chloride and sulphate processes.We purchase approximately 60% of our ore from these two producers. Thedominance of these producers has diminished in recent years with the entry intothe market of new producers such as TiCor in South Africa, VVM in India, andSierra Rutile in Sierra Leone. Initially, the advent of the new producerscreated oversupply in the market and falling prices. More recently, strongdemand growth, especially in China, has led to a re-tightening of the marketand prices have been rising. We have broadened our supply base by purchasingincreasing amounts of our ores from the new suppliers. Over 80% of our orepurchases are made under agreements with terms of three or more years.

Titanium dioxide producers extract titanium from oresand process it into pigmentary titanium dioxide using either the chloride orsulfate process. Once an intermediate titanium dioxide pigment has beenproduced, it is “finished” into a product with specific performancecharacteristics for particular end-use applications. The finishing process iscommon to both the sulfate and chloride processes and is a major determinant ofthe final product’s performance characteristics.

The sulfate processgenerally uses less-refined ores that are cheaper to purchase but produce moreco-product than the chloride process. Co-products from both processesrequire treatment prior to disposal in order to comply with environmentalregulations. In order to reduce our disposal costs and to increase our costcompetitiveness, we have developed and marketed the co-products of our pigmentsbusiness. We sell over 50% of the co-products generated by our business.

***Competition***

The global markets inwhich our pigments business operates are highly competitive. Competition isbased primarily on price. In addition, we also compete on the basis of productquality and service. The major global producers against whom we compete areDuPont, Tronox, Kronos and Lyondell. Some of our competitors may be able toproduce products more economically than we can. In addition, some of ourcompetitors in this market have greater financial resources, which may enablethem to invest significant capital into their businesses, includingexpenditures for research and development. If any of our current or futurecompetitors in this market develops proprietary technology that enables them toproduce products at a significantly lower cost, our technology could berendered uneconomical or obsolete. Moreover, the 

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sulphate-basedtitanium dioxide technology used by our Pigments business is widely available.Accordingly, barriers to entry, apart from capital availability, may be low andthe entrance of new competitors into the industry may reduce our ability tocapture improving profit margins in circumstances where capacity utilization inthe industry is increasing. We believe that our competitive product offerings,combined with our presence in numerous local markets, makes us an effectivecompetitor in the global market, particularly with respect to those globalcustomers demanding presence in the various regions in which they conductbusiness.

**Polymers**

***General***

On February 15, 2007,we entered into an agreement which provides that Flint Hills Resources willacquire our U.S. base chemicals and polymers business, including all of themanufacturing assets of our Polymers segment. For more information, see “—RecentDevelopments—Agreement to Sell U.S. Base Chemicals and Polymers Business”above. Until the closing of the Pending U.S. Petrochemicals Disposition, we manufacture and market polypropylene,polyethylene, EPS, EPS packaging and APAO. We consume internally produced andthird-party-sourced base petrochemicals, including ethylene andpropylene, as our primary raw materials in the manufacture of these products.In our polyethylene, APAO and certain of our polypropylene product lines, wepursue a targeted marketing strategy by focusing on those customers and end useapplications that require customized polymer formulations. We produce theseproducts at our smaller and more flexible Polymers manufacturing facilities andgenerally sell them at premium prices. In our other product lines, includingthe balance of our polypropylene, EPS and EPS packaging, we maintain leadingregional market positions and operate cost-competitive manufacturingfacilities. We operate six primary Polymers manufacturing facilities in NorthAmerica and Australia.

***Products and Markets***

We have the capacity to produce approximately440 million pounds of LDPE and 350 million pounds of LLDPE annuallyat our integrated Odessa, Texas facility. Our polyethylene customer baseincludes Appleton Papers, Automated Packaging and Sealed Air.

We produce a variety of grades of LDPE using both thetubular and autoclave processes. Many of the resins are designed to meetspecific requirements of particular end users. Various types of conversionequipment, including extrusion coating, blown and cast film extrusion,injection and blow molding, and other proprietary methods of extrusion, usethese differentiated polyethylene resins to provide high clarity, durabilityand sealability performance characteristics. Liner grade (general-purpose)polyethylene ordinarily competes principally on the basis of price, while moredifferentiated polyethylene competes principally on the basis of productquality, performance specifications and, to a lesser extent, price. Weparticipate in both market areas, but concentrate our efforts primarily in moredifferentiated areas.

Our LLDPE products contain octene comonomers and aresold into applications that require high performance properties such asstrength, clarity, processability, and they contain few resin imperfections(low gel). These products are used in wide variety of applications such as highperformance flexible packaging, high clarity shrink films, barrier films,medical products, artificial turf and irrigation tubing. With our higher-performingproduct line, we compete with a limited number of competitors on the basis ofproduct performance and, to a lesser extent, price.

We have the capacity to produce approximately1 billion pounds of polypropylene annually at three production facilities:Longview, Texas with a capacity of approximately 780 million pounds peryear; Marysville, Michigan with a capacity of approximately 185 millionpounds per year; and Odessa, Texas with a capacity of approximately120 million pounds per year. Our polypropylene customer base includesAdvanced Composites, Ashland, Seaquist Closures, PolyOne and Rexam.

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We employ a variety of technologies to producedifferent grades of polypropylene, allowing us to participate in a wide rangeof polypropylene applications. We provide product solutions to processors andOEMs that require special or unique formulations or characteristics. Ourproducts are used extensively in medical applications, caps and closures,higher value automotive parts, consumer durables, and furniture. Our in-reactorTPO products produced at our Marysville, Michigan facility have replaced moreexpensive compounded plastics. Our Odessa, Texas facility produces grades ofpolypropylene utilized for medical applications, specialty films and sheets andelectronics packaging. These applications have allowed us to realizesubstantial premium prices over commodity polypropylene.

We have the capacity to produce approximately95 million pounds of Rextac® APAO annually at our facility in Odessa,Texas. We are one of only two on-purpose producers of APAO in the U.S. Rextac®APAO is a proprietary, patented, low molecular weight, amorphous material thatutilizes polypropylene as its primary raw material. It is used extensively inroofing materials, hot melt adhesives, laminations and wire and cable coatings.Our products are sold primarily in the U.S., although we also participate inthe rapidly growing Asian market. Our APAO customer base includes FirestoneBuilding Products, Kimberly-Clark and Johns Manville.

We have the capacity to produce approximately250 million pounds of EPS annually at our facilities in North America andAustralia. We sell into the construction industry, where the product is usedfor insulation, and into the small but rapidly growing insulated concrete formmarket. The products also are used in electronics and produce packagingapplications. Our specialty grades include R-merTM rubber modified EPS and fireretardant grades. Our EPS customer base includes Aptco, Cellofoam, Life LikeProducts and Premier Industries.

Polymers markets are global commodity markets. Demandfor polymers tends to be less susceptible to economic cycles than some of ourbase petrochemicals, as the products are generally sold into the packaging andconsumer markets. Demand for LLDPE, which represents the growth segment of thepolyethylene sector has grown at GDP rates. Growth rates for LDPE, a moremature product, have been less than 2% per year. Polypropylene has grown atrates above GDP as these products have replaced other polymers and materials(including wood, paper, glass and aluminum) due to their superior performancecharacteristics. Our polymers are subject to fluctuations in price as a resultof supply and demand imbalances and feedstock price movements.

Competition is based on price, product performance,product quality, product deliverability and customer service. Polymersprofitability is affected by the worldwide level of demand for polymers, alongwith vigorous price competition that may result from, among other things, newdomestic and foreign industry capacity. In general, demand is a function ofeconomic growth in the U.S and elsewhere around the world.

Polypropylene is one of the most versatile and amongthe fastest growing of the major polymers. Polypropylene is used in a widevariety of applications including toys, housewares, bottle caps, outdoorfurniture, utensils and packaging film. Although polypropylene comes in manyformulations, there are three basic grades: homopolymers (derived from the polymerizationof propylene), random copolymers (derived from the polymerization of propyleneand a small amount of ethylene), and impact copolymers (derived by firstpolymerizing propylene and then adding a small amount of polymerized ethylene).Polypropylene is rising in popularity relative to other higher cost polymersdue to its overall product performance and its relatively low cost ofproduction. Different polypropylene formulations are custom manufactured with avariety of characteristics to accommodate end users. These characteristicsinclude high stiffness, dimensional stability, low moisture absorption, goodelectrical insulation and optical properties and resistance to acids, alkalisand solvents. New applications have accounted for significant growth in thepast decade in areas such as polypropylene film and automotive parts for thereplacement of heavier, more expensive materials.

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Polyethylene represents,by sales volume, the most widely produced thermoplastic resin in the world.There are two basic grades of polyethylene resin, high density and low density.Within low density, there is a further differentiation between LDPE and LLDPE.LDPE is used in a wide variety of applications, including film packaging,molded furniture, toys, wire and cable insulation. While LLDPE is used in manyof the same applications as LDPE, it is also used in caps and closures, stretchand shrink binding films and heavy duty shipping sacks due to its high strengthcharacteristics. LLDPE and LDPE are used in a wide variety of industrial andconsumer applications, the largest of which is the film market. Flexible filmsare used in food and consumer packaging, medical applications and wrap film.Liner grade (general purpose) polyethylene ordinarily competes principally onthe basis of price, while more differentiated polyethylene competes principallyon the basis of product quality, performance specifications and, to a lesserextent, price.

EPS serves two primary endmarkets: the “block” EPS market and the “shape” EPS market. Block EPS is usedlargely by the construction industry and shape EPS is used largely in packagingapplications. Producers typically maintain strong links to the approximately400 domestic molders, leading to product differentiation and customization forclients. Molders are typically small, privately held companies that rely onstrong supplier relationships.

***Sales and Marketing***

Our Polymers businessmarkets over 85% of its products through a direct, salaried sales force. Oursales force is organized by product line and by geographic region. We alsoutilize distributors to market certain of our products to smaller customers.Due to the diversity of products, technologies and grades, we are able tocompete across a broad range of markets without relying upon a few largecustomers. Approximately 6% of our polymers sales are channeled through twolarge distributors, which market to many small customers. No one customerconstitutes more than 10% of sales.

***Manufacturing andOperations***

We have the capacity toproduce approximately 2.3 billion pounds of polymers at our six plantslocated in North America and Australia.

Informationregarding these facilities is set forth in the following chart:

| ** **    | ** ** | **Odessa,  Texas**                 | ** ** | **Longview,  Texas** | ** ** | **Marysville,  Michigan** | ** ** | **Peru,  Illinois** | ** ** | **Mansonville  Quebec,** | ** ** | **West  Footscray,  Australia(1)** | ** ** | **Total** | ** ** |
|---------------|------------|------------------------------------|------------|----------------------|------------|---------------------------|------------|---------------------|------------|--------------------------|------------|------------------------------------|------------|-----------|------------|
| ** **    | ** ** | **(millions of pounds)** | ** ** |
| Ethylene      |       |                               | 800        |                 |       |                      |       |                |       |                     |       |                               |       |      |       |   |   |   |   |   |   |   |   |   |   | 800 |   |
| Propylene     |       |                               | 300        |                 |       |                      |       |                |       |                     |       |                               |       |      |       |   |   |   |   |   |   |   |   |   |   | 300 |   |
| LDPE          |       |                               | 440        |                 |       |                      |       |                |       |                     |       |                               |       |      |       |   |   |   |   |   |   |   |   |   |   | 440 |   |
| LLDPE         |       |                               | 350        |                 |       |                      |       |                |       |                     |       |                               |       |      |       |   |   |   |   |   |   |   |   |   |   | 350 |   |
| Polypropylene |       |                               | 120        |                 |       |                      | 780        |                |       |                     | 185        |                               |       |      |       |   |   |   |   |   |   |   |   |   |   | 1,085 |   |
| APAO          |       |                               | 95         |                 |       |                      |       |                |       |                     |       |                               |       |      |       |   |   |   |   |   |   |   |   |   |   | 95 |   |
| EPS           |       |                               |       |                 |       |                      |       |                |       |                     |       |                               |       |      | 185        |   |   |   | 40 |   |   |   | 25 |   |   | 250 |   |
| Styrene       |       |                               |       |                 |       |                      |       |                |       |                     |       |                               |       |      |       |   |   |   |   |   |   |   | 250 |   |   | 250 |   |

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(1)          On January 4, 2007, we announced the completion of thepreviously announced sale of our polyester resins (composites) business assetsto Nuplex for A$9.6 million (approx. U.S.$7.5 million) in cash plus the valueof inventory and other stock in trade at the completion date, for a totaltransaction value of A$20.3 million, subject to post closing adjustments. Thetransaction further includes additional consideration payable over a three yearperiod upon achieving certain associated earnings targets. The assets soldinclude our EPS and styrene manufacturing assets. In connection with the saleagreement, we also entered into a tolling agreement with Nuplex whereby we willcontinue to manufacture product using the Australian polyester resins assets.Nuplex will own the assets located on our site. The tolling agreement expiresJanuary 2009.

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Our Odessa, Texas olefinsplant produces both ethylene and propylene. Ethylene is transferred to LDPE andLLDPE for polymerization, and is also utilized in polypropylene and APAOcopolymer production. Ethylene capacity is greater than current polymercapacity. To maximize ethylene production, we produce cryogenic ethylene andsell it via tank car to customers without pipeline access. There are only twoother sellers of liquid ethylene, Equistar and Eastman. This product is sold ata significant premium to market pricing for pipeline delivered ethylene.

Our Longview, Texasfacility is our most cost efficient facility. Incorporating the UNIPOL® gasphase production technology, this facility has the capability to produce abroad range of polypropylene grades. This facility is connected by pipeline tothe Mont Belvieu, Texas propylene supply grid and has recently added railcarunloading infrastructure, giving it maximum raw material supply flexibility.

Our Marysville, Michiganfacility’s technology is ideally suited to produce special grades of co-polymerpolypropylene. This technology allows the plant to produce higher value TPOs,which are used extensively in high-value specialty-automotiveapplications.

Our Peru, Illinois EPSfacility is one of the world’s largest EPS production facilities, with fivereactors. The use of our proprietary one-step EPS production technology keepsproduction costs at the Peru facility among the lowest in the industry. OurMansonville, Quebec EPS plant is a smaller plant with three reactors. The EPSis used primarily to produce packaging, which has historically been a premiummarket.

Our West Footscray, Australiafacility, located near Melbourne, is Australia’s only producer of styrene andEPS. During the third quarter of 2005, we concluded that the long-lived assetsof our Australian styrenics business were impaired as a result of disappointingperformance and the lack of anticipated strengthening of the styrenics market.Accordingly, we recorded an impairment charge of $48.2 million in 2005related to the Australian styrenics assets. We also produce phenolic andpolyester resins and, in a 50% joint venture with Dow, polystyrene. We also ownAustralia’s largest EPS/EPP molding business, with seven operations around thecountry.

***Raw Materials***

Our Odessa, Texas facilityhas access to numerous sources of NGL feedstocks. We operate a feedstockfractionator which separates ethane from other feedstock streams for use in ourolefins unit.

Propylene is the mostsignificant raw material used in the production of polypropylene. At ourLongview, Texas and Marysville, Michigan sites we purchase polymer-gradepropylene from third parties.

The primary raw materialin the production of EPS is styrene. We purchase/toll styrene for our Peru,Illinois and Mansonville, Quebec facilities at market price from unaffiliatedthird parties.

***Competition***

In 2006, there wereapproximately nine domestic producers of LDPE resins, either as LDPE or asLLDPE. The five largest domestic producers of both LDPE and LLDPE in 2006 wereExxonMobil, Dow, Equistar, Westlake and ChevronTexaco.

There are currently 12U.S. producers of polypropylene, operating 24 plants. The largest producer andmarketer is Basell, followed by Ineos, ExxonMobil and Total. We are the eighth-largestU.S. producer of polypropylene.

There are five producersof EPS in North America. We are the second-largest producer of EPS in NorthAmerica. The other major EPS producers are BASF, NOVA Chemicals, Polioles SAand Styrochem.

The market in which ourPolymers segment operates is highly competitive. Among our competitors in thismarket are some of the world’s largest chemical companies and major integratedpetroleum companies 

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thathave their own raw material resources. Some of these companies may be able toproduce products more economically than we can. In addition, some of ourcompetitors in this market have greater financial resources, which may enablethem to invest significant capital into their businesses, includingexpenditures for research and development. If any of our current or futurecompetitors in this market develops proprietary technology that enables them toproduce products at a significantly lower cost, our technology could berendered uneconomical or obsolete. Moreover, our Polymers business usestechnology that is widely available. Accordingly, barriers to entry, apart fromcapital availability, may be low and the entrance of new competitors into theindustry may reduce our ability to capture improving profit margins incircumstances where capacity utilization in the industry is increasing.

**Base Chemicals**

***General***

On February 15, 2007,we entered into an agreement which provides that Flint Hills Resources willacquire our U.S. base chemicals and polymers business, including all of themanufacturing assets of our Base Chemicals segment. For more information, see “—RecentDevelopments—Agreement to Sell U.S. Base Chemicals and Polymers Business”above. Until the closing of the Pending U.S. Petrochemicals Disposition, we are a North American producer of olefins andcyclohexane. We consume a portion of our Base Chemicals products, such asethylene and propylene in our Performance Products and Polyurethanes segments.We operate a Base Chemicals manufacturing facility located at Port Arthur, onthe Texas Gulf Coast. This facility is equipped to process a variety of oil-and natural gas-based feedstocks and benefits from its close proximity tomultiple sources of these raw materials. This flexibility allows us to optimizeour operating costs. This facility also benefits from underground storagecapacity and an extensive pipeline network. On April 29, 2006, our PortArthur facility experienced a major fire and is currently not operational.Damage from the fire is significant and the plant is currently expected to beoff line until early in the third quarter of 2007. See “Note 22.Casualty Losses and Insurance Recoveries—Port Arthur, Texas Plant Fire” to ourconsolidated financial statements included elsewhere in this report.

Previously, our BaseChemicals segment also produced ethylene and propylene at our Port Arthur andPort Neches, Texas olefins manufacturing facilities. In the fourth quarter of2006, our Port Neches olefins facility was transferred to our PerformanceProducts segment.

On December 29, 2006,we completed the U.K. Petrochemicals Disposition in which we sold our Europeanbase chemicals and polymer business.

***Products andMarkets***

***Olefins.******  ***Our PortArthur, Texas manufacturingfacility has the capacity to produce approximately 1.4 billionpounds of ethylene and approximately 800 million pounds of propylene peryear. The facility has the capability to process both light and heavyfeedstock, giving us the opportunity to maximize profitability with an optimalselection of raw materials. Asnoted above, our  Port Arthur facility iscurrently not operational as a result of a fire and is currently expected to beoff line until early in the third quarter of 2007. See “Note 22.Casualty Losses and Insurance Recoveries—Port Arthur, Texas Plant Fire” to ourconsolidated financial statements included elsewhere in this report.

On June 27, 2006, wesold the assets comprising our U.S. butadiene and MTBE business formerly operatedby our Base Chemicals segment. The total sales price was approximately $274million, which includes approximately $12 million of favorablepost-closing working capital adjustments, of which $192 million was paid to usat closing, $7.9 million was received in the third quarter of 2006 and $4.1million was received in October 2006. The additional $70 million will bepayable to us after the restart of our Port Arthur, Texas olefins unit that wasdamaged in a fire (see “Note 22. Casualty Losses and Insurance Recoveries—PortArthur, Texas Plant Fire” to our consolidated financial statements includedelsewhere in 

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thisreport) and the related resumption of crude butadiene supply; provided that weachieve certain intermediate steps toward restarting the plant and the restartoccurs within 30 months of this sale. In connection with this sale, werecognized a pre-tax gain of $90.3 million, of which $9.5 million was dueto the liquidation of LIFO reserves. We expect to recognize an additionalpre-tax gain of $70 million upon completion of the conditions referenced above.

The olefins markets inNorth America are supplied by numerous producers, none of whom has a dominantposition in terms of its share of production capacity. Major producers includeIneos, Dow, Equistar, ExxonMobil and Shell. While the petrochemical markets areglobal commodity markets, the olefins market is subject to some regional pricedifferences due to the more limited inter-regional trade resulting fromthe high costs of product transportation. The global petrochemicals market iscyclical and is subject to pricing swings due to supply and demand imbalances,feedstock prices (primarily driven by crude oil and natural gas prices) andgeneral economic conditions.

***Cyclohexane.******  ***We are amongthe largest U.S. producers of cyclohexane and have the capacity to produceapproximately 630 million pounds of cyclohexane annually at our PortArthur, Texas facility. Virtually all cyclohexane is converted to otherintermediate chemicals used to produce nylon 6 and nylon 6,6 syntheticfibers and resins. The nylon fibers are used to manufacture products such ashosiery, upholstery, carpet and tire cord, and the resins are used inengineered plastic applications. The Port Arthur facility extracts benzene frombyproduct streams produced by our olefins facility. We also purchase byproductstreams from neighboring facilities.

***Sales and Marketing***

Historically, our salesand marketing efforts have focused on developing long-term contracts withcustomers to operate our facilities at maximum rates, while maintaining verylow selling expenses and administration costs. Except for cyclohexane, we arecurrently not selling or marketing products to customers as a result of thefire at our Port Arthur, Texas facility. See “Note 22. Casualty Losses and Insurance Recoveries—PortArthur, Texas Plant Fire” to our consolidated financial statements includedelsewhere in this report.

We benefit from ourpipeline system that extends over 600 miles, which we use to transportfeedstocks and intermediate and finished products. Our finished productpipelines allow us to ship ethylene and propylene directly to our customers atvery low cost. Addition of new pipeline connections represents a significantbarrier to potential competitors. We believe that the wide coverage of ourpipeline system, coupled with the proximity of both customers and suppliers,gives us a competitive advantage both in receiving raw materials and indelivering ethylene and propylene to our key customers.

***Manufacturing andOperations***

Theannual production capacity of our Port Arthur, Texas facility is set forthbelow:

| ** **  | ** ** | **(millions of pounds)** | ** ** |
|-------------|------------|------------------------------------|------------|
| Ethylene    |       |                               | 1,400      |   |   |
| Propylene   |       |                               | 800        |   |   |
| Cyclohexane |       |                               | 630        |   |   |
| Benzene     |       |                               | 480        |   |   |

 

***Raw Materials***

The primary raw materials that we use as feedstocks inour Base Chemicals business are hydrocarbons produced as byproducts of therefining crude oil and natural gas, such as ethane, propane and butane. Thesematerials are actively traded on the spot and futures markets and are readilyavailable from multiple 

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sources. We benefit fromour locations in Texas, where we neighbor Mont Belvieu, which is a hub for thedistribution of these feedstocks.

Pipelines allow us totransport liquid hydrocarbon feedstocks from Mont Belvieu, Texas to our PortArthur facility. We are tied into the extensive industry pipeline grid forreceipt of natural gases and NGLs, and have dock and tank facilities forreceipt of feedstocks by tanker and barge.

***Competition***

The markets in which our Base Chemicals businessoperates are highly competitive. Our competitors in the olefins and cyclohexanemarkets include Ineos, Dow, Equistar, ExxonMobil and Shell. While the marketfor most of these products is global, prices tend to be set regionally. Theseindustries are characterized by companies that have large market shares inspecific regions. The primary factors for competition in this business areprice, reliability of supply and customer service. The technology used in thesebusinesses is mature and widely available.

Among our Base Chemicalscompetitors are some of the world’s largest chemical companies and majorintegrated petroleum companies that have their own raw material resources. Someof these companies may be able to produce products more economically than wecan. In addition, some of our competitors in this market have greater financialresources, which may enable them to invest significant capital into theirbusinesses, including expenditures for research and development. If any of ourcurrent or future competitors in this market develops proprietary technologythat enables them to produce products at a significantly lower cost, ourtechnology could be rendered uneconomical or obsolete. Moreover, our BaseChemicals business uses technology that is widely available. Accordingly,barriers to entry, apart from capital availability, may be low and the entranceof new competitors into the industry may reduce our ability to captureimproving profit margins in circumstances where capacity utilization in the industryis increasing.

**RESEARCHAND DEVELOPMENT**

For the years ended December 31, 2006, 2005 and2004, we spent $115.4 million, $95.5 million and $96.2 million,respectively, on research and development of our products.

We support our business with a major commitment toresearch and development, technical services and process engineeringimprovement. Our research and development centers are currently located in TheWoodlands, Texas and Everberg, Belgium. Other regional development/technicalservice centers are located in Odessa, Texas (polymers); Billingham, England(pigments); Auburn Hills, Michigan (polymers and polyurethanes for theautomotive industry); Derry, New Hampshire, Shanghai, China, Deggendorf,Germany and Ternate, Italy (polyurethanes); Ascot Vale, Australia(surfactants); Port Neches, Texas (process engineering support); and Basel,Switzerland (textile effects).

We have leading technologypositions, which contribute to our status as a low cost producer. Coordinatedresearch, engineering and manufacturing activities across production andresearch and development locations facilitate these low cost positions.

**INTELLECTUALPROPERTY RIGHTS**

Proprietary protection of our processes, apparatuses,and other technology and inventions is important to our businesses. We ownapproximately 725****unexpired U.S. patents,approximately 190****patent applications (includingprovisionals) currently pending at the U.S. Patent and Trademark Office, andapproximately 5,130****foreigncounterparts, including both issued patents and pending patent applications.While a presumption of validity exists with respect to issued U.S. patents, wecannot assure that any of our patents will not be challenged, invalidated,circumvented or rendered unenforceable. Furthermore, we 

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cannot assure the issuanceof any pending patent application, or that if patents do issue, that thesepatents will provide meaningful protection against competitors or againstcompetitive technologies. Additionally, our competitors or other third partiesmay obtain patents that restrict or preclude our ability to lawfully produce orsell our products in a competitive manner.

We also rely upon unpatented proprietary know-how andcontinuing technological innovation and other trade secrets to develop andmaintain our competitive position. There can be no assurance, however, thatconfidentiality agreements into which we enter and have entered will not bebreached, that they will provide meaningful protection for our trade secrets orproprietary know-how, or that adequate remedies will be available in the eventof an unauthorized use or disclosure of such trade secrets and know-how. Inaddition, there can be no assurance that others will not obtain knowledge ofthese trade secrets through independent development or other access by legalmeans.

In addition to our own patents and patent applicationsand proprietary trade secrets and know-how, we are a party to certain licensingarrangements and other agreements authorizing us to use trade secrets, know-howand related technology and/or operate within the scope of certain patents ownedby other entities. We also have licensed or sub-licensed intellectual propertyrights to third parties.

We have associated brand names with a number of ourproducts, and we have approximately 185****U.S. trademarkregistrations (including applications for registration currently pending at theU.S. Patent and Trademark Office), and approximately 3,930****foreigncounterparts, including both registrations and applications for registration.However, there can be no assurance that the trademark registrations willprovide meaningful protection against the use of similar trademarks bycompetitors, or that the value of our trademarks will not be diluted.

Because of the breadth andnature of our intellectual property rights and our business, we do not believethat any single intellectual property right (other than certain trademarkrights which are not subject to termination so long as the applicableregistrations are maintained) is material to our business. Moreover, we do notbelieve that the termination of intellectual property rights expected to occurover the next several years, either individually or in the aggregate, willmaterially adversely affect our business, financial condition or results ofoperations.

**EMPLOYEES**

As of December 31,2006, we employed approximately 15,000 people in our operations around theworld. Approximately 3,000 of these employees are located in the U.S., whileapproximately 12,000 are located in other countries. We believe our relationswith our employees are good.

**ENVIRONMENTAL,HEALTH AND SAFETY MATTERS**

**General**

We are subject toextensive federal, state, local and foreign laws, regulations, rules andordinances relating to safety, pollution, protection of the environment and thegeneration, storage, handling, transportation, treatment, disposal andremediation of hazardous substances and waste materials. In the ordinary courseof business, we are subject to frequent environmental inspections andmonitoring and occasional investigations by governmental enforcementauthorities. In addition, our production facilities require operating permitsthat are subject to renewal, modification and, in certain circumstances,revocation. Actual or alleged violations of safety laws, environmental laws orpermit requirements could result in restrictions or prohibitions on plantoperations, substantial civil or criminal sanctions, as well as, under someenvironmental laws, the assessment of strict liability and/or joint and severalliability. Moreover, changes in environmental regulations could inhibit orinterrupt our operations, or require us to modify our facilities or operations.Accordingly, environmental or regulatory matters may cause us to incursignificant unanticipated losses, costs or liabilities.

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**Environmental,Health and Safety Systems**

We are committed toachieving and maintaining compliance with all applicable environmental, healthand safety (“EHS”) legal requirements, and we have developed policies andmanagement systems that are intended to identify the multitude of EHS legalrequirements applicable to our operations, enhance compliance with applicablelegal requirements, ensure the safety of our employees, contractors, communityneighbors and customers and minimize the production and emission of wastes andother pollutants. Although EHS legal requirements are constantly changing andare frequently difficult to comply with, these EHS management systems aredesigned to assist us in our compliance goals while also fostering efficiencyand improvement and minimizing overall risk to us.

**EHS CapitalExpenditures**

We may incur future costsfor capital improvements and general compliance under EHS laws, including coststo acquire, maintain and repair pollution control equipment. For the yearsended December 31, 2006 and 2005, our capital expenditures for EHS matterstotaled $53.3 million and $48.9 million, respectively. Since capitalexpenditures for these matters are subject to evolving regulatory requirementsand depend, in part, on the timing, promulgation and enforcement of specificrequirements, we cannot provide assurance that our recent expenditures will beindicative of future amounts required under EHS laws.

**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.

Under the U.S. Comprehensive Environmental Response,Compensation and Liability Act of 1980, as amended (“CERCLA”), and similarstate laws, a current or former owner or operator of real property may beliable for remediation costs regardless of whether the release or disposal ofhazardous substances was in compliance with law at the time it occurred, and acurrent owner or operator may be liable regardless of whether it owned oroperated the facility at the time of the release. We have been notified bythird parties of claims against us for cleanup liabilities at approximately 12former facilities or third party sites, including, but not limited to, siteslisted under CERCLA. Based on current information and past experiences at otherCERCLA sites, we do not expect any of these third party claims to result inmaterial liability to us.

In addition, under the U.S. Resource Conservation andRecovery Act of 1976, as amended (“RCRA”), and similar state laws, we may berequired to remediate contamination originating from our properties as acondition to our hazardous waste permit. Some of our manufacturing sites havean extended history of industrial chemical manufacturing and use, includingon-site waste disposal. We are aware of soil, groundwater or surfacecontamination from past operations at some of our sites, and we may findcontamination at other sites in the future. For example, our Odessa, PortArthur and Port Neches facilities in Texas, and our Geismar facility inLouisiana, are the subject of ongoing remediation requirements under RCRAauthority.

In many cases, our potential liability arising fromhistorical contamination is based on operations and other events occurringprior to our ownership of a business or specific facility. In these situations,we frequently obtained an indemnity agreement from the prior owner addressingremediation liabilities arising from pre-closing conditions. We havesuccessfully exercised our rights under these contractual covenants for anumber of sites, and where applicable, mitigated our ultimate remediationliability. We 

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cannot assure you,however, that all of such matters will be subject to indemnity or that ourexisting indemnities will be sufficient to cover our liabilities for suchmatters.

Based on availableinformation and the indemnification rights we believe are likely to beavailable, we believe that the costs to investigate and remediate knowncontamination will not have a material adverse effect on our financialcondition, results of operations or cash flows. However, if such indemnitiesare unavailable or do not fully cover the costs of investigation andremediation or we are required to contribute to such costs, and if such costsare material, then such expenditures may have a material adverse effect on ourfinancial condition, results of operations or cash flows. At the current time,we are unable to estimate the full cost, exclusive of indemnification benefits,to remediate any of the known contamination sites.

***EnvironmentalReserves***

We have accruedliabilities relating to anticipated environmental cleanup obligations, sitereclamation and closure costs and known penalties. Liabilities are recordedwhen potential liabilities are either known or considered probable and can bereasonably estimated. Our liability estimates are based upon available facts,existing technology and past experience. The environmental liabilities do not includeamounts recorded as asset retirement obligations. We have accrued approximately$14 million and $25 million for environmental liabilities as of December 31,2006 and 2005, respectively. Of these amounts, approximately $6 millionand $7 million are classified as accrued liabilities on our consolidatedbalance sheets as of December 31, 2006 and 2005, respectively, andapproximately $8 million and $18 million are classified as othernoncurrent liabilities on our consolidated balance sheets as of December 31,2006 and 2005, respectively. In certain cases, our remediation liabilities arepayable over periods of up to 30 years. We may incur losses forenvironmental remediation in excess of the amounts accrued; however, we are notable to estimate 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 adopt rules andimplement a cross media (air, water and waste) environmental permitting programfor individual facilities. While the EU countries are at varying stages intheir respective implementation of the IPPC permit program, we have submittedall necessary IPPC permit applications required to date, and in some cases receivedcompleted permits from the applicable government agency. We expect to submitall other IPPC applications and related documents on a timely basis as thevarious countries implement the IPPC permit program. Although we do not knowwith certainty what each IPPC permit will require, we believe, based upon ourexperience with the permits received to date, that the costs of compliance withthe IPPC permit program will not be material to our financial condition,results of operations or cash flows.

In December 2006, theEU parliament and EU council approved a new EU regulatory framework forchemicals called “REACH” (Registration, Evaluation and Authorization ofChemicals). REACH will take effect in June 2007, and the program itestablishes will be phased in over 11 years. Under the regulation companiesthat manufacture or import more than one ton of a chemical substance per yearwill be required to register such chemical substances, and isolatedintermediates, in a central database. Use authorizations will be granted for aspecific chemical if the applicants can show that any risk in using thechemical can be adequately controlled or, where there are no suitablealternatives available, if the applicant can demonstrate that the social andeconomic benefits of using the chemical outweigh the risks. Specified uses ofsome hazardous substances may be restricted. In addition, all applicants willhave to study the availability of alternative chemicals. If alternatives areavailable, a “substitution” plan will have to be submitted to the regulatoryagency. Persistent bio-accumulative and toxic substances will only beauthorized if an alternative chemical is not available. The registration,evaluation and authorization phases 

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of theprogram will require expenditures and resource commitments in order to, forexample, develop information technology tools, generate data, prepare andsubmit dossiers for substance registration, participate in consortia, obtainlegal advice, and reformulate products if necessary. We have established across-business European REACH team that is working closely with our businessesto identify and list all substances manufactured or imported by us into theEuropean Union. Currently, it is not possible to estimate the likely financialimpact of these regulations on any of our sites. We expect to incur costs of upto $5 million for REACH compliance in 2007.

**Greenhouse GasRegulation**

In the EU and otherjurisdictions committed to compliance with the Kyoto Protocol to the UnitedNations Framework Convention on Climate Change (the “Convention”), there is anincreasing likelihood that our manufacturing sites will be affected in some wayover the next few years by taxation of greenhouse gas (“GHG”) emissions. Inaddition, although the U.S. is not a signatory to the Convention, severalstates, including California, are implementing their own GHG regulatoryprograms, and a federal program in the U.S. is a possibility for the future.While only a very small number of our sites are currently affected by existingGHG legislation, and none have experienced or anticipate significant costincreases as a result, it is likely that GHG emission restrictions willincrease over time. Potential consequences of such restrictions includeincreases in energy costs above the level of general inflation, as well asdirect compliance costs. Currently, however, it is not possible to estimate thelikely financial impact of potential future regulation on any of our sites.

**Chemical Facility Anti-TerrorismRulemaking**

On December 28, 2006, the U.S. Department ofHomeland Security published an advanced notice of proposed rulemaking seekingpublic comment on proposed regulations for securing high risk chemicalfacilities from potential terrorist attacks, as required by the HomelandSecurity Appropriations Act of 2006. The target date set by the act for issuingthe regulations is April 4, 2007. If adopted, the regulations willimmediately implement the security program at the nation’s highest risk facilities,and a phased implementation at other chemical facilities that present securityrisks addressed by the statute, beginning in 2007 and continuing through 2008.

Since 2003, we haveconducted security vulnerability assessments at all of our higher riskmanufacturing facilities in the U.S. Those assessments led to changes in ouroperations in certain instances to ensure greater security. Whether theassessments and resulting improvements will fully satisfy the requirements ofthe final regulations, and whether additional costly changes will have to bemade, is unclear to us at this time. Currently, it is not possible to estimatethe likely financial impact of these regulations on any of our sites.

**MTBE Developments**

We produce MTBE, an oxygenate that is blended withgasoline to reduce vehicle air emissions and to enhance the octane rating ofgasoline. Existing or future litigation or legislative initiatives restrictingthe use of MTBE in gasoline may subject us or our products to environmentalliability or materially adversely affect our sales and costs. Because MTBE hascontaminated some water supplies, its use has become controversial in the U.S.and elsewhere, and its use has been effectively eliminated in the U.S. market.

As a result of these developments, we currentlymarket, either directly or through third parties, MTBE to customers locatedoutside the U.S. for use as a gasoline additive, which has produced a lowerlevel of cash flow than the previous sale of MTBE in the U.S. We may also electto use all or a portion of our precursor TBA to produce saleable products otherthan MTBE. If we opt to produce products other than MTBE, necessarymodifications to our facilities will require significant capital expendituresand the 

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sale of such other productsmay produce a lower level of cash flow than that historically produced from thesale of MTBE.

A number of lawsuits havebeen filed, primarily against gasoline manufacturers, marketers anddistributors, by persons seeking to recover damages allegedly arising from thepresence of MTBE in groundwater. While we have not been named as a defendant inany litigation concerning the environmental effects of MTBE, we cannot provideassurances that we will not be involved in any such litigation or that suchlitigation will not have a material adverse effect on our business, results ofoperations and financial condition. However, because we are not able toestimate the amount or range of losses that would be associated with suchlitigation, we have made no accruals with respect to unasserted claimsconcerning the environmental effects of MTBE as of December 31, 2006.

**AVAILABLEINFORMATION**

We maintain an Internetwebsite at http://www.huntsman.com. Our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-Kand amendments to these reports are available free of charge through ourwebsite as soon as reasonably practicable after we file this material with theSEC. We also provide electronic or paper copies of our SEC filings free ofcharge upon request.

**GLOSSARYOF CHEMICAL TERMS**

APAO—amorphous polyalpha olefins

DEG—di-ethylene glycol

BDO—butane diol

DGA® Agent—DIGLYCOLAMINE® agent

EG—ethylene glycol

EO—ethylene oxide

EPS—expanded polystyrene

LAB—linear alkyl benzene

LAS—linear alkylbenzene sulfonate

LDPE—low density polyethylene

LER—liquid epoxy resins

LLDPE—linear low density polyethylene

LNG—liquefied natural gas

MEG—mono-ethylene glycol

MDI—methyl diphenyl diisocyanate

MTBE—methyl tertiary-butyl ether

PG—propylene glycol

PO—propylene oxide

Polyols—a substance containing several hydroxylgroups. A diol, triol and tetrol contain two, three and four hydroxyl groupsrespectively

TBA—tertiary-butyl alcohol

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TBHP—tert-butyl hydroperoxide

TDI—toluene diisocyanate

TEG—tri-ethylene glycol

TiO2—titanium dioxide pigment (also referred to as “Tioxide,”which is the registered trademark that we use to market TiO2)

TPU—thermoplastic polyurethane

UPR—unsaturated polyesterresin

**ITEM 1A.**        RISKFACTORS

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

***Futureacquisitions, partnerships and joint ventures, as well as our recent TextileEffects Acquisition, may require significant resources and/or result inunanticipated adverse consequences that could have a material adverse effect onour business, results of operations and financial condition.***

In the future wemay seek to grow our Company and businesses by making acquisitions or enteringinto partnerships and joint ventures. Any future acquisition, partnership orjoint venture, such as our recent Textile Effects Acquisition, may require thatwe make a significant cash investment, issue stock or incur substantial debt.In addition, acquisitions, partnerships or investments, such as our recentTextile Effects Acquisition, may require significant managerial attention,which may be diverted from our other operations. These capital, equity andmanagerial commitments may impair the operation of our businesses. Furthermore,our recent Textile Effects Acquisition and any future acquisitions ofbusinesses or facilities, could 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.

We have incurredindebtedness to finance past acquisitions. We may finance future acquisitions withadditional indebtedness. 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, which could have a material adverse effect on our business,results of operations and financial condition.

***Significant pricevolatility or interruptions in supply of our raw materials may result inincreased costs that we may be unable to pass on to our customers, which couldreduce our profitability.***

The prices of the raw materials that we purchase fromthird parties are cyclical and volatile. We purchase a substantial portion ofthese raw materials from third party suppliers, and the cost of these raw materialsrepresents a substantial portion of our operating expenses. The prices for anumber of these raw materials generally follow price trends of, and vary withmarket conditions for, crude oil and natural gas feedstocks, which are highlyvolatile and cyclical.

The feedstocks and other raw materials we consumegenerally are commodity products that are readily available at market prices.Nevertheless, we frequently enter into supply agreements with particular 

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suppliers where we believesuch agreements will reduce our costs. In some cases, the existence ofpipelines or the proximity of suppliers may provide significant cost benefitsto us. Disruptions of existing supply arrangements could substantially impactour profitability. If certain of our suppliers are unable to meet theirobligations under present supply agreements, we may be forced to pay higherprices to obtain the necessary raw materials from other sources and we may notbe able to increase prices for our finished products to recoup the higher raw materialscosts. In addition, if any of the raw materials that we use become unavailablewithin the geographic area from which they are now sourced, then we may not beable to obtain suitable or cost effective substitutes. Any interruption in thesupply of raw materials could increase our costs or decrease our revenues,which could reduce our cash flow.

Our supply agreementstypically provide for market-based pricing and provide us only limitedprotection against price volatility. While we attempt to match cost increaseswith corresponding product price increases, we are not always able to raiseproduct prices immediately or at all. Timing differences between raw materialprices, which may change daily, and contract product prices, which in manycases are negotiated only monthly or less often, have had and may continue tohave a negative effect on our cash flow. Any cost increase that we are not ableto pass on to our customers could have a material adverse effect on ourbusiness, results of operations, financial condition and liquidity.

***Demand for many ofour products is cyclical, and we may experience prolonged depressed marketconditions for such products.***

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.

During 2006, we derivedapproximately 25% of our revenue from sales of commodity products. In December 2006,we completed the U.K. Petrochemical Disposition and in February 2007, weentered into an agreement to sell our U.S. base chemicals and polymers assets;however, we currently retain significant commodity assets. Due to the commoditynature of these products, competition in these markets is based primarily onprice and to a lesser extent on performance, product quality, productdeliverability and customer service. As a result, we may not be able to protectour market position for these products by product differentiation and may notbe able to pass on cost increases to our customers. Historically, the pricesfor our commodity products have been cyclical and sensitive to relative changesin supply and demand, the availability and price of feedstocks and generaleconomic conditions. Our other products may be subject to these same factors,but, typically, the impact of these factors is greatest on our commodity products.

***We are subject tothe risk of loss resulting from nonpayment and/or nonperformance by ourcustomers.***

Our credit procedures andpolicies may not be adequate to eliminate customer credit risk. Our customersmay experience financial difficulties, including bankruptcies, restructuringsand liquidations. These and other financial problems that may be experienced byour customers, as well as potential financial weakness in our industry, mayincrease our risk in extending trade credit to customers. A significant adversechange in a customer relationship or in a customer’s financial position couldcause us to limit or discontinue business with that customer, require us toassume more credit risk relating to that customer’s receivables or limit ourability to collect accounts receivable from that customer, all of which couldhave a material adverse effect on our business, results of operations,financial condition and liquidity.

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***Natural or otherdisasters could disrupt our business and result in loss of revenue or in higherexpenses.***

Any serious disruption atany of our facilities due to hurricane, fire, earthquake, flood, terroristattack or any other natural or man-made disaster could impair our ability touse our facilities and have a material adverse impact on our revenues andincrease our costs and expenses. Substantially all of our revenues are derivedfrom products manufactured at facilities, including among others, our U.S. GulfCoast facilities, that are exposed to the risk of disasters. If there is anatural disaster or other serious disruption at any of these facilities, itcould impair our ability to adequately supply our customers and negativelyimpact our operating results. In addition, many of our current and potentialcustomers are concentrated in specific geographic areas. A disaster in one ofthese regions could have a material adverse impact on our operations, operatingresults and financial condition.

***We have a historyof losses and may incur losses in the future.***

We incurred net losses infour of the last five fiscal years. Our history of net losses may have anegative impact on our business, including our ability to fund operations, makecapital expenditures and service debt obligations. Persistent continued netlosses likely would negatively affect our ability to meet such obligations overthe long-term. Our history of net losses may also increase our cost ofborrowing and make it more difficult and/or expensive to take advantage ofopportunities for growth.

***Our available cashand access to additional capital may be limited by our significant leverage,which could restrict our ability to grow our businesses.***

We have asignificant amount of indebtedness outstanding. As of December 31, 2006,we had total consolidated outstanding indebtedness of approximately $3.6billion (including the current portion of long-term debt) and a debt to totalcapitalization ratio of approximately 68%. This balance does not reflectapproximately $443 million of outstanding amounts under our off-balancesheet A/R Securitization Program at December 31, 2006. Our outstandingdebt could have important consequences for our businesses, including:

·       ahigh degree of debt makes us more vulnerable to a downturn in our businesses,our industry or the economy in general, as a significant percentage of our cashflow from operations will be required to make payments on our indebtedness,making it more difficult to react to changes in our business and in market orindustry conditions;

·       asubstantial portion of our future cash flow from operations may be required tobe dedicated to the payment of principal and interest on indebtedness, therebyreducing the funds available for other purposes, including the growth of ourbusinesses;

·       ourability to obtain additional financing may be constrained due to our existinglevel of debt; and

·       partof our indebtedness is, and any future debt may be, subject to variableinterest rates, which makes us vulnerable to increases in interest rates.

We require substantial capital to finance ouroperations and continued growth, and we may incur substantial additional debtfrom time to time for a variety of purposes, including acquiring additionalbusinesses. However, our existing debt instruments contain restrictivecovenants. Among other things, these covenants limit or prohibit our ability toincur more debt; make prepayments of other debt; pay dividends, redeem stock ormake other distributions; issue capital stock; make investments; create liens;enter into transactions with affiliates; enter into sale and leasebacktransactions; and merge or consolidate; and transfer or sell assets. Also, ifwe undergo a change of control, our debt instruments may require us to make anoffer to purchase certain of our notes. Under these circumstances, we may alsobe required to repay indebtedness under our Senior Credit Facilities prior toour notes. In this event, we may not have the 

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financial resourcesnecessary to purchase such notes, which would result in an event of defaultunder the indentures governing such notes.

As of December 31,2006, the current portion of our long term debt totaled approximately $188 million.For 2007, we estimate that our annual aggregate debt service expense will beapproximately $275 million, which will include approximately $10 million inamortization of capitalized debt costs. As of December 31, 2006, we hadcombined outstanding variable rate borrowings of approximately $1.9 billion.Assuming a 1% increase in interest rates, without giving effect to any interestrate hedges, our annual interest rate expense would increase by approximately$19 million. If we are unable to generate sufficient cash flow or are otherwiseunable to obtain the funds required to meet payments of principal and intereston our indebtedness, or if we otherwise fail to comply with the variouscovenants in the instruments governing our indebtedness, we could be in defaultunder the terms of those instruments. In the event of a default, a holder ofthe indebtedness could elect to declare all the funds borrowed under thoseinstruments to be due and payable together with accrued and unpaid interest,the creditors under our Senior Credit Facilities could elect to terminate theircommitments thereunder and we or one or more of our subsidiaries, could beforced into bankruptcy or liquidation. Any of the foregoing consequences couldhave a material adverse effect on our business, results of operations andfinancial condition.

***If our subsidiariesdo not make sufficient distributions to us, then we will not be able to makepayment on our debts.***

Generally, our debt is the exclusive obligation ofHuntsman International and the guarantors of such debt and not of any of ourother subsidiaries. Because a significant portion of our operations areconducted by these other subsidiaries, our cash flow and our ability to serviceindebtedness, including our ability to pay the interest on our debt when dueand principal of such debt at maturity, are dependent to a large extent uponcash dividends and distributions or other transfers from non-guarantorsubsidiaries. Any payment of dividends, distributions, loans or advances by ournon-guarantor subsidiaries to us could be subject to restrictions on dividendsor repatriation of earnings under applicable local law, monetary transferrestrictions and foreign currency exchange regulations in the jurisdictions inwhich our subsidiaries operate, and any restrictions imposed by the current andfuture debt instruments of our non-guarantor subsidiaries. In addition,payments to us by our subsidiaries are contingent upon our non-guarantorsubsidiaries’ earnings.

Our subsidiaries areseparate and distinct legal entities and, except for our guarantorsubsidiaries, have no obligation, contingent or otherwise, to pay any amountsdue on our debt or to make any funds available therefor, whether by dividends,loans, distributions or other payments, and do not guarantee the payment ofinterest on, or principal of, our debt. Any right that we have to receive anyassets of any of our subsidiaries that are not guarantors upon the liquidationor reorganization of any such subsidiary, and the consequent right of holdersof notes to realize proceeds from the sale of their assets, will bestructurally subordinated to the claims of that subsidiary’s creditors,including trade creditors and holders of debt issued by that subsidiary.

***A downgrade in theratings of the securities of our Company or our subsidiaries could result inincreased interest and other financial expenses related to future borrowings ofour Company or our subsidiaries and could restrict our access to additionalcapital or trade credit.***

Standard and Poor’sRatings Services and Moody’s Investors Service maintain credit ratings for us.Each of these ratings is currently below investment grade. Any decision bythese or other ratings agencies to downgrade such ratings in the future couldresult in increased interest and other financial expenses relating to ourfuture borrowings and could restrict our ability to obtain additional financingon satisfactory terms. In addition, any downgrade could restrict our access to,and negatively impact the terms of, trade credit extended by our suppliers ofraw materials.

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***Existing or futurelitigation or legislative initiatives restricting the use of MTBE in gasolinemay subject us or our products to environmental liability, materially reduceour sales and/or materially increase our costs.***

We produce MTBE, an oxygenate that is blended withgasoline to reduce vehicle air emissions and to enhance the octane rating ofgasoline. Existing or future litigation or legislative initiatives restrictingthe use of MTBE in gasoline may subject us or our products to environmentalliability or materially adversely affect our sales and costs. Because MTBE hascontaminated some water supplies, its use has become controversial in the U.S.and elsewhere, and its use has been effectively eliminated in the U.S. market.

As a result of these developments, we currentlymarket, either directly or through third parties, MTBE to customers locatedoutside the U.S. for use as a gasoline additive, which has produced a lowerlevel of cash flow than the previous sale of MTBE in the U.S. We may also electto use all or a portion of our precursor TBA to produce saleable products otherthan MTBE. If we opt to produce products other than MTBE, necessary modificationsto our facilities will require significant capital expenditures and the sale ofsuch other products may produce a lower level of cash flow than thathistorically produced from the sale of MTBE.

A number of lawsuits havebeen filed, primarily against gasoline manufacturers, marketers anddistributors, by persons seeking to recover damages allegedly arising from thepresence of MTBE in groundwater. While we have not been named as a defendant inany litigation concerning the environmental effects of MTBE, we cannot provideassurances that we will not be involved in any such litigation or that suchlitigation will not have a material adverse effect on our business, results ofoperations and financial condition. However, because we are not able toestimate the amount or range of losses that would be associated with suchlitigation, we have made no accruals with respect to unasserted claimsconcerning the environmental effects of MTBE as of December 31, 2006.

***Our results ofoperations may be adversely affected by fluctuations in currency exchange ratesand international business risks.***

We conduct a majority of our business operationsoutside the U.S., and these operations are subject to risks normally associatedwith international operations. These risks include the need to convertcurrencies which may be received for our products into currencies in which wepurchase raw materials or pay for services, which could result in a gain orloss depending on fluctuations in exchange rates. In addition, we translate ourlocal currency financial results into U.S. dollars based on average exchangerates prevailing during the reporting period or the exchange rate at the end ofthat period. During times of a strengthening U.S. dollar, our reportedinternational sales and earnings may be reduced because the local currency maytranslate into fewer U.S. dollars. Because we currently have significantoperations located outside the United States, we are exposed to fluctuations inglobal currency rates which may result in gains or losses on our financialstatements.

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.

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***The industries inwhich we compete are highly competitive, and we may not be able to competeeffectively with our competitors that have greater financial resources, whichcould have a material adverse effect on our business, results of operations andfinancial condition.***

The industries in which weoperate are highly competitive. Among our competitors are some of the world’slargest chemical companies and major integrated petroleum companies that havetheir own raw material resources. Some of these companies may be able toproduce products more economically than we can. In addition, some of ourcompetitors have greater financial resources, which may enable them to investsignificant capital into their businesses, including expenditures for researchand development. If any of our current or future competitors developsproprietary technology that enables them to produce products at a significantlylower cost, our technology could be rendered uneconomical or obsolete.Moreover, certain of our businesses use technology that is widely available.Accordingly, barriers to entry, apart from capital availability, are low incertain commodity product segments of our business, and the entrance of newcompetitors into the industry may reduce our ability to capture improvingprofit margins in circumstances where capacity utilization in the industry isincreasing. Further, petroleum-rich countries have become more significantparticipants in the petrochemical industry and may expand this rolesignificantly in the future. Increased competition in any of our businessescould compel us to reduce the prices of our products, which could result inreduced profit margins and loss of market share and have a material adverseeffect on our business, results of operations, financial condition andliquidity.

***Our operations involve risks that may increase ouroperating costs, which could reduce our profitability.***

Although we take precautions to enhance the safety ofour operations and minimize the risk of disruptions, our operations are subjectto hazards inherent in the manufacturing and marketing of differentiated andcommodity chemical products. These hazards include: chemical spills, pipelineleaks and ruptures; storage tank leaks, discharges or releases of toxic orhazardous substances or gases and other hazards incident to the manufacturing,processing, handling, transportation and storage of dangerous chemicals. We arealso potentially subject to other hazards, including natural disasters andsevere weather; explosions and fires; transportation problems, includinginterruptions, spills and leaks; mechanical failures; unscheduled downtimes;labor difficulties; remediation complications; and other risks. For example, onApril 29, 2006, our Port Arthur, Texas olefins manufacturing plant experienceda major fire and the facility is currently not operational. Damage from thefire is significant and the plant is currently expected to be off line until early in the third quarterof 2007. Many potential hazards can cause bodily injury and loss of life,severe damage to or destruction of property and equipment and environmentaldamage, and may result in suspension of operations and the imposition of civilor criminal penalties and liabilities. Furthermore, we are subject to presentand future claims with respect to workplace exposure, exposure of contractorson our premises as well as other persons located nearby, workers’ compensationand 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 and products liability and sudden andaccidental insurance policies, as well as insurance policies covering othertypes of risks, including pollution legal liability insurance. Each of theseinsurance policies is subject to customary exclusions, deductibles and coveragelimits, in accordance with industry standards and practices. As a result ofmarket conditions, premiums and deductibles for certain insurance policies canincrease substantially and, in some instances, certain insurance may becomeunavailable or available only for reduced amounts of coverage. If we were toincur a significant liability for which we were not fully insured, it couldhave a material adverse effect on our business, results of operations,financial condition and liquidity.

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In addition, we are subjectto various claims and litigation in the ordinary course of business. Inconjunction with many of our past acquisitions, we have obtained indemnityagreements from the prior owners addressing liabilities that may arise fromoperations and events prior to our ownership. We are a party to various pendinglawsuits and proceedings. It is possible that judgments could be renderedagainst us in these cases or others in which we could be uninsured or notcovered by indemnity and beyond the amounts that we currently have reserved oranticipate incurring for such matters.

***We are subject to many environmental and safetyregulations that may result in unanticipated costs or liabilities, which couldreduce 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 beliable for the costs of investigating and cleaning up environmentalcontamination on or from our properties or at off-site locations where wedisposed of or arranged for the disposal or treatment of hazardous materials orfrom disposal activities that pre-dated our purchase of our businesses. We maytherefore incur additional costs and expenditures beyond those currentlyanticipated to address all such known and unknown situations under existing andfuture environmental laws. See “Item 1. Business—Environmental, Health andSafety Matters” and “Item 3. Legal Proceedings.”

***Our business isdependent on our intellectual property. If our patents are declared invalid orour trade secrets become known to our competitors, our ability to compete maybe adversely affected.***

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 have a material adverseeffect on our business, results of operations, financial condition andliquidity.

We also rely uponunpatented proprietary know-how and continuing technological innovation andother trade secrets to develop and maintain our competitive position. While itis our policy to enter into confidentiality agreements with our employees andthird parties to protect our intellectual property, these 

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confidentialityagreements may be breached, may not provide meaningful protection for our tradesecrets or proprietary know-how, or adequate remedies may not be available inthe event of an unauthorized use or disclosure of our trade secrets andknow-how. In addition, others could obtain knowledge of our trade secretsthrough independent development or other access by legal means. The failure ofour patents or confidentiality agreements to protect our processes,apparatuses, technology, trade secrets or proprietary know-how could have amaterial adverse effect on our business, results of operations, financialcondition and liquidity.

***Loss of key membersof our management could disrupt our business.***

We depend on the continuedemployment and performance of our senior executives and other key members ofmanagement. If any of these individuals resigns or becomes unable to continuein his present role and is not adequately replaced, our business operations andour ability to implement our growth strategies could be materially disrupted.We generally do not have employment agreements with, and we do not maintain any“key man” life insurance for, any of our executive officers.

***Terrorist attacks,such as the attacks that occurred on September 11, 2001, the continuingmilitary action in Iraq, general instability in various OPEC member and otherenergy-producing nations, the threat of other attacks or acts of war in theU.S. and abroad and increased security regulations related to our industrycould adversely affect our business.***

The attacks of September 11,2001, and subsequent events, including the continuing military action in Iraq,have caused instability in the U.S. and other financial markets and have led,and may continue to lead, to further armed hostilities, prolonged militaryaction in Iraq, or further acts of terrorism in the U.S. or abroad, which couldcause further instability in financial markets. Current regional tensions andconflicts in various OPEC member and other energy-producing nations, includingthe continuing military action in Iraq, have caused, and may cause further,increases in raw material costs, particularly natural gas and crude oil basedfeedstocks, which are used in our operations. The uncertainty surrounding thethreat of further armed hostilities, military action 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, the 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 have a material adverse effecton our business, results of operations, financial condition and liquidity.

***We are indirectlycontrolled by the Huntsman family and MatlinPatterson, whose interests mayconflict with those of our Company or our other stockholders, and otherstockholders’ voting power may be limited.***

Jon M. Huntsman andother members of the Huntsman family and MatlinPatterson indirectly control, inthe aggregate, approximately 59% of our outstanding common stock through theirbeneficial ownership of HMP Equity Trust and will have the ability to:

·       elect a majority of themembers of the board of directors of our Company;

·       subject to applicable lawand the rights of holders of our mandatory convertible preferred stock,determine, without the consent of our other stockholders, the outcome ofcertain matters submitted to our stockholders for approval, includingamendments to our certificate of incorporation, mergers, consolidations and thesale of all or substantially all of our assets; and

·       subject to applicable law,prevent or cause a change in control of our Company.

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The interests andobjectives of our controlling stockholders may be different from those of ourCompany or our other stockholders, and our controlling stockholders may vote theircommon stock in a manner that may adversely affect our other stockholders. Inaddition, four of our directors, Jon M. Huntsman, Peter R. Huntsman,David J. Matlin and Christopher R. Pechock, control HMP Equity Trust. Thismay create conflicts of interest because these directors have responsibilitiesto HMP Equity Trust and its beneficial owners. Their duties to HMP Equity Trustand its beneficial owners may conflict with their duties as directors of ourCompany regarding business dealings between HMP Equity Trust and us and othermatters. The resolution of these conflicts may not always be in our or ourstockholders’ best interest.

***HMP Equity Trust’scontrolling position and provisions contained in our certificate ofincorporation and bylaws could discourage a takeover attempt, which may reduceor eliminate the likelihood of a change of control transaction and, therefore,your ability to sell your shares at a premium.***

HMP Equity Trust’scontrolling position, as well as provisions contained in our certificate ofincorporation and bylaws, such as a classified board of directors, limitationson stockholder proposals at meetings of stockholders and the inability ofstockholders to call special meetings, and certain provisions of Delaware law,could make it more difficult for a third party (other than HMP Equity Trust andits affiliates) to acquire control of our Company, even if some of ourstockholders considered such a change of control to be beneficial. Ourcertificate of incorporation also authorizes our board of directors to issuepreferred stock without stockholder approval. If our board of directors electsto issue preferred stock that has special voting or other rights, it could makeit more difficult for a third party to acquire us. These provisions takentogether or individually may reduce or eliminate your ability to sell yourshares of common stock at a premium.

***Our internalcontrol over financial reporting could be adversely affected by a materialweakness in our internal controls. ***

In our amended quarterly reporton Form 10-Q/A for the quarter ended September 30, 2006, we disclosed that inFebruary 2007 we discovered an error in the accounting for the impairment ofour European base chemicals and polymers business, which led to a restatementof our reported results for the three and nine month periods ended September30, 2006.  In connection with therestatement, we concluded that, as of September 30, 2006 and December 31, 2006,we had a material weakness in our financial reporting process related to theaccounting for this complex, non-routine transaction.  As a result of this material weakness, ourchief executive officer and chief financial officer concluded that as ofDecember 31, 2006 our disclosure controls and procedures were not effective.While we have taken steps to remediate this weakness, to the extent that ouractions to remediate this weakness are ineffective or inadequate, or there areother weaknesses or deficiencies that arise, the effectiveness of ourdisclosure controls and internal control over financial reporting may beadversely affected.

**ITEM 1B.  UNRESOLVED STAFF COMMENTS**

As of December 31, 2006, we did not have anyunresolved comments with the staff of the SEC.

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**ITEM 2.     PROPERTIES**

We ownor lease chemical manufacturing and research facilities in the locationsindicated in the list below which we believe are adequate for our short-termand anticipated long-term needs. We own or lease office space and storagefacilities throughout the U.S. and many foreign countries. Our principalexecutive offices are located at 500 Huntsman Way, Salt Lake City, Utah 84108.The following is a list of our material owned or leased properties wheremanufacturing, 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               |
| Shanghai, China               |       | Polyurethanes                          |       | MDI Finishing Facilities                                                                                    |
| 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                                                                                  |
| Auburn Hills, Michigan(1)     |       | Polyurethanes                          |       | Polyurethane Research Facility                                                                              |
| 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                                                                                  |
| Wilton, U.K.                  |       | Polyurethanes                          |       | Aniline and Nitrobenzene Manufacturing Facilities                                                           |
| Port Neches, Texas            |       | Polyurethanes and Performance Products |       | Olefins, EO, EG, Surfactants, Amines and PO  Manufacturing Facilities                                       |
| Bergkamen, Germany            |       | Materials and Effects                  |       | Synthesis Facility                                                                                          |
| Monthey, Switzerland          |       | Materials and Effects                  |       | Resins and Synthesis Facility                                                                               |
| Pamplona, Spain               |       | Materials and Effects                  |       | Resins and Synthesis Facility                                                                               |
| McIntosh, Alabama             |       | Materials and Effects                  |       | Resins and Synthesis Facility                                                                               |
| Chennai, India(3)             |       | Materials and Effects                  |       | Resins and Synthesis Facility                                                                               |
| Bad Saeckingen, Germany(1)    |       | Materials and Effects                  |       | Formulating Facility                                                                                        |
| Duxford, U.K.                 |       | Materials and Effects                  |       | Formulating Facility                                                                                        |
| Sadat City, Egypt             |       | Materials and Effects                  |       | Formulating Facility                                                                                        |
| Taboão da Serra, Brazil  |       | Materials and Effects                  |       | Formulating Facility                                                                                        |
| East Lansing, Michigan        |       | Materials and Effects                  |       | Formulating Facility                                                                                        |
| Istanbul, Turkey(1)           |       | Materials and Effects                  |       | Formulating Facility                                                                                        |

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| Los Angeles, California             |   | Materials and Effects |   | Formulating Facility                                             |
|-------------------------------------|--------|-----------------------|--------|------------------------------------------------------------------|
| Langweid am Leich, Germany(1)       |   | Materials and Effects |   | Formulating Facility                                             |
| Schweizerhalle, Switzerland(1)      |   | Materials and Effects |   | Formulating Facility                                             |
| Charlotte, North Carolina(1)        |   | Materials and Effects |   | Formulating Facility                                             |
| St. Fons, France(1)                 |   | Materials and Effects |   | Synthesis Facility                                               |
| Basel, Switzerland(1)               |   | Materials and Effects |   | Synthesis Facility                                               |
| Qingdao, China(1)                   |   | Materials and Effects |   | Synthesis Facility                                               |
| Samutsakorn (Mahachai), Thailand(1) |   | Materials and Effects |   | Synthesis Facility                                               |
| Atoto, Mexico                       |   | Materials and Effects |   | Synthesis Facility                                               |
| St. Gabriel, Louisiana(1)           |   | Materials and Effects |   | Synthesis Facility                                               |
| Panyu, China(1)(4)                  |   | Materials and Effects |   | Production Facility                                              |
| Conroe, Texas                       |   | Performance Products  |   | Amines Manufacturing Facility                                    |
| Petfurdo, Hungary(1)                |   | Performance Products  |   | Amines Manufacturing Facility                                    |
| Llanelli, U.K.                      |   | Performance Products  |   | Amines Manufacturing Facility                                    |
| Freeport, Texas(1)                  |   | Performance Products  |   | Amines Manufacturing Facility                                    |
| Chocolate Bayou, Texas(1)(5)        |   | Performance Products  |   | LAB Manufacturing Facility                                       |
| Pensacola, Florida(1)(5)            |   | Performance Products  |   | Maleic Anhydride Manufacturing Facility                          |
| Dayton, Texas                       |   | Performance Products  |   | Surfactant Manufacturing Facility                                |
| Botany, Australia                   |   | Performance Products  |   | Surfactant/EG 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                                |
| 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(6)          |   | 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                                       |
| Mansonville, Quebec                 |   | Polymers              |   | EPS Manufacturing Facility                                       |
| Port Arthur, Texas                  |   | Base Chemicals        |   | Olefins and Cyclohexane Manufacturing Facility                   |
| Marysville, Michigan                |   | Polymers              |   | Polypropylene Manufacturing Facility                             |
| Longview, Texas(1)                  |   | Polymers              |   | Polypropylene Manufacturing Facility                             |
| Odessa, Texas                       |   | Polymers              |   | Polyethylene Manufacturing Facility                              |
| West Footscray, Australia           |   | Polymers              |   | Styrenics Manufacturing Facility                                 |
| Sour Lake, Texas                    |   | Base  Chemicals       |   | Various  finished raw materials pipelines and storage facilities |

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(1)          Leasedland and/or building.

(2)   The Geismarfacility is owned as follows: we own 100% of the MDI and polyol facilities, andRubicon LLC, a consolidated manufacturing joint venture with ChemturaCorporation in which we own a 50% 

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interest, owns the anilineand nitrobenzene facilities. Rubicon LLC is a separate legal entity thatoperates both the assets that we own jointly with Chemtura Corporation and ourwholly-owned assets 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)   50%-owned manufacturing joint venture with Kronos Louisiana, Inc.,a subsidiary of Kronos Worldwide, Inc.

**ITEM 3.     LEGAL PROCEEDINGS**

**DISCOLORATIONCLAIMS**

Certain claims have been filed against us relating todiscoloration of unplasticized polyvinyl chloride products allegedly caused byour titanium dioxide (“Discoloration Claims”). Substantially all of thetitanium dioxide that is the subject of these claims was manufactured prior toour acquisition of our titanium dioxide business from ICI in 1999. Net ofamounts we have received from insurers and pursuant to contracts of indemnity,we have paid an aggregate of approximately $16 million in costs andsettlement amounts for Discoloration Claims through December 31, 2006.

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.
|                                           | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Claims unresolved  at beginning of period |       |                                             | 2          |                                             |       |                                             | 3          |   |   |   | 4 |   |   |
| Claims filed  during period               |       |                                             | —     |                                             |       |                                             | —     |   |   |   | 1 |   |   |
| Claims resolved  during period            |       |                                             | —     |                                             |       |                                             | 1          |   |   |   | 2 |   |   |
| Claims unresolved at end  of period       |       |                                             | 2          |                                             |       |                                             | 2          |   |   |   | 3 |   |   |

 

During the year ended December 31, 2004, wesettled claims for approximately $45 million, approximately $30 million ofwhich was paid by our insurers or ICI and approximately $15 million of whichwas paid by us. During 2004, we recorded charges of $15.1 million relating toDiscoloration claims. During the year ended December 31, 2005, we settleda claim for approximately $1.0 million, all of which was paid by ICI. The twoDiscoloration Claims unresolved as of December 31, 2006, assertedaggregate damages of approximately $70 million. An appropriate liabilityhas been accrued for these claims. Based on our understanding of the merits ofthese claims and our rights under contracts of indemnity and insurance, we donot believe that the net impact on our financial condition, results ofoperations or liquidity will be material.

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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 on ourhistory with Discoloration Claims to date, the fact that substantially all ofthe titanium dioxide that has been the subject of these Discoloration Claimswas manufactured and sold more than six years ago, and the fact that we haverights under contract to indemnity, including from ICI, we do not believe thatany unasserted Discoloration Claims will have a material impact on ourfinancial condition, results of operations, or liquidity. Based on thisconclusion and our inability to reasonably estimate our expected costs withrespect to these unasserted claims, we have made no accruals in our financialstatements as of December 31, 2006 for costs associated with unassertedDiscoloration Claims.

**ENVIRONMENTALLITIGATION**

On occasion, we receive notices of violation,enforcement and other complaints from regulatory agencies allegingnon-compliance with applicable EHS laws. Based on currently availableinformation and our past experience, we do not believe that the resolution of anypending or threatened environmental enforcement proceedings, will have amaterial impact on our financial condition, results of operations or cashflows.

Beginning in the third quarter of 2004 and extending throughDecember 2005, we received notifications of approximately eight separateenforcement actions from the Texas Commission on Environmental Quality (“TCEQ”)for alleged violations related to air emissions at our Port Neches and PortArthur plants. These alleged violations primarily relate to specific upsetemissions, emissions from cooling towers, or flare operations occurring atparticular times and at particular operating units during 2004 and 2005. Thesenotices of violation appear to be part of a larger enforcement initiative bythe TCEQ regional office focused on upset emissions at chemical and refiningindustry plants located within the Beaumont/Port Arthur region. On November 13,2006, the TCEQ approved a settlement under which we paid approximately $0.4million in the aggregate to settle these matters.

During the first quarter of 2006, we disclosed to theTCEQ that our Conroe, Texas, facility has been out of compliance with HazardousAir Pollutant (“HAP”) regulations. On August 25, 2006, the TCEQ issued aNotice of Enforcement and on October 20, 2006 issued a proposed penalty ofapproximately $0.1 million. Subsequently, because of mitigating factors,we reached an agreement with TCEQ staff to settle the case for considerablyless than $0.1 million. The settlement agreement is awaiting approval of the TCEQ.

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 more thanfour years, undertake environmental monitoring projects totaling about $1.5million in costs, and pay $0.4 million in attorneys’ fees to the TexasAttorney General. As of December 31, 2006, we have paid $5.5 milliontoward the penalty and $0.4 million for attorneys’ fees. The monitoringprojects are underway and on schedule. We do not anticipate that thissettlement will have a material adverse effect on our financial condition,results of operations or cash flows.

On April 29, 2006, there was a release ofhydrocarbons followed by a significant fire in the ethylene refrigeration areaof our Base Chemicals Light Olefins Unit located in Port Arthur, Texas. See “Note22. Casualty Losses and Insurance Recoveries—Port Arthur, Texas, Plant Fire” toour consolidated financial statements included elsewhere in this report. Therewere no fatalities or serious injuries from the fire. An incident investigationteam was formed immediately. The cause of the fire was determined to be asudden rupture of a pipeline which had been weakened by undetected externalcorrosion. The TCEQ has proposed, and we have accepted, a penalty ofapproximately $0.1 million for alleged excessive 

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environmental releasesoccurring as a consequence of the fire. The settlement is awaiting approval ofthe TCEQ.

We have been named as a “premises defendant” in anumber of asbestos exposure cases, typically a claim by a non-employee ofexposure to asbestos while at a facility. In the past, these cases typicallyhave involved multiple plaintiffs bringing actions against multiple defendants,and the complaint has not indicated which plaintiffs were making claims againstwhich defendants, where or how the alleged injuries occurred, or what injurieseach plaintiff claimed. These facts, which would be central to any estimate ofprobable loss, generally have been learned only through discovery. Recentchanges in Texas tort procedures have required many pending cases to be splitinto multiple cases, one for each claimant, increasing the number of pending casesreported below for the year ended December 31, 2006. Nevertheless, thecomplaints in these cases provide little additional information. We do notbelieve that the increased number of cases resulting from the changes in Texastort procedure reflects an increase in the number of underlying claims.

Where the alleged exposure occurred prior to ourownership of the relevant “premises,” the prior owners 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. None of the complaints in these cases statethe amount of damages being sought. The prior owner accepts responsibility forthe conduct of the defense of the cases and payment of any amounts due to theclaimants. In our twelve-year experience with tendering these cases, we havenot made any payment with respect to any tendered asbestos cases. We believethat the prior owners have the intention and ability to continue to honor theirindemnity obligations, although we cannot assure you that they will continue todo so or that we will not be liable 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, all of which have been accepted.

| ** **                               | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Cases unresolved  at beginning of period |       |                                             | 576        |                                             |       |                                             | 398        |   |   |   | 369 |   |   |
| Cases tendered  during period            |       |                                             | 998        |                                             |       |                                             | 284        |   |   |   | 94 |   |   |
| Cases resolved  during period(1)         |       |                                             | 207        |                                             |       |                                             | 106        |   |   |   | 65 |   |   |
| Cases unresolved at end  of period       |       |                                             | 1,367      |                                             |       |                                             | 576        |   |   |   | 398 |   |   |

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(1)   Althoughthe indemnifying party informs us when tendered cases have been resolved, itgenerally does not inform us of the settlement amounts relating to such cases,if any. The indemnifying party has informed us that it typically manages ourdefense together with the defense of other entities in such cases and resolvesmultiple claims involving multiple defendants simultaneously, and that itconsiders the allocation of settlement amounts, if any, among defendants to beconfidential and proprietary. Consequently, we are not able to provide thenumber of cases resolved with payment by the indemnifying party or the amountof such payments.

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We have never made any payments with respect to thesecases. As of December 31, 2006, 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; however, we are notable to estimate the amount or range of loss in excess of our accruals.Additional asbestos exposure claims may be made against us in the future, andsuch claims could be material. However, because we are not able to estimate theamount or range of losses associated with such claims, we have made no accrualswith respect to unasserted asbestos exposure claims as of December 31,2006.

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, other than a number of cases that wereerroneously filed against us due to a clerical error. The cases filed in error aresubject to a voluntary dismissal agreement and are in the process of beingdismissed.

| ** **                               | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Cases unresolved  at beginning of period |       |                                             | 34         |                                             |       |                                             | 29         |   |   |   | 48 |   |   |
| Cases filed during  period               |       |                                             | 19         |                                             |       |                                             | 55         |   |   |   | 23 |   |   |
| Cases resolved  during period            |       |                                             | 11         |                                             |       |                                             | 56         |   |   |   | 42 |   |   |
| Cases unresolved at end  of period       |       |                                             | 42         |                                             |       |                                             | 34         |   |   |   | 29 |   |   |

 

We paid gross settlementcosts for asbestos exposure cases that are not subject to indemnification ofapproximately $10,000, $0.1 million and $1.0 million during the twelve monthsended December 31, 2006, 2005 and 2004, respectively. The cases for the yearended December 31, 2005 include cases filed against Rubicon LLC, whichbecame our consolidated subsidiary on January 1, 2005, as follows: onecase filed during the period, one case resolved during the period and six casesunresolved at the end of the period. As of December 31, 2006, we had anaccrual of approximately $0.6 million relating to these cases. We cannot assureyou that our liability will not exceed our accruals or that our liabilityassociated with these cases would not be material to our financial condition,results of operations or liquidity; however, we are not able to estimate theamount or range of loss in excess of our accruals. Additional asbestos exposureclaims may be made against us in the future, and such claims could be material.However, because we are not able to estimate the amount or range of lossesassociated with such claims, we have made no accruals with respect tounasserted asbestos exposure claims as of December 31, 2006.

**ANTITRUSTMATTERS**

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 States District Court, District of Kansas, initial order transferringand consolidating cases filed August 23, 2004. Other defendants named inthe Polyether Polyols cases are Bayer, BASF, Dow and Lyondell. Bayer enteredinto a settlement agreement with the plaintiffs that was approved by the court.Class certification discovery is underway in these consolidated cases.

We have also been named as a defendant in putativeclass action antitrust suits alleging a conspiracy to fix prices in the MDI,TDI, and polyether polyols industries filed in the Superior Court of Justice,Ontario, Canada on May 5, 2006 and in Superior Court, Quebec, Canada on May 17,2006. The other defendants named above in the Polyether Polyols cases are alsodefendants in these Canadian cases.

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The pleadings of the plaintiffs in these antitrust suitsprovide few specifics about any alleged illegal conduct of the defendants, andwe are not aware of any evidence of illegal conduct by us or any of ouremployees. For these reasons, we cannot estimate the possible loss or range ofloss relating to these claims, and therefore we have not accrued a liabilityfor these claims. Nevertheless, we could incur losses due to these claims inthe future and those losses could be material.

In addition, on February 16,2006, the Antitrust Division of the U.S. Department of Justice served us with agrand jury subpoena requesting production of documents relating to thebusinesses of TDI, MDI, polyether polyols and related systems. The otherdefendants in the Polyether Polyols cases have confirmed that they have also beenserved with subpoenas in this matter. We are cooperating fully with theinvestigation.

**TAXDISPUTE**

In connection with anaudit of our income tax returns for the years ended 1998 through 2001, wereceived a Notice of Proposed Adjustment from the Internal Revenue Service. Weinitiated an administrative appeal before the Internal Revenue Service withrespect to the proposed adjustment in 2005 and resolved these matters duringthe fourth quarter of 2006. The impact of the resolution on our U.S. netoperating losses, and our related accrued tax contingency liability, arediscussed in “Note 19. Income Taxes.”

**OTHERPROCEEDINGS**

We are a party to variousother proceedings instituted by private plaintiffs, governmental authoritiesand others arising under provisions of applicable laws, including variousenvironmental, products liability and other laws. Except as otherwise disclosedin this report, we do not believe that the outcome of any of these matters willhave a material adverse effect on our financial condition, results ofoperations or liquidity. For more information, see “Note 21. Environmental,Health and Safety Matters—Remediation Liabilities” to our consolidatedfinancial statements included elsewhere in this report.

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

None.

**EXECUTIVE OFFICERSOF THE REGISTRANT**

The following is information concerning our executiveofficers as of the date of this report.

*JonM. Huntsman* is Chairman of the Board of Directors ofour Company and has held this position since our Company was formed. Mr. Huntsmanis also Chairman of the Compensation Committee and the Nominating and CorporateGovernance Committee. He has been Chairman of the Board of all Huntsmancompanies since he founded his first plastics company in 1970. Mr. Huntsmanserved as Chief Executive Officer of our Company and our affiliated companiesfrom 1970 to 2000. Mr. Huntsman is a director or manager, as applicable,of Huntsman International and certain of our other subsidiaries. In addition, Mr. Huntsmanserves or has served as Chairman or as a member of numerous corporate,philanthropic and industry boards, including the American Red Cross, TheWharton School, University of Pennsylvania, Primary Children’s Medical CenterFoundation, the Chemical Manufacturers Association and the American PlasticsCouncil. Mr. Huntsman was selected in 1994 as the chemical industry’s topCEO for all businesses in Europe and North America. Mr. Huntsman formerlyserved as Special Assistant to the President of the United States and as ViceChairman of the U.S. Chamber of Commerce. He is the Chairman and Founder of theHuntsman Cancer Institute.

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*PeterR. Huntsman* is President, Chief Executive Officer anda Director of our Company. Prior to his appointment in July 2000 as ChiefExecutive Officer, Mr. Huntsman had served as President and ChiefOperating Officer since 1994. In 1987, Mr. Huntsman joined HuntsmanPolypropylene Corporation as Vice President before serving as Senior VicePresident and General Manager. Mr. Huntsman has also served as Presidentof Olympus Oil, as Senior Vice President of Huntsman Chemical Corporation andas a Senior Vice President of Huntsman Packaging Corporation, a formersubsidiary of our Company. Mr. Huntsman is a director or manager, asapplicable, of Huntsman International and certain of our other subsidiaries.

*J.Kimo Esplin* is Executive Vice President and ChiefFinancial Officer. Mr. Esplin has served as chief financial officer of allof the Huntsman companies since 1999. From 1994 to 1999, Mr. Esplin servedas our Treasurer. Prior to joining Huntsman in 1994, Mr. Esplin was a VicePresident in the Investment Banking Division of Bankers Trust Company, where heworked for seven years. Mr. Esplin also serves as a director ofNutraceutical International Corporation, a publicly traded nutritionsupplements company.

*SamuelD. Scruggs* is Executive Vice President, GeneralCounsel and Secretary. Mr. Scruggs served as Vice President and Treasurerfrom 2000 to 2002 and as Vice President and Associate General Counsel from 1999to 2000. Prior to joining Huntsman in 1995, Mr. Scruggs was an associatewith the law firm of Skadden, Arps, Slate, Meagher & Flom LLP.

*AnthonyP. Hankins* is Division President, Polyurethanes. Mr. Hankinswas appointed to this position in March 2004. From May 2003 to February 2004,Mr. Hankins served as President, Performance Products, from January 2002to April 2003, he served as Global Vice President, Rigids Division for ourPolyurethanes business, from October 2000 to December 2001, he servedas Vice President—Americas for our Polyurethanes business, and from March 1998to September 2000, he served as Vice President—Asia Pacific for ourPolyurethanes business. Mr. Hankins worked for ICI from 1980 to February 1998,when he joined our Company. At ICI, Mr. Hankins held numerous managementpositions in the plastics, fibers and polyurethanes businesses. He hasextensive international experience, having held senior management positions inEurope, Asia and the U.S.

*PaulG. Hulme* is Division President, Materials and Effects,and has served in that role since June 2003. From February 2000 to May 2003,Mr. Hulme served as Vice President, Performance Chemicals, and from December 1999to February 2000 he served as Operations Director, Polyurethanes. Prior tojoining Huntsman in 1999, Mr. Hulme held various positions with ICI infinance, accounting and information systems roles. Mr. Hulme is aChartered Accountant.

*ThomasJ. Keenan* is Division President, Pigments, and hasserved in that role since August 2003. From January 2000 to August 2003,Mr. Keenan served as President, North American Petrochemicals andPolymers, and from January 1998 to January 2000, he served as SeniorVice President of Huntsman Chemical Company LLC. Prior to joining Huntsman in1994, Mr. Keenan was Vice President and General Manager, Olefins andPolyolefins for Mobil Chemical Company, where he worked for more than sixteenyears.

*KevinJ. Ninow* is Division President, Base Chemicals andPolymers, and has served in that role since July 2003. From July 1999to July 2003, Mr. Ninow served as Senior Vice President, EuropeanPetrochemicals. Mr. Ninow joined Huntsman in 1989.

*DonaldJ. Stanutz* is Division President, PerformanceProducts. Mr. Stanutz was appointed to this position in March 2004. Mr. Stanutzserved as Executive Vice President and Chief Operating Officer of Huntsman LLCfrom December 2001 to February 2004, as Executive Vice President,Global Sales and Marketing from July 2000 to November 2001 and asExecutive Vice President, Polyurethanes, PO and Performance Chemicals from July 1999to June 2000. Prior to joining Huntsman in 1994, Mr. Stanutz servedin a variety of senior positions with Texaco Chemical Company.

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*MichaelJ. Kern* is Senior Vice President—Environmental, Health &Safety. Mr. Kern has held this position since December 2003. Mr. Kernhas served in several senior management positions of our Company, includingSenior Vice President, Environmental, Health & Safety from July 2001to December 2003 and Senior Vice President, Manufacturing from December 1995to July 2001. Prior to joining Huntsman, Mr. Kern held a variety ofpositions within Texaco Chemical Company, including Area Manager—JeffersonCounty Operations from April 1993 until joining our Company, Plant Managerof the Port Neches facility from August 1992 to March 1993, Managerof the PO/MTBE project from October 1989 to July 1992, and Manager ofOxides and Olefins from April 1988 to September 1989.

*BrianV. Ridd* is Senior Vice President, Purchasing. Mr. Riddhas held this position since July 2000. Mr. Ridd served as VicePresident, Purchasing from December 1995 until he was appointed to hiscurrent position. Mr. Ridd joined Huntsman in 1984.

*RussR. Stolle* is Senior Vice President, Global PublicAffairs and Communications. Mr. Stolle was appointed to this position inOctober 2006. From November 2002 to October 2006,Mr. Stolle served as Vice President and Deputy General Counsel, fromOctober 2000 to November 2002 he served as Vice President and ChiefTechnology Counsel, and from April 1994 to October 2000 he served asChief Patent and Licensing Counsel. Prior to joining Huntsman in 1994,Mr. Stolle had been an attorney with Texaco Inc. and an associate with thelaw firm of Baker & Botts.

*L.Russell Healy* is Vice President and Controller. Mr. Healyis also Vice President and Controller of Huntsman International and certain ofour other subsidiaries and has served in these capacities since April 2004.From August 2001 to April 2004, Mr. Healy served as VicePresident, Finance, and from July 1999 to July 2001, he served asVice President and Finance Director for Huntsman International. Prior tojoining Huntsman in 1995, Mr. Healy was a partner with the accounting firmof Deloitte & Touche, LLP. Mr. Healy is a Certified PublicAccountant and holds a master’s degree in accounting.

*MartinCasey* is Vice President, Strategic Planning. Dr. Caseyhas held this position since August 2004. From 1999 until he was appointedto his current position, Dr. Casey was responsible for planning andbusiness development in Huntsman’s Polyurethanes Business, which was acquiredfrom ICI in 1999. From 1995 to 1999 he was New Business Development Manager forICI’s polyurethanes business, before which he was Business Manager for ICI’sacrylic sheet business and held a variety of earlier positions in technical andbusiness management roles.

*SeanDouglas* is Vice President and Treasurer. Mr. Douglasserved as Vice President, Finance from July 2001 until he was appointed tohis current position in 2002 and as Vice President, Administration from January 1997to July 2001. Mr. Douglas is a Certified Public Accountant and, priorto joining Huntsman in 1990, worked for the accounting firm of PriceWaterhouse.

*KevinC. Hardman* is Vice President, Tax. Mr. Hardmanserved as Chief Tax Officer from 1999 until he was appointed to his currentposition in 2002. Mr. Hardman is also Vice President, Tax of HuntsmanInternational. Prior to joining Huntsman in 1999, Mr. Hardman was a taxSenior Manager with the accounting firm of Deloitte & Touche, LLP,where he worked for 10 years. Mr. Hardman is a Certified PublicAccountant and holds a master’s degree in tax accounting.

*JohnR. Heskett* is Vice President, Corporate Developmentand Investor Relations. Mr. Heskett has held this position since August 2004.Mr. Heskett was appointed Vice President, Corporate Development in 2002. Mr. Heskettpreviously served as Assistant Treasurer for our Company and several of oursubsidiaries, including Huntsman International and Huntsman LLC. Prior tojoining Huntsman in 1997, Mr. Heskett was Assistant Vice President andRelationship Manager for PNC Bank, N.A., where he worked for a number of years.

*JamesR. Moore* is Vice President and Deputy General Counsel.Mr. Moore served as Vice President and Chief Environmental Counsel from2002 until he was appointed to his current position in 2003. 

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Mr. Moore served asSenior Environmental Counsel from 1998 to 2002. From 1989 until joiningHuntsman in 1998, Mr. Moore was a partner at the Seattle law firm ofPerkins Coie. Mr. Moore also previously served as a trial attorney withthe U.S. Department of Justice, an assistant U.S. Attorney and RegionalCounsel, Region 10, of the U.S. Environmental Protection Agency.

*R.Wade Rogers* is Vice President, Global Human Resources.Mr. Rogers has held this position since May 2004. From October 2003to May 2004, Mr. Rogers served as Director, Human Resources—Americasand from August 2000 to October 2003, he served as Director, HumanResources for our Polymers and Base Chemicals businesses. From the time hejoined Huntsman in 1994 to August 2000, Mr. Rogers served as AreaManager, Human Resources—Jefferson County Operations. Prior to joiningHuntsman, Mr. Rogers held a variety of positions with Texaco ChemicalCompany.

*MariaCsiba-Womersley*isVice President and Chief Information Officer. Ms. Csiba-Womersly wasappointed to this position effective September 1, 2006. Ms. Csiba-Womerslyserved as Global eBusiness Director from 2004 to 2006 and also served as our Directorof Global IT Planning and Security. Previously, Ms. Csiba-Womersly was aRegional Polymer Sales Manager, a Business Director for Polypropylene and Directorof Polymer Logistics. Ms. Csiba-Womersly joined Huntsman in 1997.

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**PART II**

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

**MARKETINFORMATION AND HOLDERS**

Our common stock is listed on the New York StockExchange under the symbol “HUN.” As of February 21, 2007, there wereapproximately 159 stockholders of record and the closing price of our commonstock on the New York Stock Exchange was $21.59 per share.

Thereported high and low sale prices of our common stock on the New York Stock Exchangefor each of the periods set forth below are as follows:

| **Period**     | ** ** | ** ** | ** ** | **High**   | ** ** | **Low** | ** ** |
|----------------|------------|------------|------------|------------|------------|---------|------------|
| **2006**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter  |       | $          | 23.62      |       | $          | 16.99   |       |
| Second Quarter |       | 19.98      |       | 16.34      |       |
| Third Quarter  |       | 18.86      |       | 15.62      |       |
| Fourth Quarter |       | 19.24      |       | 16.81      |       |
|                |            |            |            |            |            |         |            |  |  |

 

| **Period**     | ** ** | ** ** | ** ** | **High**   | ** ** | **Low** | ** ** |
|----------------|------------|------------|------------|------------|------------|---------|------------|
| **2005**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter  |       | $          | 29.99      |       | $          | 22.00   |       |
| Second Quarter |       | 23.77      |       | 18.15      |       |
| Third Quarter  |       | 24.44      |       | 16.50      |       |
| Fourth Quarter |       | 20.45      |       | 17.03      |       |
|                |            |            |            |            |            |         |            |  |  |

 

**DIVIDENDS**

On February 14, 2007,we announced that our board of directors had approved initiation of a quarterlycash dividend on our common stock, and further announced the declaration of a$0.10 per share cash dividend, payable on March 30, 2007, to shareholdersof record as of March 15, 2007. We have not previously paid dividends onour common stock.

**EQUITYCOMPENSATION PLANS**

See “Part III. Item11. Executive Compensation” for information relating to our equity compensationplans.

**ITEM 6.**                SELECTEDFINANCIAL DATA

The selected historicalfinancial data set forth below presents our historical financial data and thehistorical financial data of our predecessor Huntsman Holdings, LLC as of andfor the dates and periods indicated. In such financial data, HuntsmanInternational Holdings is accounted for using the equity method of accountingthrough April 30, 2003. Effective May 1, 2003, we have consolidatedthe financial results of Huntsman International Holdings. Effective June 30,2003, as a result of the Huntsman Advanced Materials Transaction, we haveconsolidated the financial results of Huntsman Advanced Materials. As a result,the financial information as of and for the years ended December 31, 2003and 2002 is not comparable to the financial information as of and for the yearsended December 31, 2006, 2005 and 2004. You should read the selectedfinancial data in conjunction with “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” and our consolidated financialstatements and accompanying notes included elsewhere in this report.

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**Huntsman Corporation**

| ** **                                                                 | ** ** | **Year Ended December 31,**  | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                 | ** ** | **(in millions, except per share amounts)** | ** ** |
| **Statements  of Operations Data:**                                        | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                                   |       | $                                           | 10,623.6   |   | $ | 10,676.9 |   | $ | 9,562.5 |   | $ | 6,188.9 |   | $ | 2,661.0 |   |
| Gross profit                                                               |       | 1,539.5                                     |       | 1,615.4 |   | 1,203.8 |   | 658.5 |   | 240.0 |   |
| Restructuring,  impairment and plant closing costs (credit)                |       | 20.0                                        |       | 114.1 |   | 282.9 |   | 37.9 |   | (1.0 | ) |
| Operating income                                                           |       | 736.5                                       |       | 715.0 |   | 262.9 |   | 166.2 |   | 66.3 |   |
| Income (loss)  from continuing operations                                  |       | 393.6                                       |       | (30.6 | ) | (320.0 | ) | (324.7 | ) | (191.9 | ) |
| (Loss) income  from discontinued operations, net of tax(a)            |       | (219.7                                      | )          | 23.7 |   | 92.3 |   | 4.9 |   | — |   |
| Extraordinary  gain on the acquisition of a business, net of tax of nil(b) |       | 55.9                                        |       | — |   | — |   | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax(c)       |       | —                                      |       | (27.7 | ) | — |   | — |   | 169.7 |   |
| Net income (loss)                                                          |       | 229.8                                       |       | (34.6 | ) | (227.7 | ) | (319.8 | ) | (22.2 | ) |
| **Basic income (loss) per common  share(d):**                              | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss)  from continuing operations                                  |       | $                                           | 1.78       |   | $ | (0.33 | ) | $ | (1.85 | ) | $ | (1.81 | ) | $ | (0.95 | ) |
| (Loss) income  from discontinued operations, net of tax               |       | (0.99                                       | )          | 0.11 |   | 0.42 |   | 0.02 |   | — |   |
| Extraordinary  gain on the acquisition of a business, net of tax           |       | 0.25                                        |       | — |   | — |   | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax          |       | —                                      |       | (0.13 | ) | — |   | — |   | 0.77 |   |
| Net income (loss)                                                          |       | $                                           | 1.04       |   | $ | (0.35 | ) | $ | (1.43 | ) | $ | (1.79 | ) | $ | (0.18 | ) |
| **Diluted income (loss) per  common share(d):**                            | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss)  from continuing operations                                  |       | $                                           | 1.69       |   | $ | (0.33 | ) | $ | (1.85 | ) | $ | (1.81 | ) | $ | (0.95 | ) |
| (Loss) income  from discontinued operations, net of tax               |       | (0.94                                       | )          | 0.11 |   | 0.42 |   | 0.02 |   | — |   |
| Extraordinary  gain on the acquisition of a business, net of tax           |       | 0.24                                        |       | — |   | — |   | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax          |       | —                                      |       | (0.13 | ) | — |   | — |   | 0.77 |   |
| Net income (loss)                                                          |       | $                                           | 0.99       |   | $ | (0.35 | ) | $ | (1.43 | ) | $ | (1.79 | ) | $ | (0.18 | ) |
| **Other Data:**                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                             |       | $                                           | 465.7      |   | $ | 500.8 |   | $ | 536.8 |   | $ | 353.4 |   | $ | 152.7 |   |
| Capital  expenditures                                                      |       | 549.9                                       |       | 338.7 |   | 226.6 |   | 191.0 |   | 70.2 |   |
| **Balance Sheet Data (at period end):**                                    |       |                                        |       |   |   |   |   |   |   |   |   |
| Total assets                                                               |       | $                                           | 8,444.9    |   | $ | 8,870.5 |   | $ | 9,423.5 |   | $ | 8,737.4 |   | $ | 2,747.2 |   |
| Total debt                                                                 |       | 3,645.3                                     |       | 4,457.9 |   | 6,299.5 |   | 5,910.1 |   | 1,736.1 |   |
| Total liabilities                                                          |       | 6,678.9                                     |       | 7,329.5 |   | 9,065.2 |   | 8,278.8 |   | 2,532.0 |   |

----

(a)           (Loss) income fromdiscontinued operations represents the operating results and loss on disposalof our European base chemicals and polymers business and our TDI business. TheEuropean base chemicals and polymers business was sold on December 29,2006 and the TDI business was sold on July 6, 2005.

63

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(b)          On June 30, 2006,we completed the Textile Effects Acquisition. The extraordinary gain on theacquisition of a business represents the fair value of the net assets acquiredin excess of the purchase price paid for the textile effects business, afterthe values of all long-lived assets were reduced to zero.

(c)           During the fourthquarter of 2005, we adopted Financial Accounting Standards Board (“FASB”)Interpretation No. (“FIN”) 47, *Accounting for ConditionalAsset Retirement Obligations,* and recorded a charge for thecumulative effect of accounting change, net of tax, of $31.7 million. Also, in2005, we accelerated the date for actuarial measurement of our pension andpostretirement benefit obligations from December 31 to November 30.The effect of the change in measurement date resulted in a cumulative effect ofaccounting change credit, net of tax, of $4.0 million. In 2002, we adoptedStatement of Financial Accounting Standards (“SFAS”) No. 141, *Business Combinations,* resulting in an increase of $169.7million in the carrying value of our investment in Huntsman InternationalHoldings to reflect the proportionate share of the underlying net assets.

(d)          All per share information has been restated to give effect to the sharesissued in connection with the Reorganization Transaction and our initialpublic offering of common stock on February 16, 2005 and the shares issuedin connection with the exchange of the HMP Warrants on March 14, 2005.

**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Overview**

We are among the world’s largest global manufacturersof differentiated chemical products; we also manufacture inorganic andcommodity chemical products. Our products comprise a broad range of chemicalsand formulations, which we market 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, syntheticfiber, textile chemicals and dye industries. We are a leading global producerin many of our key product lines, including MDI, amines, surfactants,epoxy-based polymer formulations, textile chemicals, dyes, maleic anhydride andtitanium dioxide. Our administrative, research and development andmanufacturing operations are primarily conducted at the 75 facilities that weown or lease. Our facilities are located in 24 countries and we employapproximately 15,000 associates worldwide. Our businesses benefit from verticalintegration, large production scale in certain products and proprietarymanufacturing technologies, which allow us to maintain a low-cost position.

Our business is organized around our six segments: Polyurethanes,Materials and Effects, Performance Products, Pigments, Polymers and BaseChemicals. These segments can be divided into three broad categories: differentiated,inorganic and commodity. Our Polyurethanes, Materials and Effects andPerformance Products segments produce differentiated products, our Pigmentssegment produces inorganic products and our Polymers and Base Chemicalssegments produce commodity chemicals.

Growth in our Polyurethanes and Materials and Effectssegments has been driven by the continued substitution of our products forother materials across a broad range of applications, as well as by the levelof global economic activity. Historically, demand for many of these productshas grown at rates in excess of GDP growth. In Polyurethanes, this growth,particularly in Asia, has recently resulted in improved demand and higherindustry capacity utilization rates for many of our key products, includingMDI.

In our Performance Products segment, demand for ourperformance specialties has generally continued to grow at rates in excess ofGDP as overall demand is significantly influenced by new product andapplication development. Overall demand for most of our performanceintermediates has generally been stable or improving, but excess surfactantmanufacturing capacity and a decline in the use of LAB in 

64

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new detergent formulationshave continued to keep margins under pressure. Ethylene glycol industryoperating rates and profitability have declined since 2005 due to additionalcapacity coming on stream. Over time, demandfor maleic anhydride has generally grown at rates that slightly exceed GDPgrowth. However, given its dependence on the UPR market, which is heavilyinfluenced by construction end markets, maleic anhydride demand can becyclical.

Historically, demand for titanium dioxide pigments hasgrown at rates approximately equal to global GDP growth. Pigment prices havehistorically reflected industry-wide operating rates but have typically laggedbehind movements in these rates by up to twelve months due to the effects ofproduct stocking and destocking by customers and producers, contractarrangements and seasonality. The industry experiences some seasonality in itssales because sales of paints, the largest end use for titanium dioxide,generally peak during the spring and summer months in the northern hemisphere.This results in greater sales volumes in the second and third quarters of the year.

The profitability of ourPolymers and Base Chemicals segments has historically been cyclical in nature.The industry has recently operated in an up cycle that resulted primarily fromstrong demand reflecting global economic conditions and the fact that therehave been no recent capacity additions in our markets. However, volatile crudeoil and natural gas-based raw materials costs and a recent weakening in demandcould negatively impact the profitability of our Polymers and Base Chemicalssegments. In addition, the profitability of our Base Chemicals segment has beennegatively impacted in 2006 and will be negatively impacted in 2007 by the fireat our Port Arthur, Texas manufacturing plant. During 2006, we sold our U.S.butadiene and MTBE business and our European base chemicals and polymersbusiness. On February 15, 2007, we announced the pending sale of our U.S.base chemicals and polymers business. For more information, see “Item 1.Business—Recent Developments—Agreement to Sell U.S. Base Chemicals and PolymersBusiness.”

**OUTLOOK**

As we enter 2007, we continue to experience manypositive trends across our businesses and the markets that we serve. Rawmaterial and energy prices have declined, while at the same time, demand andselling prices for many of our products continue to improve. We anticipate thatthe earnings in our Polyurethanes, Materials and Effects and PerformanceProducts segments—the differentiated segments that will remain following the expectedcompletion of the Pending U.S. Petrochemicals Disposition—will be higher in thefirst quarter of 2007 as compared to the fourth quarter of 2006 and also willbe higher for the full year 2007 as compared to the full year 2006. InPigments, we are guardedly optimistic in our outlook for the upcoming springpaint season in light of the softness in demand that we experienced in thefourth quarter of 2006. We believe that higher earnings in our differentiatedsegments, together with substantially lower interest expense, will have apositive impact on our earnings in the coming quarters.

65

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**RESULTS OF OPERATIONS**

Foreach of our Company and Huntsman International, the following tables set forththe condensed consolidated results of operations for the years ended December 31,2006, 2005 and 2004 (dollars in millions):

**Huntsman Corporation**

| ** **                                                                                                                       | ** ** | **Year Ended December 31,** | ** ** | **Percent Change** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                       | ** ** | **2006**                                   | ** ** | **2005**                | ** ** | **2004** | ** ** | **2006 vs 2005** | ** ** | **2005 vs 2004** | ** ** |
| **Revenues**                                                                                                                     |       | $                                          | 10,623.6   |                    | $          | 10,676.9 |   | $ | 9,562.5 |   |   | — | % |   |   | 12 | % |   |
| **Cost of  goods sold**                                                                                                          |       | 9,084.1                                    |       | 9,061.5                 |       | 8,358.7 |   |   | — | % |   |   | 8 | % |   |
| **Gross  profit**                                                                                                                |       | 1,539.5                                    |       | 1,615.4                 |       | 1,203.8 |   |   | (5 | )% |   |   | 34 | % |   |
| Operating expense                                                                                                                |       | 783.0                                      |       | 786.3                   |       | 658.0 |   |   | — | % |   |   | 19 | % |   |
| Restructuring,  impairment and plant closing costs                                                                               |       | 20.0                                       |       | 114.1                   |       | 282.9 |   |   | (82 | )% |   |   | (60 | )% |   |
| **Operating  income**                                                                                                            |       | 736.5                                      |       | 715.0                   |       | 262.9 |   |   | 3 | % |   |   | 172 | % |   |
| Interest expense, net                                                                                                            |       | (350.7                                     | )          | (426.6                  | )          | (612.6 | ) |   | (18 | )% |   |   | (30 | )% |   |
| Loss on accounts  receivable securitization  program                                                                             |       | (16.1                                      | )          | (9.0                    | )          | (13.3 | ) |   | 79 | % |   |   | (32 | )% |   |
| Equity in income  of unconsolidated affiliates                                                                                   |       | 3.6                                        |       | 8.2                     |       | 4.0 |   |   | (56 | )% |   |   | 105 | % |   |
| Loss on early  extinguishment of debt                                                                                            |       | (27.1                                      | )          | (322.5                  | )          | (25.6 | ) |   | (92 | )% |   |   | NM |   |   |
| Other income  (expense)                                                                                                          |       | 1.3                                        |       | (0.1                    | )          | (0.2 | ) |   | NM |   |   |   | (50 | )% |   |
| **Income  (loss) from continuing operations before income taxes and minority  interest**                                    |       | 347.5                                      |       | (35.0                   | )          | (384.8 | ) |   | NM |   |   |   | (91 | )% |   |
| Income tax benefit                                                                                                               |       | 49.0                                       |       | 6.1                     |       | 72.0 |   |   | 703 | % |   |   | (92 | )% |   |
| Minority  interests in subsidiaries’ income                                                                                 |       | (2.9                                       | )          | (1.7                    | )          | (7.2 | ) |   | 71 | % |   |   | (76 | )% |   |
| **Income  (loss) from continuing operations**                                                                                    |       | 393.6                                      |       | (30.6                   | )          | (320.0 | ) |   | NM |   |   |   | (90 | )% |   |
| (Loss) income from discontinued operations  (including a loss on disposal of $301.8 in 2006 and $36.4 in 2005), net  of tax |       | (219.7                                     | )          | 23.7                    |       | 92.3 |   |   | NM |   |   |   | (74 | )% |   |
| Extraordinary  gain on the acquisition of a business, net tax of nil                                                             |       | 55.9                                       |       | —                  |       | — |   |   | NM |   |   |   | NM |   |   |
| Cumulative effect  of changes in accounting principle, net of tax                                                                |       | —                                     |       | (27.7                   | )          | — |   |   | NM |   |   |   | NM |   |   |
| **Net  income (loss)**                                                                                                           |       | 229.8                                      |       | (34.6                   | )          | (227.7 | ) |   | NM |   |   |   | (85 | )% |   |
| Interest expense, net                                                                                                            |       | 350.7                                      |       | 426.6                   |       | 612.6 |   |   | (18 | )% |   |   | (30 | )% |   |
| Income tax  benefit from continuing operations                                                                                   |       | (49.0                                      | )          | (6.1                    | )          | (72.0 | ) |   | 703 | % |   |   | (92 | )% |   |
| Income tax  expense from discontinued operations and cumulative effect of changes in accounting  principle                  |       | 34.0                                       |       | 26.7                    |       | 42.9 |   |   | 27 | % |   |   | (38 | )% |   |
| Depreciation and  amortization                                                                                                   |       | 465.7                                      |       | 500.8                   |       | 536.8 |   |   | (7 | )% |   |   | (7 | )% |   |
| **EBITDA(1)**                                                                                                                    |       | $                                          | 1,031.2    |                    | $          | 913.4 |   | $ | 892.6 |   |   | 13 | % |   |   | 2 | % |   |
| Net cash provided by operating activities                                                                                        |       | $                                          | 893.1      |                    | $          | 968.6 |   | $ | 180.8 |   |   | (8 | )% |   |   | 436 | % |   |
| Net cash provided  by (used in) investing activites                                                                              |       | 173.9                                      |       | (463.7                  | )          | (230.0 | ) |   | NM |   |   |   | 102 | % |   |
| Net cash (used in)  provided by financing activities                                                                             |       | (961.2                                     | )          | (603.0                  | )          | 83.5 |   |   | 59 | % |   |   | NM |   |   |

 

----

NM—Not meaningful.

66

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**Huntsman International**

| ** **                                                                                                                       | ** ** | **Year Ended December 31,** | ** ** | **Percent Change** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                       | ** ** | **2006**                                   | ** ** | **2005**                | ** ** | **2004** | ** ** | **2006 vs 2005** | ** ** | **2005 vs 2004** | ** ** |
| **Revenues**                                                                                                                     |       | $                                          | 10,623.6   |                    | $          | 10,676.9 |   | $ | 9,562.5 |   |   | — | % |   |   | 12 | % |   |
| **Cost of  goods sold**                                                                                                          |       | 9,067.1                                    |       | 9,043.9                 |       | 8,337.3 |   |   | — | % |   |   | 8 | % |   |
| **Gross  profit**                                                                                                                |       | 1,556.5                                    |       | 1,633.0                 |       | 1,225.2 |   |   | (5 | )% |   |   | 33 | % |   |
| Operating expense                                                                                                                |       | 782.5                                      |       | 787.1                   |       | 654.7 |   |   | (1 | )% |   |   | 20 | % |   |
| Restructuring,  impairment and plant closing costs                                                                               |       | 20.0                                       |       | 114.1                   |       | 282.9 |   |   | (82 | )% |   |   | (60 | )% |   |
| **Operating  income**                                                                                                            |       | 754.0                                      |       | 731.8                   |       | 287.6 |   |   | 3 | % |   |   | 154 | % |   |
| Interest expense, net                                                                                                            |       | (355.2                                     | )          | (425.6                  | )          | (592.6 | ) |   | (17 | )% |   |   | (28 | )% |   |
| Loss on accounts  receivable securitization  program                                                                             |       | (16.1                                      | )          | (9.0                    | )          | (13.3 | ) |   | 79 | % |   |   | (32 | )% |   |
| Equity in income  of unconsolidated affiliates                                                                                   |       | 3.6                                        |       | 8.2                     |       | 4.0 |   |   | (56 | )% |   |   | 105 | % |   |
| Loss on early  extinguishment of debt                                                                                            |       | (39.0                                      | )          | (167.3                  | )          | (25.6 | ) |   | (77 | )% |   |   | 554 | % |   |
| Other income (expense)                                                                                                           |       | 1.3                                        |       | (0.2                    | )          | (0.2 | ) |   | NM |   |   |   | — | % |   |
| **Income  (loss) from continuing operations before income taxes and minority  interest**                                    |       | 348.6                                      |       | 137.9                   |       | (340.1 | ) |   | 153 | % |   |   | NM |   |   |
| Income tax benefit (expense)                                                                                                     |       | 30.0                                       |       | (13.2                   | )          | 66.3 |   |   | NM |   |   |   | NM |   |   |
| Minority  interests in subsidiaries’ income                                                                                 |       | (2.9                                       | )          | (1.7                    | )          | (7.2 | ) |   | 71 | % |   |   | (76 | )% |   |
| **Income  (loss) from continuing operations**                                                                                    |       | 375.7                                      |       | 123.0                   |       | (281.0 | ) |   | 205 | % |   |   | NM |   |   |
| (Loss) income from discontinued operations  (including a loss on disposal of $280.1 in 2006 and $36.4 in 2005), net  of tax |       | (198.0                                     | )          | 25.2                    |       | 93.3 |   |   | NM |   |   |   | (73 | )% |   |
| Extraordinary  gain on the acquisition of a business, net of tax of nil                                                          |       | 55.9                                       |       | —                  |       | — |   |   | NM |   |   |   | NM |   |   |
| Cumulative effect  of changes in accounting principle, net of tax                                                                |       | —                                     |       | (27.5                   | )          | — |   |   | NM |   |   |   | NM |   |   |
| **Net  income (loss)**                                                                                                           |       | 233.6                                      |       | 120.7                   |       | (187.7 | ) |   | 94 | % |   |   | NM |   |   |
| Interest expense, net                                                                                                            |       | 355.2                                      |       | 425.6                   |       | 592.6 |   |   | (17 | )% |   |   | (28 | )% |   |
| Income tax  (benefit) expense from continuing operations                                                                         |       | (30.0                                      | )          | 13.2                    |       | (66.3 | ) |   | NM |   |   |   | NM |   |   |
| Income tax expense  from discontinued operations and cumulative effect of changes in accounting  principle                  |       | 34.0                                       |       | 26.3                    |       | 43.4 |   |   | 29 | % |   |   | (39 | )% |   |
| Depreciation and  amortization                                                                                                   |       | 439.1                                      |       | 473.9                   |       | 499.0 |   |   | (7 | )% |   |   | (5 | )% |   |
| **EBITDA(1)**                                                                                                                    |       | $                                          | 1,031.9    |                    | $          | 1,059.7 |   | $ | 881.0 |   |   | (3 | )% |   |   | 20 | % |   |
| Net cash provided by operating activities                                                                                        |       | $                                          | 883.5      |                    | $          | 981.0 |   | $ | 181.1 |   |   | (10 | )% |   |   | 442 | % |   |
| Net cash provided  by (used in) investing activites                                                                              |       | 159.2                                      |       | (308.8                  | )          | (222.5 | ) |   | NM |   |   |   | 39 | % |   |
| Net cash (used in)  provided by financing activities                                                                             |       | (943.8                                     | )          | (780.9                  | )          | 83.4 |   |   | 21 | % |   |   | NM |   |   |

----

NM—Not meaningful.

67

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Foreach of our Company and Huntsman International, the following tables set forthcertain items of (expense) income included in EBITDA (dollars in millions):

**Huntsman Corporation**

| ** **                                                    | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Loss on early  extinguishment of debt                         |       | $                                          | (27.1      | ) | $ | (322.5 | ) | $ | (25.6 | ) |
| Loss on accounts  receivable securitization program           |       | (16.1                                      | )          | (9.0 | ) | (13.3 | ) |
| Legal and contract  settlement expense, net                   |       | —                                     |       | — |   | (6.6 | ) |
| Amounts included  in discontinued operations                  |       | 161.8                                      |       | 150.8 |   | 197.1 |   |
| Cumulative effect  of changes in accounting principle         |       | —                                     |       | (30.6 | ) | — |   |
| Loss on sale of  businesses/assets, net                       |       | (209.4                                     | )          | (36.4 | ) | — |   |
| Recovery of  property losses                                  |       | 8.8                                        |       | — |   | — |   |
| Extraordinary gain  on the acquisition of a business          |       | 55.9                                       |       | — |   | — |   |
| Restructuring, impairment and plant closing (costs)  credits: |       |                                       |       |   |   |   |   |
| Polyurethanes                                                 |       | 2.7                                        |       | (13.4 | ) | (36.9 | ) |
| Materials and Effects                                         |       | (3.8                                       | )          | (0.5 | ) | (9.0 | ) |
| Performance Products                                          |       | (2.2                                       | )          | (11.1 | ) | (97.5 | ) |
| Pigments                                                      |       | (3.8                                       | )          | (30.1 | ) | (123.3 | ) |
| Polymers                                                      |       | (4.4                                       | )          | (51.6 | ) | (13.6 | ) |
| Base Chemicals                                                |       | (8.3                                       | )          | (6.2 | ) | (0.3 | ) |
| Corporate and other                                           |       | (0.2                                       | )          | (1.2 | ) | (2.3 | ) |
| Total restructuring, impairment and plant closing  costs      |       | (20.0                                      | )          | (114.1 | ) | (282.9 | ) |
| **Total**                                                     |       | $                                          | (46.1      | ) | $ | (361.8 | ) | $ | (131.3 | ) |

 

**Huntsman International**

| ** **                                                    | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Loss on early  extinguishment of debt                         |       | $                                          | (39.0      | ) | $ | (167.3 | ) | $ | (25.6 | ) |
| Loss on accounts  receivable securitization program           |       | (16.1                                      | )          | (9.0 | ) | (13.3 | ) |
| Legal and contract  settlement expense, net                   |       | —                                     |       | — |   | (6.6 | ) |
| Amounts included  in discontinued operations                  |       | 161.8                                      |       | 150.8 |   | 197.1 |   |
| Cumulative effect  of changes in accounting principle         |       | —                                     |       | (30.8 | ) | — |   |
| Loss on sale of  businesses/assets, net                       |       | (187.7                                     | )          | (36.4 | ) | — |   |
| Recovery of  property losses                                  |       | 8.8                                        |       | — |   | — |   |
| Extraordinary gain  on the acquisition of a business          |       | 55.9                                       |       | — |   | — |   |
| Restructuring, impairment and plant closing (costs)  credits: |       |                                       |       |   |   |   |   |
| Polyurethanes                                                 |       | 2.7                                        |       | (13.4 | ) | (36.9 | ) |
| Materials and Effects                                         |       | (3.8                                       | )          | (0.5 | ) | (9.0 | ) |
| Performance Products                                          |       | (2.2                                       | )          | (11.1 | ) | (97.5 | ) |
| Pigments                                                      |       | (3.8                                       | )          | (30.1 | ) | (123.3 | ) |
| Polymers                                                      |       | (4.4                                       | )          | (51.6 | ) | (13.6 | ) |
| Base Chemicals                                                |       | (8.3                                       | )          | (6.2 | ) | (0.3 | ) |
| Corporate and other                                           |       | (0.2                                       | )          | (1.2 | ) | (2.3 | ) |
| Total restructuring, impairment and plant closing  costs      |       | (20.0                                      | )          | (114.1 | ) | (282.9 | ) |
| **Total**                                                     |       | $                                          | (36.3      | ) | $ | (206.8 | ) | $ | (131.3 | ) |

----

NM—Not meaningful.

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(1)          EBITDA is defined as netincome (loss) before interest, income taxes, depreciation and amortization. Webelieve that EBITDA enhances an investor’s understanding of our financialperformance and our ability to satisfy principal and interest obligations withrespect to our indebtedness. However, EBITDA should not be considered inisolation or viewed as a substitute for net income, cash flow from operationsor other measures of performance as defined by generally accepted accountingprinciples in the U.S. (“GAAP”). Moreover, EBITDA as used herein is notnecessarily comparable to other similarly titled measures of other companiesdue to potential inconsistencies in the method of calculation. Our managementuses EBITDA to assess financial performance and debt service capabilities. Inassessing financial performance, our management reviews EBITDA as a generalindicator of economic performance compared to prior periods. Because EBITDAexcludes interest, income taxes, depreciation and amortization, EBITDA providesan indicator of general economic performance that is not affected by debtrestructurings, fluctuations in interest rates or effective tax rates, orlevels of depreciation and amortization. Accordingly, our management believesthis type of measurement is useful for comparing general operating performancefrom period to period and making certain related management decisions. EBITDAis also used by securities analysts, lenders and others in their evaluation ofdifferent companies because it excludes certain items that can vary widelyacross different industries or among companies within the same industry. Forexample, interest expense can be highly dependent on a company’s capitalstructure, debt levels and credit ratings. Therefore, the impact of interest expenseon earnings can vary significantly among companies. In addition, the taxpositions of companies can vary because of their differing abilities to takeadvantage of tax benefits and because of the tax policies of the variousjurisdictions in which they operate. As a result, effective tax rates and taxexpense can vary considerably among companies. Finally, companies employproductive assets of different ages and utilize different methods of acquiringand depreciating such assets. This can result in considerable variability inthe relative costs of productive assets and the depreciation and amortizationexpense among companies. Our management also believes that our investors useEBITDA as a measure of our ability to service indebtedness as well as to fundcapital expenditures and working capital requirements. Nevertheless, ourmanagement recognizes that there are material limitations associated with theuse of EBITDA in the evaluation of our Company as compared to net income, whichreflects overall financial performance, including the effects of interest,income taxes, depreciation and amortization. EBITDA excludes interest expense.Because we have borrowed money in order to finance our operations, interestexpense is a necessary element of our costs and ability to generate revenue.Therefore, any measure that excludes interest expense has material limitations.EBITDA also excludes taxes. Because the payment of taxes is a necessary elementof our operations, any measure that excludes tax expense has materiallimitations. Finally, EBITDA excludes depreciation and amortization expense.Because we use capital assets, depreciation and amortization expense is anecessary element of our costs and ability to generate revenue. Therefore, anymeasure that excludes depreciation and amortization expense has materiallimitations. Our management compensates for the limitations of using EBITDA byusing it to supplement GAAP results to provide a more complete understanding ofthe factors and trends affecting the business than GAAP results alone. Ourmanagement also uses other metrics to evaluate capital structure, tax planningand capital investment decisions. For example, our management uses creditratings and net debt ratios to evaluate capital structure, effective tax rate byjurisdiction to evaluate tax planning, and payback period and internal rate ofreturn to evaluate capital investments. Our management also uses trade workingcapital to evaluate its investment in accounts receivable and inventory, net ofaccounts payable.

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We believe that net income(loss) is the performance measure calculated and presented in accordance withGAAP that is most directly comparable to EBITDA and that cash provided byoperating activities is the liquidity measure calculated and presented in accordancewith GAAP that is most directly comparable to EBITDA. For each of our Companyand Huntsman International, the following tables reconcile EBITDA to net incomeand to net cash provided by operations (dollars in millions):

**Huntsman Corporation**
|                                                                                                                            | ** ** | **Year Ended December 31,** | ** ** | **Percent Change** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                 | ** ** | **2006**                                   | ** ** | **2005**                | ** ** | **2004** | ** ** | **2006 vs 2005** | ** ** | **2005 vs 2004** | ** ** |
| EBITDA                                                                                                                     |       | $                                          | 1,031.2    |                    | $          | 913.4 |   | $ | 892.6 |   |   | 13 | % |   |   | 2 | % |   |
| Depreciation and  amortization                                                                                             |       | (465.7                                     | )          | (500.8                  | )          | (536.8 | ) |   | (7 | )% |   |   | (7 | )% |   |
| Interest expense,  net                                                                                                     |       | (350.7                                     | )          | (426.6                  | )          | (612.6 | ) |   | (18 | )% |   |   | (30 | )% |   |
| Income tax  benefit from continuing operations                                                                             |       | 49.0                                       |       | 6.1                     |       | 72.0 |   |   | 703 | % |   |   | (92 | )% |   |
| Income tax expense from discontinued operations and  cumulative effect of changes in accounting principle, net of tax |       | (34.0                                      | )          | (26.7                   | )          | (42.9 | ) |   | 27 | % |   |   | (38 | )% |   |
| Net income (loss)                                                                                                          |       | 229.8                                      |       | (34.6                   | )          | (227.7 | ) |   | NM |   |   |   | (85 | )% |   |
| Cumulative effect  of changes in accounting principle, net of tax                                                          |       | —                                     |       | 27.7                    |       | — |   |   | NM |   |   |   | NM |   |   |
| Extraordinary  gain on the acquisition of a business, net of tax                                                           |       | (55.9                                      | )          | —                  |       | — |   |   | NM |   |   |   | NM |   |   |
| Equity in income  of investment in unconsolidated affiliates                                                     |       | (3.6                                       | )          | (8.2                    | )          | (4.0 | ) |   | (56 | )% |   |   | 105 | % |   |
| Depreciation and  amortization                                                                                             |       | 465.7                                      |       | 500.8                   |       | 536.8 |   |   | (7 | )% |   |   | (7 | )% |   |
| Loss on disposal  of businesses/assets                                                                                     |       | 209.4                                      |       | 35.4                    |       | 2.4 |   |   | 492 | % |   |   | NM |   |   |
| Noncash  restructuring, impairment and plant closing costs                                                       |       | 18.1                                       |       | 58.6                    |       | 138.0 |   |   | (69 | )% |   |   | (58 | )% |   |
| Loss on early  extinguishment of debt                                                                                      |       | 27.1                                       |       | 322.5                   |       | 25.6 |   |   | 92 | % |   |   | NM |   |   |
| Noncash interest  expense                                                                                                  |       | 5.1                                        |       | 49.8                    |       | 166.0 |   |   | (90 | )% |   |   | (70 | )% |   |
| Deferred income  taxes                                                                                                     |       | (82.4                                      | )          | (3.1                    | )          | (64.5 | ) |   | NM |   |   |   | (95 | )% |   |
| Net unrealized  (gain) loss on foreign currency transactions                                                     |       | (42.4                                      | )          | 15.3                    |       | (111.7 | ) |   | NM |   |   |   | NM |   |   |
| Other, net                                                                                                                 |       | 32.1                                       |       | 2.1                     |       | (6.1 | ) |   | NM |   |   |   | NM |   |   |
| Changes in operating  assets and liabilites                                                                                |       | 90.1                                       |       | 2.3                     |       | (274.0 | ) |   | NM |   |   |   | NM |   |   |
| Net cash provided by  operating activities                                                                                 |       | $                                          | 893.1      |                    | $          | 968.6 |   | $ | 180.8 |   |   | (8 | )% |   |   | 436 | % |   |

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NM—Not meaningful.

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**Huntsman International**
|                                                                                                                                 | ** ** | **Year Ended December 31,** | ** ** | **Percent Change** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                      | ** ** | **2006**                                   | ** ** | **2005**                | ** ** | **2004** | ** ** | **2006 vs 2005** | ** ** | **2005 vs 2004** | ** ** |
| EBITDA                                                                                                                          |       | $                                          | 1,031.9    |                    | $          | 1,059.7 |   | $ | 881.0 |   |   | (3 | )% |   |   | 20 | % |   |
| Depreciation and  amortization                                                                                                  |       | (439.1                                     | )          | (473.9                  | )          | (499.0 | ) |   | (7 | )% |   |   | (5 | )% |   |
| Interest expense,  net                                                                                                          |       | (355.2                                     | )          | (425.6                  | )          | (592.6 | ) |   | (17 | )% |   |   | (28 | )% |   |
| Income tax  benefit (expense) from continuing operations                                                         |       | 30.0                                       |       | (13.2                   | )          | 66.3 |   |   | NM |   |   |   | NM |   |   |
| Income tax expense from discontinued operations and  cumulative effect of changes in accounting principle, net of tax |       | (34.0                                      | )          | (26.3                   | )          | (43.4 | ) |   | 29 | % |   |   | (39 | )% |   |
| Net income (loss)                                                                                                               |       | 233.6                                      |       | 120.7                   |       | (187.7 | ) |   | 94 | % |   |   | NM |   |   |
| Cumulative effect  of changes in accounting principle, net of tax                                                               |       | —                                     |       | 27.5                    |       | — |   |   | NM |   |   |   | NM |   |   |
| Extraordinary  gain on the acquisition of a business, net of tax                                                                |       | (55.9                                      | )          | —                  |       | — |   |   | NM |   |   |   | NM |   |   |
| Equity in income  of investment in unconsolidated affiliates                                                          |       | (3.6                                       | )          | (8.2                    | )          | (4.0 | ) |   | (56 | )% |   |   | 105 | % |   |
| Depreciation and  amortization                                                                                                  |       | 439.1                                      |       | 473.9                   |       | 499.0 |   |   | (7 | )% |   |   | (5 | )% |   |
| Loss on disposal  of businesses/assets                                                                                          |       | 187.7                                      |       | 35.4                    |       | 2.4 |   |   | 430 | % |   |   | NM |   |   |
| Noncash  restructuring, impairment and plant closing costs                                                            |       | 18.1                                       |       | 58.6                    |       | 138.0 |   |   | (69 | )% |   |   | (58 | )% |   |
| Loss on early  extinguishment of debt                                                                                           |       | 39.0                                       |       | 167.3                   |       | 25.6 |   |   | (77 | )% |   |   | 554 | % |   |
| Noncash interest  expense                                                                                                       |       | 8.8                                        |       | 47.2                    |       | 145.5 |   |   | (81 | )% |   |   | (68 | )% |   |
| Deferred income  taxes                                                                                                          |       | (63.2                                      | )          | 16.2                    |       | (58.3 | ) |   | NM |   |   |   | NM |   |   |
| Net unrealized  (gain) loss on foreign currency transactions                                                          |       | (42.4                                      | )          | 15.3                    |       | (111.7 | ) |   | NM |   |   |   | NM |   |   |
| Other, net                                                                                                                      |       | 26.6                                       |       | 16.1                    |       | 6.1 |   |   | 65 | % |   |   | 164 | % |   |
| Changes in  operating assets and liabilites                                                                                     |       | 95.7                                       |       | 11.0                    |       | (273.8 | ) |   | 770 | % |   |   | NM |   |   |
| Net cash provided by  operating activities                                                                                      |       | $                                          | 883.5      |                    | $          | 981.0 |   | $ | 181.1 |   |   | (10 | )% |   |   | 442 | % |   |

----

NM—Notmeaningful.

**Year Ended December 31,2006 Compared to Year Ended December 31, 2005**

For the year ended December 31,2006, we had net income of $229.8 million on revenues of $10,623.6 millioncompared to a net loss of $34.6 million on revenues of $10,676.9 million for2005. For the year ended December 31, 2006, Huntsman International had netincome of $233.6 million on revenues of $10,623.6 million compared to netincome of $120.7 million on revenues of $10,676.9 million for 2005. Theincrease of $264.4 million in our net income and the increase of $112.9 millionin Huntsman International’s net income were the result of the following items:

·       Revenuesfor the year ended December 31, 2006 decreased by $53.3 million ascompared to 2005 due principally to lower sales volumes in our PerformanceProducts, Pigments, Polymers and Base Chemicals segments. This decrease waspartially offset by increased sales volumes in our Polyurethanes and Materialsand Effects segments and increased average selling prices in our Polyurethanes,Performance Products, Polymers, Pigments and Base Chemicals segments. For moreinformation, see “—Segment Analysis” below.

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·       Ourgross profit and the gross profit of Huntsman International for the year ended December 31,2006 decreased by $75.9 million and $76.5 million, respectively, or 5% each, ascompared to 2005. This decrease in gross profit, which occurred in all of oursegments except Performance Products, was mainly due to lower margins, as rawmaterial and energy costs increased more than average selling prices during theyear ended December 31, 2006 as compared to 2005. For more information,see “—Segment Analysis” below.

·       Ouroperating expenses and the operating expenses of Huntsman International for theyear ended December 31, 2006 remained relatively unchanged at$783.0 million and $782.5 million, respectively, as compared to$786.3 million and $787.1 million for 2005, respectively. Higher operatingexpenses related to the Textile Effects Acquisition on June 30, 2006 wereoffset in part by a $90.3 million gain on the sale of our U.S. butadiene andMTBE business on June 27, 2006 and a resulting reduction in operatingexpenses.

·       Restructuring,impairment and plant closing costs for the year ended December 31, 2006decreased to $20.0 million from $114.1 million in 2005. For further informationconcerning restructuring activities, see “Note 11. Restructuring, Impairmentand Plant Closing Costs” to our consolidated financial statements includedelsewhere in this report.

·       Ournet interest expense and Huntsman International’s net interest expense for theyear ended December 31, 2006 decreased by $75.9 million and $70.4 million,or 18% and 17%, respectively, as compared to 2005. This decrease was primarilydue to lower average debt balances which resulted from the repayment of debtand from lower average interest rates despite higher underlying interest rateson variable rate borrowings.

·       Ourloss on early extinguishment of debt and the loss on early extinguishment ofdebt of Huntsman International decreased for the year ended December 31,2006 by $295.4 million and $128.3 million, or 92% and 77%, respectively, as comparedto 2005, resulting from higher repayment of debt during 2005 primarily from theproceeds of our initial public offering and operating cash flows.

·       Our income tax benefit increased by $42.9 millionto a benefit of $49.0 million for the year ended December 31, 2006 ascompared with a benefit of $6.1 million for the same period in 2005. HuntsmanInternational’s income tax benefit increased by $43.2 million to a benefit of$30.0 million for the year ended December 31, 2006 as compared with an expenseof $13.2 million for the same period in 2005. Our and HuntsmanInternational’s tax obligations are affected by the mix of income and losses inthe tax jurisdictions in which we operate. Our tax expense decreased whilepre-tax income increased largely due to the reversal of accruals for taxcontingencies resulting from tax authority examination settlements and thefavorable precedent from a court decision for another taxpayer, the release ofvaluation allowances in the U.K. resulting from a change in judgment about therealizability of deferred tax assets, net decreases in operating income injurisdictions that record a tax benefit, and net increases in operating incomein jurisdictions with a full valuation allowance. Additionally, on August 16,2005 we completed the Affiliate Mergers. Prior to the Affiliate Mergers,Huntsman International Holdings, including Huntsman International, was treatedas a partnership for U.S. federal income tax purposes and as such was generallynot subject to U.S. income tax, but rather such income was taxed directly toits owners. After the Affiliate Mergers, Huntsman International is treated as acorporate subsidiary and is subject to U.S. income tax. Therefore, the taxexpense at Huntsman International for the years ended December 31, 2006and December 31, 2005 are not comparable. For further information concerning taxes, see “Note 19. Income Taxes”to our consolidated financial statements included elsewhere in this report.

·       Theloss from discontinued operations represents the operating results and loss ondisposal of our European base chemicals and polymers business and our TDIbusiness. Our 2006 loss from 

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discontinued operationsand the 2006 loss from discontinued operations of Huntsman Internationalincluded a loss on disposal of $301.8 million and $280.1 million,respectively, related to the U.K. Petrochemicals Disposition. The income fromdiscontinued operations in 2005 included a loss on disposal of our TDI businessof $36.4 million. For further information, see “Note 3. Discontinued Operations”to our consolidated financial statements included elsewhere in this report.

·       Theextraordinary gain on the acquisition of a business represents the fair valueof the net assets acquired in excess of the purchase price paid for the textileeffects business, after the values of all long-lived assets were reduced tozero. For more information, see “Note 4. Business Dispositions and Combinations—TextileEffects Acquisition” to our consolidated financial statements included elsewherein this report.

·       During the fourth quarterof 2005, we adopted FIN 47, *Accounting for ConditionalAsset Retirement Obligations,* and recorded a charge for thecumulative effect of this change in accounting principle of $31.7 million ($0.14per diluted share), net of tax of $4.8 million. Also in 2005, we acceleratedthe date of the actuarial measurement for our pension and postretirementbenefit obligations from December 31 to November 30. The effect ofthe change in measurement date on the respective obligations and assets of theplan resulted in a cumulative effect of a change in accounting principle creditfor us of $4.0 million ($0.02 per diluted share), net of tax of $1.9 million,and for Huntsman International of $4.2 million, net of tax of $1.5 million,recorded effective January 1, 2005.

**Segment Analysis**

In the fourth quarter of2006, our Port Neches olefins facility was transferred from our Base Chemicalssegment to our Performance Products segment. All segment information for priorperiods has been restated to reflect this transfer.

***Year Ended December 31, 2006 Compared to YearEnded December 31, 2005***

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

| ** **             | ** ** | **Year Ended December 31,** | ** ** | **Percent** | ** ** |
|------------------------|------------|--------------------------------------------|------------|-------------|------------|
| ** **             | ** ** | **2006**                                   | ** ** | **2005**    | ** ** | **Change** | ** ** |
| **Revenues**           |       |                                       |       |        |       |   |   |   |   |
| Polyurethanes          |       | $                                          | 3,457.2    |        | $          | 3,396.3 |   |   | 2 | % |   |
| Materials and  Effects |       | 1,734.6                                    |       | 1,185.3     |       |   | 46 | % |   |
| Performance  Products  |       | 2,036.8                                    |       | 2,025.4     |       |   | 1 | % |   |
| Pigments               |       | 1,057.8                                    |       | 1,052.8     |       |   | — | % |   |
| Polymers               |       | 1,756.8                                    |       | 1,702.0     |       |   | 3 | % |   |
| Base Chemicals         |       | 963.1                                      |       | 1,775.5     |       |   | (46 | )% |   |
| Eliminations           |       | (382.7                                     | )          | (460.4      | )          |   | (17 | )% |   |
| **Total**              |       | $                                          | 10,623.6   |        | $          | 10,676.9 |   |   | — | % |   |

 

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**Huntsman Corporation**

| ** **             | ** ** | **Year Ended December 31,** | ** ** | ** ** | **Percent** | ** ** |
|------------------------|------------|--------------------------------------------|------------|------------|-------------|------------|
| ** **             | ** ** | **2006**                                   | ** ** | **2005**   | ** **  | ** ** | **Change** | ** ** |
| **Segment EBITDA**     |       |                                       |       |       |        |       |   |   |   |
| Polyurethanes          |       | $                                          | 582.5      |       | $           | 676.3      |   |   | (14 | )% |   |
| Materials and  Effects |       | 153.2                                      |       | 154.1      |        |       | (1 | )% |   |
| Performance  Products  |       | 207.8                                      |       | 164.9      |        |       | 26 | % |   |
| Pigments               |       | 112.8                                      |       | 115.3      |        |       | (2 | )% |   |
| Polymers               |       | 112.8                                      |       | 102.7      |        |       | 10 | % |   |
| Base Chemicals         |       | 11.9                                       |       | 256.7      |        |       | (95 | )% |   |
| Corporate and  other   |       | (149.8                                     | )          | (556.6     | )           |       | (73 | )% |   |
| **Total**              |       | $                                          | 1,031.2    |       | $           | 913.4      |   |   | 13 | % |   |

 

**Huntsman International**

|                        | ** ** | **Year Ended December 31,** | ** ** | **Percent** | ** ** |
|------------------------|------------|--------------------------------------------|------------|-------------|------------|
| ** **             | ** ** | **2006**                                   | ** ** | **2005**    | ** ** | **Change** | ** ** |
| **Segment EBITDA**     | ** ** | ** **                                 | ** ** | ** **  | ** ** |   | ** ** | ** ** |   |
| Polyurethanes          |       | $                                          | 582.5      |        | $          | 676.3 |   |   | (14 | )% |   |
| Materials and  Effects |       | 153.2                                      |       | 154.1       |       |   | (1 | )% |   |
| Performance  Products  |       | 207.8                                      |       | 164.9       |       |   | 26 | % |   |
| Pigments               |       | 112.8                                      |       | 115.3       |       |   | (2 | )% |   |
| Polymers               |       | 112.8                                      |       | 102.7       |       |   | 10 | % |   |
| Base Chemicals         |       | 11.9                                       |       | 256.7       |       |   | (95 | )% |   |
| Corporate and  other   |       | (149.1                                     | )          | (410.3      | )          |   | (64 | )% |   |
| **Total**              |       | $                                          | 1,031.9    |        | $          | 1,059.7 |   |   | (3 | )% |   |

 

***Polyurethanes***

For the year ended December 31, 2006,Polyurethanes segment revenues increased by $60.9 million, or 2%, as comparedto 2005. This increase was primarily a result of 5% growth in MDI salesvolumes, partially offset by lower volumes in MTBE and a decline in MDI averageselling prices. Lower average MDI selling prices were due to pricing pressuresin Asia and Europe in response to the expectation of new industry capacity. Theincrease in MDI sales volumes was driven mainly by strong growth ininsulation-related applications. MTBE revenues declined as a result of a 3%reduction in sales volumes as we improved PO/MTBE plant optimization byreducing our production of byproduct MTBE.

For the year ended December 31,2006, Polyurethanes segment EBITDA decreased to $582.5 million as compared to$676.3 million for 2005. The decrease was a result of lower sales volumes,largely MTBE and trade sales, coupled with lower contribution margins from bothMDI and MTBE. MDI margins were lower due to downward pricing pressure andrecord raw material costs. MTBE margins were lower as our sales of MTBE movedfrom the U.S. to markets outside the U.S. Polyurethanes segment EBITDA was alsoimpacted, in part, by lower losses in 2006 from the discontinued TDI operationsof $42.0 million, as compared to 2005, a gain of $8.8 million in 2006related to property loss recoveries and lower year-on-year restructuring,impairment and plant closing costs. During the year ended December 31, 2006,our Polyurethanes segment recorded a restructuring, impairment and plantclosing credit of $2.7 million as compared to a charge of $13.4 million in2005. For further information concerning restructuring activities, see “Note11. Restructuring, Impairment and Plant Closing Costs” to our consolidatedfinancial statements included elsewhere in this report.

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***Materials and Effects***

Materials and Effects revenues for the year ended December 31,2006 increased by $549.3 million, or 46%, as compared to 2005. This increase isprimarily due to the Textile Effects Acquisition on June 30, 2006. Thetextile effects business contributed $461.6 million of revenue for the yearended December 31, 2006, while advanced materials revenues for the sameperiod increased by $87.7 million, or 7%, as compared to 2005. Theincrease in advanced materials revenues was primarily attributable to highersales volumes. Average selling prices were lower in Europe and Asia in responseto price competition in the first half of 2006, but these lower average sellingprices were offset by higher average selling prices in the Americas. Salesvolumes increased in all regions and in most markets as a result of improveddemand and the introduction of additional product lines.

Materials and Effects EBITDAfor the year ended December 31, 2006 decreased by $0.9 million, ascompared to 2005. The textile effects business contributed $11.8 millionto segment EBITDA for the year ended December 31, 2006, while advancedmaterials EBITDA for the same period decreased by $12.7 million, or 8%, ascompared to 2005. Advanced materials EBITDA decreased primarily due toincreased manufacturing and energy costs of $14.2 million and higher operatingexpenses of $14.1 million, partially in support of new business developmentinitiatives and a result of a negative foreign currency exchange impact. Duringthe year ended December 31, 2006, our Materials and Effects segmentrecorded restructuring, impairment and plant closing costs of $3.8 millionas compared to $0.5 million in 2005. For further information concerningrestructuring activities, see “Note 11. Restructuring, Impairment and PlantClosing Costs” to our consolidated financial statements included elsewhere inthis report.

***Performance Products***

For the year ended December 31, 2006, PerformanceProducts revenues increased by $11.4 million, or 1%, as compared with 2005,primarily as the result of higher average selling prices for all major productlines partially offset by lower sales volume in certain product lines. Averageselling prices increased 9% in response to higher raw material and energycosts. The 8% decline in sales volumes was principally due to lower sales ofglycols and other intermediates, partially offset by improved sales volumes inour specialties product group.

For the year endedDecember 31, 2006, Performance Products segment EBITDA increased by $42.9million, or 26%, as compared with 2005. This increase was primarily due toprofitable growth in our specialties product group, the receipt of insuranceproceeds and reduced repair costs associated with the 2005 U.S. Gulf Coaststorms and lower restructuring, impairment and plant closing costs. Theseincreases were partially offset by lower glycol earnings. During the yearsended December 31, 2006 and 2005, the Performance Product segment recordedrestructuring, impairment and plant closing charges of $2.2 million and $11.1million, respectively. For further information concerning restructuringactivities, see “Note 11. Restructuring, Impairment and Plant Closing Costs” toour consolidated financial statements included elsewhere in this report.

***Pigments***

For the year ended December 31, 2006, Pigmentsrevenues increased slightly to $1,057.8 million, as compared to $1,052.8million for 2005. The increase resulted principally from a 1% increase inaverage selling prices, offset by a 1% decrease in sales volumes. Averageselling prices increased in Europe primarily as a result of positive foreigncurrency exchange impacts on selling prices. Sales volumes decreased primarilydue to lower customer demand in North America. 

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Pigments segment EBITDAfor the year ended December 31, 2006 decreased by $2.5 million, or 2%, ascompared to 2005, resulting primarily from lower contribution margins relatedto higher raw material and energy costs, offset in part by lower restructuring,impairment and plant closing costs. During the years ended December 31,2006 and 2005, our Pigments segment recorded restructuring, impairment andplant closing charges of $3.8 million and $30.1 million, respectively. Forfurther information concerning restructuring activities, see “Note 11.Restructuring, Impairment and Plant Closing Costs” to our consolidatedfinancial statements included elsewhere in this report.

***Polymers***

For the year ended December 31, 2006, Polymersrevenues increased by $54.8 million, or 3%, as compared to 2005, mainlydue to a 7% increase in average selling prices, offset in part by a 3% decreasein sales volumes. Average selling prices were higher primarily due to tightermarket conditions and in response to an increase in raw material and energycosts. Sales volumes decreased as a result of continued weak demand for ourAustralian styrenics and expandable polystyrene products.

For the year endedDecember 31, 2006, Polymers segment EBITDA increased by $10.1 million, or10%, as compared to 2005. This increase in segment EBITDA resulted principallyfrom lower restructuring, impairment, and plant closing costs, offset somewhatby lower contribution margins as raw materials and energy costs increased morethan average selling prices. During the years ended December 31, 2006 and2005, our Polymers segment recorded restructuring, impairment and plant closingcharges of $4.4 million and $51.6 million, respectively. For furtherinformation concerning restructuring activities, see “Note 11. Restructuring,Impairment and Plant Closing Costs” to our consolidated financial statementsincluded elsewhere in this report.

***Base Chemicals***

Beginning in the third quarter of 2006, the operatingresults of our European base chemicals and polymers business were classified asdiscontinued operations and, accordingly, the revenues of this business areexcluded from the Base Chemicals segment revenues for all periods presented.The EBITDA of our European base chemicals and polymers business is included inthe Base Chemicals segment EBITDA for all periods presented.

For the year ended December 31, 2006, BaseChemicals revenues decreased by $812.4 million, or 46%, as compared to2005. This decrease was mainly due to a 50% decrease in sales volumes,partially offset by a 7% increase in average selling prices. The sales volumedecrease was driven principally by 48% lower sales volumes of olefins whichresulted from the fire at our Port Arthur, Texas manufacturing plant, theunplanned outages at our Jefferson County, Texas production facilities thatresulted from the 2005 U.S. Gulf Coast storms and the divestiture of our U.S.butadiene and MTBE business on June 27, 2006. Higher average sellingprices resulted primarily in response to higher raw material and energy costs.

For the year endedDecember 31, 2006, Base Chemicals segment EBITDA decreased by $244.8million, or 95%, as compared to 2005. The decrease in segment EBITDA was due tolost sales volumes related to the fire at our Port Arthur, Texas manufacturingplant and lower contribution margins as raw material and energy costs increasedmore than average selling prices. We estimate that segment EBITDA wasnegatively impacted by approximately $166 million in 2006 due to lostolefins sales volumes and damage related to the fire at our Port Arthur, Texasplant. For further information, see “Note 22. Casualty Losses and InsuranceRecoveries—Port Arthur, Texas Plant Fire” to our consolidated financialstatements included elsewhere in this report. A $280.1 million loss on theU.K. Petrochemical Disposition also contributed to the lower segment EBITDA. See“Note 3. Discontinued Operations” to our consolidated financial statementsincluded elsewhere in this report. This decrease in segment EBITDA waspartially offset by a $90.3 million gain on the sale of our U.S. butadieneand MTBE business in 2006. During the 

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yearended December 31, 2006 and 2005, our Base Chemicals segment recordedrestructuring, impairment and plant closing charges of $8.3 million and$6.2 million, respectively. For further information concerningrestructuring activities, see “Note 11. Restructuring, Impairment andPlant Closing Costs” to our consolidated financial statements includedelsewhere in this report. Excluding impairment, EBITDA from our European basechemicals business was $165.1 million for the year ended December 31, 2006compared to $176.1 million for the year ended December 31, 2005.

***Corporate and Other—Huntsman Corporation***

Corporate and other itemsincludes unallocated corporate overhead, foreign exchange gains and losses,loss on accounts receivable securitization program, loss on the earlyextinguishment of debt, other non-operating income and expense, minorityinterest in subsidiaries’ (income) loss, the extraordinary gain on acquisitionof a business, cumulative effect of changes in accounting principle and theimpact of purchase accounting adjustments. For the year ended December 31,2006, EBITDA from corporate and other items improved by $406.8 million to aloss of $149.8 million from a loss of $556.6 million for 2005. The improvementprimarily resulted from a decrease in expenses of $295.4 million related to theloss on early extinguishment of debt, an increase of $42.1 million inunallocated foreign currency gains, an extraordinary gain of $55.9 millionrelated to the Textile Effects Acquisition and a $30.6 million cumulativeeffect of changes in accounting principle charge in 2005, partially offset by a$21.7 million loss attributable to the U.K. Petrochemicals Disposition.

***Corporate and Other—Huntsman International***

Corporate and other itemsincludes unallocated corporate overhead, foreign exchange gains and losses,loss on accounts receivable securitization program, loss on the earlyextinguishment of debt, other non-operating income and expense, minorityinterest in subsidiaries’ (income) loss, the extraordinary gain on acquisitionof a business and cumulative effect of changes in accounting principle. For theyear ended December 31, 2006, EBITDA from corporate and other itemsimproved by $261.2 million to a loss of $149.1 million from a loss of $410.3million for 2005. The improvement primarily resulted from a decrease inexpenses of $128.3 million related to the loss on early extinguishment of debt,an increase of $42.1 million in unallocated foreign currency gains, anextraordinary gain of $55.9 million related to the Textile Effects Acquisitionand a $30.8 million cumulative effect of changes in accounting principle chargein 2005.

**Year EndedDecember 31, 2005 Compared to Year Ended December 31, 2004**

For the year endedDecember 31, 2005, we had a net loss of $34.6 million on revenues of$10,676.9 million compared to a net loss of $227.7 million onrevenues of $9,562.5 million for 2004. Huntsman International had netincome of $120.7 million in 2005 on revenues of $10,676.9 million compared to anet loss of $187.7 million on revenues of $9,562.5 million for 2004. The improvementof $193.1 million in our net loss and the increase of $308.4 million inHuntsman International’s net income were the result of the following items: 

·       Revenuesfor the year ended December 31, 2005 increased by $1,114.4 million,or 12%, as compared with 2004 due principally to higher average selling pricesin all of our operating segments, primarily in response to higher raw materialsand energy costs. For further information, see “—Segment Analysis” below.

·       Ourgross profit and the gross profit of Huntsman International for the year endedDecember 31, 2005 increased by $411.6 million and $407.8 million, or34% and 33%, respectively, as compared to 2004. This increase in gross profit,which occurred in our Polyurethanes, Pigments and Polymers segments, was mainlydue to higher margins as average selling prices increased more than raw 

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material and energy costsin 2005 as compared with 2004. The decrease in gross profit in our Materialsand Effects, Performance Products and Base Chemicals segments resulted from theimpact of the 2005 U.S. Gulf Coast storms, which resulted in a loss of sales,repair costs and higher raw material costs. For further information, see “—SegmentAnalysis” below.

·       Ouroperating expenses and the operating expenses of Huntsman International for theyear ended December 31, 2005 increased by $128.3 million and $132.4million, or 19% and 20%, respectively, as compared with 2004, primarily due tohigher foreign currency losses.

·       Restructuring,impairment and plant closing costs for the year ended December 31, 2005decreased to $114.1 million from $282.9 million in 2004. For furtherinformation concerning restructuring activities, see “Note 11. Restructuring,Impairment and Plant Closing Costs” to our consolidated financial statementsincluded elsewhere in this report.

·       Ournet interest expense and Huntsman International’s net interest expense for theyear ended December 31, 2005 decreased by $186.0 million and $167.0million, or 30% and 28%, respectively, as compared with 2004, primarily due tolower average debt balances resulting from the repayment of debt from theproceeds of our initial public offering on February 16, 2005 and operatingcash flows, and from lower average interest rates despite higher underlyinginterest rates on variable rate borrowings.

·       Income tax expense decreased by $65.9 million toa benefit of $6.1 million for the year ended December 31, 2005 as comparedwith a benefit of $72.0 million for the same period in 2004. HuntsmanInternational’s income tax expense increased to an expense of $13.2 million forthe year ended December 31, 2005 compared with a benefit of $66.3 millionfor the same period of 2004. Increased tax expense was largely due to reducedpre-tax loss. Our and Huntsman International’s tax obligations areaffected by the mix of income and losses in the tax jurisdictions in which weoperate. The change in income tax expense includes changes in our mix of incomeand losses, as well as non-recurring items of expense and benefit recognizedeach year.

·       Theloss from discontinued operations represents the operating results of ourEuropean base chemicals and polymers business and the operating results andloss on disposal of our TDI business. For further information, see “Note 3.Discontinued Operations” to our consolidated financial statements includedelsewhere in this report.

·       During the fourth quarterof 2005, we adopted FIN 47,*Accounting forConditional Asset Retirement Obligations*,**and recorded acharge for the cumulative effect of this change in accounting principle of$31.7 million ($0.14 per diluted share), net of tax of $4.8 million. Also in 2005,we accelerated the date of the actuarial measurement for our pension andpostretirement benefit obligations from December 31 to November 30..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 accounting principlecredit for us of $4.0 million ($0.02 per diluted share), net of tax of$1.9 million, and for Huntsman International of $4.2 million, net of tax of$1.5 million, recorded effective January 1, 2005.

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**Segment Analysis**

***Year Ended December 31, 2005 Compared to YearEnded December 31, 2004***

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 | % |   |
| Materials and  Effects |       | 1,185.3                                                              |       |                                                                 | 1,162.4    |   |   |   | 2 | % |   |
| Performance  Products  |       | 2,025.4                                                              |       |                                                                 | 1,945.5    |   |   |   | 4 | % |   |
| Pigments               |       | 1,052.8                                                              |       |                                                                 | 1,048.1    |   |   |   | — |   |   |
| Polymers               |       | 1,702.0                                                              |       |                                                                 | 1,451.8    |   |   |   | 17 | % |   |
| Base Chemicals         |       | 1,775.5                                                              |       |                                                                 | 1,715.3    |   |   |   | 4 | % |   |
| Eliminations           |       | (460.4                                                               | )          |                                                                 | (578.6     | ) |   |   | (20 | )% |   |
| **Total**              |       | $                                                                    | 10,676.9   |                                                                 |       | $ | 9,562.5 |   |   |   | 12 | % |   |

 

**Huntsman Corporation**
|                        | ** ** | **Year Ended December 31,**                           | ** ** | **Percent**                                                          | ** ** |
|------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **             | ** ** | **     2005     ** | ** ** | **     2004     ** | ** ** | **Change** | ** ** |
| **Segment  EBITDA**    | ** ** |                                                                 | ** ** | ** **                                                           |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Polyurethanes          |       |                                                                 | $          | 676.3                                                                |       |   |   | $ | 364.0 |   |   |   | 86 | % |   |
| Materials and  Effects |       |                                                                 | 154.1      |                                                                 |       |   | 151.0 |   |   |   | 2 | % |   |
| Performance  Products  |       |                                                                 | 164.9      |                                                                 |       |   | 88.5 |   |   |   | 86 | % |   |
| Pigments               |       |                                                                 | 115.3      |                                                                 |       |   | (30.0 | ) |   |   | NM |   |   |
| Polymers               |       |                                                                 | 102.7      |                                                                 |       |   | 77.6 |   |   |   | 32 | % |   |
| Base Chemicals         |       |                                                                 | 256.7      |                                                                 |       |   | 278.7 |   |   |   | (8 | )% |   |
| Corporate and  other   |       |                                                                 | (556.6     | )                                                                    |       |   | (37.2 | ) |   |   | NM |   |   |
| **Total**              |       |                                                                 | $          | 913.4                                                                |       |   |   | $ | 892.6 |   |   |   | 2 | % |   |

 

**Huntsman International**
|                        | ** ** | **Year Ended December 31,**                                             | ** ** | **Percent**                                                                      | ** ** |
|------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **             | ** ** | **      2005       ** | ** ** | **      2004      ** | ** ** | **Change** | ** ** |
| **Segment  EBITDA**    | ** ** |                                                                                   | ** ** | ** **                                                                       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Polyurethanes          |       |                                                                                   | $          | 676.3                                                                            |       |   |   | $ | 364.0 |   |   |   | 86 | % |   |
| Materials and  Effects |       |                                                                                   | 154.1      |                                                                             |       |   | 151.0 |   |   |   | 2 | % |   |
| Performance  Products  |       |                                                                                   | 164.9      |                                                                             |       |   | 88.5 |   |   |   | 86 | % |   |
| Pigments               |       |                                                                                   | 115.3      |                                                                             |       |   | (30.0 | ) |   |   | NM |   |   |
| Polymers               |       |                                                                                   | 102.7      |                                                                             |       |   | 77.6 |   |   |   | 32 | % |   |
| Base Chemicals         |       |                                                                                   | 256.7      |                                                                             |       |   | 278.7 |   |   |   | (8 | )% |   |
| Corporate and  other   |       |                                                                                   | (410.3     | )                                                                                |       |   | (48.8 | ) |   |   | 741 | % |   |
| **Total**              |       |                                                                                   | $          | 1,059.7                                                                          |       |   |   | $ | 881.0 |   |   |   | 20 | % |   |

----

NM—Not meaningful

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***Polyurethanes***

For the year endedDecember 31, 2005, Polyurethanes segment revenues increased by$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.

For the year endedDecember 31, 2005, Polyurethanes segment EBITDA increased by$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 discontinuedoperations and the negative impact of the U.S. Gulf Coast storms. During theyears ended December 31, 2005 and 2004, our Polyurethanes segment recordeda loss from discontinued operations of its TDI business of $43.9 millionand $7.8 million, respectively. In addition, our Polyurethanes segmentrecorded restructuring, impairment and plant closing costs of$13.4 million in the year ended December 31, 2005 as compared with$36.9 million in 2004. For further information concerning restructuringactivities, see “Note 11. Restructuring, Impairment and Plant Closing Costs” toour consolidated financial statements included elsewhere in this report.

***Materials and Effects***

Materials and Effects revenues for the year ended December 31,2005 increased by $22.9 million, or 2%, as compared with 2004, primarilyattributable to an 8% increase in average selling prices, with sales volumesdown 6%. Average selling prices were higher due to price increase initiativesin certain markets in response to higher raw material costs and due to a highervalue product mix. Our ongoing portfolio re-alignment activities resulted inhigher sales volumes in some of our markets, which were more than offset bylower sales volumes of basic epoxy resins in the coatings, construction andadhesives markets and reduced volumes of electronic laminates products.

Materials and Effectssegment EBITDA for the year ended December 31, 2005 increased by$3.1 million, or 2%, as compared with 2004. Segment EBITDA improved onhigher revenues and an improved product mix, resulting from increased salesvolumes of higher margin adhesives and power and composite engineeringapplications. These improvements more than offset higher raw material costscaused principally by decreased supplies of materials and higher energy pricesrelated to the U.S. Gulf Coast storms and a reduction of $8.7 million inlegal and contract settlement gains. In addition, our Materials and Effectssegment recorded restructuring, 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 information concerning restructuringactivities, see “Note 11. Restructuring, Impairment and Plant Closing Costs” toour consolidated financial statements included elsewhere in this report.

***Performance Products***

For the year ended December 31, 2005, PerformanceProducts revenues increased by $79.9 million, or 4%, as compared with2004, primarily as a result of higher average selling prices for all majorproduct lines, offset by lower sales volumes in certain product lines. Overall,average selling prices increased by 17% in response to higher raw material andenergy costs and improved market conditions for certain products. Sales volumesdeclined by 11% principally due to the loss of production volume in the U.S.related to the 

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U.S. Gulf Coast storms andthe unplanned outage at our PO facility, together with lower sales of glycolsand certain surfactants.

For the year ended December 31,2005, Performance Products segment EBITDA increased by $76.4 million, or86%, as compared with 2004, resulting primarily from lower restructuring,impairment and plant closing costs and higher margins, partially offset bylower sales volumes and the negative impact of the U.S. Gulf Coast storms.During the years ended December 31, 2005 and 2004, the PerformanceProducts segment recorded restructuring, impairment and plant closing chargesof $11.1 million and $97.5 million, respectively. For furtherinformation concerning restructuring activities, see “Note 11. Restructuring,Impairment and Plant Closing Costs” to our consolidated financial statementsincluded elsewhere in this report.

***Pigments***

For the year ended December 31, 2005, Pigmentsrevenues remained relatively unchanged at $1,052.8 million, as comparedwith revenues of $1,048.1 million in 2004, resulting principally from a 6%increase in average selling prices, offset in part by a 5% reduction in salesvolumes. 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-usedemand across all regions. Average selling prices increased in all regions andbenefited from price increase initiatives implemented during late 2004 and2005.

Pigments segment EBITDAfor the year 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 recorded restructuring,impairment and plant closing charges of $30.1 million and$123.3 million, respectively. For further information concerningrestructuring activities, see “Note 11. Restructuring, Impairment and PlantClosing Costs” to our consolidated financial statements included elsewhere inthis report. This increase in segment EBITDA during 2005 was due primarily tothe combination of lower restructuring, impairment and plant closing costs,$15.1 million of lower legal settlement costs related to Discoloration Claimsand higher margins during 2005.

***Polymers***

For the year ended December 31, 2005, Polymersrevenues increased by $250.2 million, or 17%, as compared with 2004, duemainly to 22% higher average selling prices, offset somewhat by lower salesvolumes. Average selling prices were higher primarily due to tighter marketconditions and in response to an increase in raw material and energy costs.Sales volumes decreased by 4% as a result of soft demand in our Australianstyrenics business and raw materials supply shortages in our polypropylenebusiness.

For the year ended December 31,2005, Polymers segment EBITDA increased by $25.1 million, or 32%, ascompared to 2004. This increase in segment EBITDA resulted from highercontribution margins, as average selling prices increased more than rawmaterial and energy costs, and was partially offset by higher restructuring,impairment and plant closing costs. During the years ended December 31,2005 and 2004, our Polymers segment recorded restructuring, impairment and plantclosing charges of $51.6 million and $13.6 million, respectively. Forfurther information concerning restructuring activities, see “Note 11.Restructuring, Impairment and Plant Closing Costs” to our consolidatedfinancial statements included elsewhere in this report.

***Base Chemicals***

Beginning in the third quarter of 2006, the operatingresults of our European base chemicals and polymers business were classified asdiscontinued operations and, accordingly, the revenues of this business areexcluded from the Base Chemicals segment revenues for all periods presented.The EBITDA of our 

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European base chemicalsand polymers business is included in the Base Chemicals segment EBITDA for allperiods presented.

For the year ended December 31, 2005, BaseChemicals revenues increased by $60.2 million, or 4%, as compared with2004. This increase was due mainly to a 29% increase in average selling prices,partially offset by a 19% decrease in sales volumes. Higher average sellingprices were primarily due to improved market conditions and in response tohigher raw material and energy costs. The sales volume decrease was drivenprincipally by a loss of production volume in the U.S. related to the U.S. GulfCoast storms.

For the year ended December 31,2005, Base Chemicals segment EBITDA decreased by $22.0 million, or 8%, ascompared with 2004. This decrease in segment EBITDA was primarily due toslightly lower contribution margins, as higher average selling prices were morethan offset by higher raw materials and energy costs. The increase in rawmaterials and energy costs during 2005 were caused principally by decreasedsupplies of materials and energy sources related to the U.S. Gulf Coast storms.EBITDA was also lower due to lost production in the U.S. related to the U.S. GulfCoast storms. During the years ended December 31, 2005 and 2004, our BaseChemicals segment recorded restructuring, impairment and plant closing chargesof $6.2 million and $0.3 million, respectively. For furtherinformation concerning restructuring activities, see “Note 11. Restructuring,Impairment and Plant Closing Costs” to our consolidated financial statementsincluded elsewhere in this report. EBITDA from our European base chemicalsbusiness was $176.1 million for the year ended December 31, 2005 and$223.6 million for the year ended December 31, 2004.

***Corporate and Other—Huntsman Corporation***

Corporate and other itemsincludes unallocated corporate overhead, 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, 2005,EBITDA from corporate and other items decreased by $519.4 million to aloss of $556.6 million from a loss of $37.2 million for 2004. Thedecrease in 2005 period EBITDA resulted primarily from a $296.9 millionincrease in losses on early extinguishment of debt, a $147.6 millionincrease in unallocated foreign currency losses, $28.3 million higherincentive compensation and $30.6 million on cumulative effect of changesin accounting principle.

***Corporate and Other—Huntsman International***

Corporate and other itemsincludes unallocated corporate overhead, 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, 2005, EBITDAfrom corporate and other items decreased by $361.5 million to a loss of$410.3 million from a loss of $48.8 million for 2004. The decrease in2005 period EBITDA resulted primarily from a $141.7 million increase in losseson early extinguishment of debt, a $147.6 million increase in unallocatedforeign currency losses, $28.3 million higher incentive compensation and acharge of $30.8 million for the cumulative effect of changes in accountingprinciple.

**LIQUIDITYAND CAPITAL RESOURCES**

The following is adiscussion of our liquidity and capital resources. Pursuant to GeneralInstructions I(1)(a) and (b) of Form 10-K, HuntsmanInternational is filing this report with a reduced disclosure format.

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**Cash for the YearEnded December 31, 2006 Compared to the Year Ended December 31, 2005**

Net cash provided by operating activities for the yearsended December 31, 2006 and 2005 was $893.1 million and $968.6 million,respectively. The decrease in cash provided by operations was primarilyattributable to lower operating results from our business operations as describedin “Results of Operations” above.

Net cash provided by (used in) investing activitiesfor the year ended December 31, 2006 and 2005 was $173.9 million and $(463.7)million, respectively. During the years ended December 31, 2006 and 2005,we invested $549.9 million and $338.7 million, respectively, in capitalexpenditures. The increase in 2006 capital expenditures was largelyattributable to increased spending on the Wilton, U.K. LDPE facility that wesold in the U.K. Petrochemical Disposition. During the year ended December 31,2006, we spent approximately $176 million on the construction of the Wilton,U.K. LDPE facility as compared to approximately $37 million in 2005. Inaddition, during 2006, we spent approximately $23 million relating to the constructionof our polyetheramine manufacturing facilityin Jurong Island, Singapore, in addition to other expansionary capitalprojects. Also during the year ended December 31, 2006, we acquired thetextile effects business for $176.9 million, net of cash acquired, andsold our U.S. butadiene and MTBE business for $274.0 million (of which $204.0million was collected during 2006, while the additional $70.0 million will bepayable upon the restart of our Port Arthur olefins facility, if certainconditions are met). In 2006, we also sold our European base chemicals andpolymers business for $685.0 million in cash. During 2005, we acquired theminority interest in Huntsman Advanced Materials for $124.8 million. Formore information, see “Note 4. Business Dispositions and Combinations” to ourconsolidated financial statements included elsewhere in this report. In 2005,in connection with the initial public offering of our 5% mandatory convertiblepreferred stock, we prefunded our dividend obligations through the mandatoryconversion date of February 16, 2008 with investments in governmentsecurities of $40.9 million. As reflected in financing activities, we used$14.4 million and $10.8 million of these government securities to pay dividendsduring the years ended December 31, 2006 and 2005, respectively. 

Net cash used in financingactivities for the year ended December 31, 2006 was $961.2 million ascompared to $603.0 million in 2005. This change in net cash used by financingactivities is mainly a result of net repayments of debt during the year ended December 31,2005 of $1,928.3 million, primarily as a result of our initial public offeringof common stock and mandatory convertible preferred stock in the first quarterof 2005. As a result of our initial public offering, we received $1,491.9million of net proceeds. Also, during the year ended December 31, 2005, weused approximately $146.0 million to pay premiums associated with repayment ofindebtedness. During the year ended December 31, 2006, we had netrepayments under our debt arrangements of $913.8 million and used $30.4 millionto pay premiums associated with repayment of indebtedness. Included in the 2006debt repayments were $650.0 million in principal repayments from the proceedsof our U.K. Petrochemicals Disposition.

**Cash for the YearEnded December 31, 2005 Compared to the Year Ended December 31, 2004**

Net cash provided by operating activities for theyears ended December 31, 2005 and 2004 was $968.6 million and$180.8 million, respectively. The increase in cash provided by operationswas primarily attributable to a significant improvement in operating resultsand a decrease in interest paid as described in “Results of Operations” above.

Net cash used in investing activities for the yearsended December 31, 2005 and 2004 was $463.7 million and$230.0 million, respectively. The increase in cash used in investingactivities was largely attributable to our 2005 acquisition of the minorityinterest of Huntsman Advanced Materials for $124.8 million and highercapital expenditures of $112.1 million resulting partly from increasedcapital expenditures in HPS, our consolidated Chinese splitting joint ventureof $38 million, and in our LDPE facility under construction at Wilton,U.K. of approximately $37 million. In addition, in connection with 

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our initial publicoffering of the 5% mandatory convertible preferred stock on February 16,2005, we prefunded our dividends through the mandatory conversion date of February 16,2008 with investments in government securities of $40.9 million, of whichapproximately $10.8 million were used to pay dividends during the yearended December 31, 2005.

Net cash (used in)provided by financing activities in the year ended December 31, 2005 was$(603.0) million as compared with $83.5 million in 2004. This increase innet cash used in financing activities is mainly a result of net repayments ofdebt during the year ended December 31, 2005 of approximately $1,928.3 million.Furthermore, as a result of our initial public offering of common and preferredstock in the first quarter of 2005, we received $1,491.9 million of netproceeds. During the year ended December 31, 2005, we used$146.0 million to pay premiums associated with repayment of indebtedness.

**Changes inFinancial Condition**

Thefollowing information summarizes our working capital position as of December 31,2006 (after giving effect to the sale of our U.S. butadiene and MTBE business,the U.K. Petrochemicals Disposition and the Textile Effects Acquisition) and December 31,2005 (dollars in millions):
|                                   | ** ** | **December 31,** | ** ** | ** **       | ** ** | ** **      | ** ** | **Adjusted  December 31,** | ** ** | **December 31,** | ** ** | **Increase**   | ** ** | **Percent** | ** ** |
|-----------------------------------|------------|-----------------------|------------|------------------|------------|-----------------|------------|---------------------------------|------------|-----------------------|------------|----------------|------------|-------------|------------|
| ** **                        | ** ** | **2006**              | ** ** | **Dispositions** | ** ** | **Acquisition** | ** ** | **2006 Subtotal**          | ** ** | **2005**              | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| Cash and cash equivalents         |       |                  | $          | 263.2            |       |            |       | $                               | —     |                  |       |           | $          | (26.7       | )          |   |   | $ | 236.5 |   |   |   | $ | 142.8 |   |   |   | $ | 93.7 |   |   |   | 66 | % |   |
| Accounts receivable, net          |       |                  | 1,257.3    |             |       |            | 212.4      |                            |       |                  | (234.6     | )              |       |        | 1,235.1    |   |   |   | 1,482.6 |   |   |   | (247.5 | ) |   |   | (17 | )% |   |
| Inventories, net                  |       |                  | 1,520.1    |             |       |            | 181.7      |                            |       |                  | (232.6     | )              |       |        | 1,469.2    |   |   |   | 1,309.2 |   |   |   | 160.0 |   |   |   | 12 | % |   |
| Prepaid expenses                  |       |                  | 55.7       |             |       |            | 16.6       |                            |       |                  | (2.5       | )              |       |        | 69.8       |   |   |   | 46.2 |   |   |   | 23.6 |   |   |   | 51 | % |   |
| Deferred income taxes             |       |                  | 64.6       |             |       |            | —     |                            |       |                  | (4.8       | )              |       |        | 59.8       |   |   |   | 31.2 |   |   |   | 28.6 |   |   |   | 92 | % |   |
| Other current assets              |       |                  | 175.7      |             |       |            | —     |                            |       |                  | (66.4      | )              |       |        | 109.3      |   |   |   | 84.0 |   |   |   | 25.3 |   |   |   | 30 | % |   |
| Total current assets              |       |                  | 3,336.6    |             |       |            | 410.7      |                            |       |                  | (567.6     | )              |       |        | 3,179.7    |   |   |   | 3,096.0 |   |   |   | 83.7 |   |   |   | 3 | % |   |
| Accounts payable                  |       |                  | 1,018.2    |             |       |            | 179.2      |                            |       |                  | (110.8     | )              |       |        | 1,086.6    |   |   |   | 1,093.5 |   |   |   | (6.9 | ) |   |   | (1 | )% |   |
| Accrued liabilities               |       |                  | 857.6      |             |       |            | 37.9       |                            |       |                  | (147.5     | )              |       |        | 748.0      |   |   |   | 747.2 |   |   |   | 0.8 |   |   |   | — | % |   |
| Deferred income taxes             |       |                  | 9.4        |             |       |            | —     |                            |       |                  | (3.4       | )              |       |        | 6.0        |   |   |   | 2.4 |   |   |   | 3.6 |   |   |   | 150 | % |   |
| Current portion of long-term debt |       |                  | 187.9      |             |       |            | —     |                            |       |                  | —     |           |       |        | 187.9      |   |   |   | 44.6 |   |   |   | 143.3 |   |   |   | 321 | % |   |
| Total current liabilities         |       |                  | 2,073.1    |             |       |            | 217.1      |                            |       |                  | (261.7     | )              |       |        | 2,028.5    |   |   |   | 1,887.7 |   |   |   | 140.8 |   |   |   | 7 | % |   |
| Working capital                   |       |                  | $          | 1,263.5          |       |            |       | $                               | 193.6      |                  |       |           | $          | (305.9      | )          |   |   | $ | 1,151.2 |   |   |   | $ | 1,208.3 |   |   |   | $ | (57.1 | ) |   |   | (5 | )% |   |

 

Duringthe year ended December 31, 2006, our working capital position wassignificantly impacted by the three transactions referenced above. Excludingthese dispositions and acquisitions, our working capital decreased by $57.1 millionas a result of the net impact of the following significant changes:

·       Theincrease in cash and cash equivalents of $93.7 million resulted from thematters identified in the Consolidated Statements of Cash Flows contained inour consolidated financial statements included elsewhere in this report.

·       Accountsreceivable decreased by $247.5 million primarily due to an increase inoutstanding receivables sold under our A/R Securitization Program ofapproximately $141 million and to lower accounts receivable from our U.S.base chemicals business resulting from lost sales at our Port Arthur olefinsmanufacturing plant that was damaged by fire. For more information see “Note22. Casualty Losses and Insurance Recoveries” to our consolidated financialstatements included elsewhere in this report.

·       Inventoriesincreased $160.0 million primarily due to an increase in inventory volumes andthe effect of changes in foreign currency exchange rates.

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·       Theincrease in prepaid expenses of $23.6 million was mainly attributable to anincrease in prepaid insurance resulting from higher premiums associated withour recent insurance claims.

·       The$28.6 million increase in deferred income taxes was primarily due to insurance recoveriesthat were deferred for financial reporting purposes but included in taxableincome. For further information, see “Note 22. Casualty Losses and InsuranceRecoveries” to our consolidated financial statements included elsewhere in thisreport.

·       Othercurrent assets increased by $25.3 million primarily due to an increase in spareparts expected to be used within one year.

·       Current portion oflong-term debt increased by $143.3 million primarily due to an increase inthe current classification of $58.2 million of non-recourse debt in ourAustralian subsidiaries that becomes due in August 2007, an increase of$16.2 million of insurance premium financing and $75.0 million of TermLoan debt voluntarily repaid in January 2007.

**Debt and Liquidity**

***Senior Credit Facilities***

As of December 31, 2006, our senior securedcredit facilities (the “Senior Credit Facilities”) consisted of our (i) $650 millionrevolving facility (the “Revolving Facility”), (ii) $1,614.2 millionterm loan B facility (the “Dollar Term Loan”), and (iii) €73.9 million($97.0 million) term loan B facility (the “Euro Term Loan” and,collectively with the Dollar Term Loan, the “Term Loans”). As of December 31,2006, there were no borrowings outstanding under the Revolving Facility, and wehad $43.5 million in U.S. dollar equivalents of letters of credit and bankguarantees issued and outstanding under the Revolving Facility. The RevolvingFacility matures in 2010 and the Term Loans mature in 2012; provided, however,that the maturities of the Revolving Facility and the Term Loans willaccelerate if we do not repay all but $100 million of our outstanding debtsecurities on or before three months prior to the maturity dates of such debtsecurities.

At the present time, borrowings under the RevolvingFacility and the Dollar Term Loan bear interest at LIBOR plus 1.75% andborrowings under the Euro Term Loan currently bear interest at EURIBOR plus2.00%. At our option, the Revolving Facility may bear interest at a rate equalto: (i) a LIBOR-based eurocurrency rate plus an applicable margin rangingbetween 1.25% and 1.75%, depending on our applicable leverage ratio; and (ii) aprime-based rate plus an applicable margin ranging between 0.25% and 0.75%,depending on our applicable leverage ratio. At our option, the Term Loans maybear interest at a rate equal to: (i) LIBOR plus an applicable marginranging between 1.50% and 1.75%, depending on our applicable leverage ratio or,with respect to the Euro Term Loan only, at EURIBOR plus an applicable marginranging between 1.75% and 2.00%; and (ii) a prime-based rate plus anapplicable margin ranging between 0.50% and 0.75%, depending on our applicableleverage ratio.

As of December 31, 2006, the weighted averageinterest rate on the Senior Credit Facilities was approximately 7.0%. Ourobligations under the Senior Credit Facilities are guaranteed by our guarantorsubsidiaries, which consist of substantially all of our domestic subsidiariesand certain of our foreign subsidiaries (the “Guarantors”), and are secured bya first priority lien (generally shared with the holders of the 2010 SecuredNotes) on substantially all of our domestic property, plant and equipment, thestock of all of or our material domestic subsidiaries and certain foreignsubsidiaries and pledges of intercompany notes between various of oursubsidiaries. The agreements governing the Senior Credit Facilities containfinancial covenants typical for these types of agreements, including a minimuminterest rate coverage ratio, a maximum debt-to-EBITDA ratio and a limit oncapital expenditures. The credit agreements also contain customary restrictionsor limitations on our ability to incur liens, incur additional debt, merge orsell assets, make certain restricted payments, prepay other indebtedness, makeinvestments or engage in transactions with affiliates and other customarydefault provisions.

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We entered into an amendment to our Senior CreditFacilities on June 30, 2006 to provide for an additional $100 million ofborrowings under the Dollar Term Loan. We borrowed the additional amounts underthe Dollar Term Loan in July and used the proceeds to redeem all of our $100million outstanding senior floating rate notes due 2011 at a call price of104.0% of the aggregate principal amount thereof. The June 30, 2006 amendmentalso modified certain other provisions in our Senior Credit Facilities,including certain financial covenants. During the 2006 we made severalvoluntary repayments under our Senior Credit Facilities from availableliquidity, including payments of $50 million in April 2006 and $50 million inAugust 2006.

On January 16, 2007,we made a voluntary repayment of $75.0 million U.S. dollar equivalents on ourTerm Loans ($70.8 million on the Dollar Term Loan and €3.25million on the Euro Term Loan) with available liquidity. In addition, on December 29,2006 we used a portion of the net proceeds from the U.K. PetrochemicalsDisposition to repay $400 million U.S. dollar equivalents on our Term Loans($377.3 million on the Dollar Term Loan and €17.3 million on the EuroTerm Loan).

***Secured Notes***

As of December 31, 2006, Huntsman Internationalhad outstanding $296.0 million aggregate principal amount ($294.0 million bookvalue and $455.4 million original aggregate principal amount) under its11.625% senior secured notes due 2010 (the “2010 Secured Notes”). The 2010Secured Notes are redeemable after October 15, 2007 at 105.813% of theprincipal amount plus accrued interest, declining ratably to par on and after October 15,2009. Interest on the 2010 Secured Notes is payable semiannually in April andOctober of each year. The 2010 Secured Notes are secured by a firstpriority lien on all collateral securing the Senior Credit Facilities asdescribed above (other than capital stock of Huntsman International’ssubsidiaries), shared equally with the lenders on the Senior Credit Facilities,subject to certain intercreditor arrangements.

The 2010 Secured Notescontain covenants relating to the incurrence of debt and limitations ondistributions, certain restricted payments, asset sales and affiliatetransactions and are guaranteed by the Guarantors. The indentures governing the2010 Secured Notes also contain provisions requiring us to offer to repurchasethe notes upon a change of control.

***Senior Notes***

As of December 31, 2006, Huntsman Internationalhad outstanding $198.0 million ($300 million original aggregateprincipal amount) of 11.5% senior notes due 2012 (the “2012 Senior Notes”).Interest on the 2012 Senior Notes is payable semiannually in January and July ofeach year. The 2012 Senior Notes are redeemable after July 15, 2008 at105.75% of the principal amount plus accrued interest, declining ratably to paron and after July 15, 2010.

The 2012 Senior Notes are unsecured obligations. Theindentures governing Huntsman International’s 9.875% senior notes due 2009 (the“2009 Senior Notes”) and the 2012 Senior Notes contain covenants, among otherthings, relating to the incurrence of debt and limitations on distributions andcertain restricted payments, asset sales and affiliate transactions and areguaranteed by the Guarantors. The indentures governing the 2012 Senior Notescontain provisions requiring us to offer to repurchase the notes upon a changeof control.

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On December 29, 2006, we used a portion of thenet proceeds from the U.K. Petrochemicals Disposition to legally defease theoutstanding $250 million of our 2009 Senior Notes. We deposited sufficientfunds with the trustee for redemption and irrevocably assigned all rights andtitle to these funds to the trustee for the benefit of the note holders. Thenotes are scheduled for redemption by the trustee on March 1, 2007 at aprice of 102.468% of the aggregate principal amount plus accrued interest. On July 13,2006, we entered into a transaction to repurchase $37.5 million of the2009 Senior Notes at a price of approximately 105% of the aggregate principalamount plus accrued interest. In addition, on August 14, 2006 and onSeptember 20, 2006, we completed redemptions of $62.5 million and $100.0million, respectively, of the 2009 Senior Notes at a call price of 104.937% ofthe aggregate principal amount plus accrued interest.

In accordance with an amendment to our Senior CreditFacilities, on July 14, 2006, we borrowed an additional $100 million underthe Dollar Term Loan and, on July 24, 2006, redeemed in full our seniorfloating rate notes due 2011 at 104.0% of the principal amount plus accruedinterest.

***Subordinated Notes***

As of December 31, 2006, we had outstanding$175.0 million 7.375% senior subordinated notes due 2015 and €135.0 million($177.2 million) 7.5% senior subordinated notes due 2015 (collectively, the “2015Subordinated Notes”). The 2015 Subordinated Notes are redeemable on or after January 1,2010 at 103.688% and 103.750%, respectively, of the principal amount plusaccrued interest, declining ratably to par on and after January 1, 2013.Under the terms of a registration rights agreement among HuntsmanInternational, the Guarantors and the initial purchasers of the 2015Subordinated Notes, we were required to complete an exchange offer for the 2015Subordinated Notes on or before September 11, 2005. Because we did notcomplete the exchange offer by this date, we were required to pay additionalinterest on the 2015 Subordinated Notes. As of December 31, 2006, we had paida total of $1.6 million and €1.2 million inadditional interest. Additional interest ceased to accrue on December 17,2006. Since we were not able to complete the exchange offer before this date,we withdrew the registration statement relating to the exchange offer.

As of December 31, 2006, we had outstanding €114.0 million($149.6 million) (€450 millionoriginal aggregate principal amount) 10.125% senior subordinated notes due 2009(the “2009 Subordinated Notes”). As of December 31, 2006, the 2009 SubordinatedNotes have an unamortized premium of $1.4 million and are currently redeemableat 101.688% of the principal amount plus accrued interest, declining to par onor after July 1, 2007.

On November 13, 2006, we completed an offering ofnew subordinated notes consisting of €400 million (approximately$508 million on or about the offering date; $525.1 million as of December 31,2006) 6.875% senior subordingated notes due 2013 (the “2013 Subordinated Notes”)and $200 million 7.875% senior subordinated notes due 2014 (the “2014Subordinated Notes”). We used the net proceeds of approximately $699 million toredeem all ($366.1 million) of our outstanding U.S. dollar-denominated 10.125%2009 Subordinated Notes and a portion (€258.0 million) of ouroutstanding euro-denominated 10.125% 2009 Subordinated Notes. The call price ofthe 2009 Subordinated Notes was 101.688% of the principal amount plus accruedinterest. The 2013 Subordinated Notes are redeemable on or after November 15,2009 at 105.156% of the principal amount plus accrued interest, decliningratably to par on or after November 15, 2012. The 2014 Subordinated Notesare redeemable on or after November 15, 2010 at 103.938% of the principalamount plus accrued interest, declining ratably to par on or after November 15,2012. 

Interest on the 2015 Subordinated Notes and the 2009Subordinated Notes is payable semiannually in January and July ofeach year. Interest on the 2013 Subordinated Notes and the 2014 SubordinatedNotes is payable semiannually in November and May of each year. Allof our subordinated notes are unsecured. The indentures governing oursubordinated notes contain covenants relating, among other things, to the 

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incurrence of debt andlimitations on distributions, certain restricted payments, asset sales andaffiliate transactions. Our subordinated notes are guaranteed by theGuarantors. The indentures also contain provisions requiring us to offer torepurchase the notes upon a change of control.

At the end of February 2007,we closed on substantially all of a direct private placement of $147.0 millionin aggregate principal amount of U.S. dollar denominated 7.875% seniorsubordinated notes due November 15, 2014. These notes were issued at a premiumof 104% of principal amount for a yield of 7.01% and were issued under the sameindenture and are of the same series as an original placement of dollardenominated notes issued by us in November 2006. We intend to use the expected netproceeds of approximately $151.7 million to redeem all (approximately €114million) of our remaining outstanding 2009 Subordinated Notes, which are beingcalled for redemption on March 27, 2007, at a call price of 101.688% plusaccrued interest. This refinancing is expected to reduce our annual interestexpense by approximately $5 million.

***Other Debt***

We maintain a $25.0 million multicurrencyoverdraft facility used for the working capital needs for our Europeansubsidiaries (the “European Overdraft Facility”). As of December 31, 2006,we had no borrowings outstanding under the European Overdraft Facility.

In January 2003, Huntsman International enteredinto two related joint venture agreements to build MDI production facilitiesnear Shanghai, China. SLIC, our manufacturing joint venture with BASF AG andthree Chinese chemical companies, operates three plants that manufacture MNB,aniline and crude MDI. We effectively own 35% of SLIC and it is anunconsolidated affiliate. HPS, our splitting joint venture with ShanghaiChlor-Alkali Chemical Company, Ltd, operates a plant that manufacturespure MDI, polymeric MDI and MDI variants. We own 70% of HPS and it is aconsolidated affiliate.

HPS obtained secured loans for the construction of itsMDI production facility. This debt consists of various committed loans in theaggregate amount of approximately $121 million. As of December 31,2006, HPS had $28.9 million outstanding in U.S. dollar borrowings and 480million in RMB borrowings ($61.4 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 31,2006, the interest rate was approximately 5.8% for U.S. dollar borrowings and6.2% for RMB borrowings. The loans are secured by substantially all the assetsof HPS and will be repaid in 16 semiannual installments beginning on June 30,2007. We have guaranteed 70% of any amount due and unpaid by HPS under theloans described above (except for the VAT facility, which is not guaranteed).Our guarantees remain in effect until HPS has commenced production of at least70% of capacity for at least 30 days and achieved a debt service costratio of at least 1.5:1. Our Chinese MDI joint ventures are unrestricted subsidiariesunder the Senior Credit Facilities and under the indentures governing ouroutstanding notes. HPS commenced operations during 2006.

Our Australian subsidiaries maintain credit facilitiesthat had an aggregate outstanding balance of A$78.0 million ($61.4million) as of December 31, 2006. These facilities are non-recourse toHuntsman International and bear interest at the Australian index rate plus amargin of 2.9%. As of December 31, 2006, the interest rate for thesefacilities was 9.3%. The Australian credit facilities mature in August 2007and all borrowings under such facilities have been classified as currentportion of debt. 

In July 2006, inconjunction with our annual renewal of property and liability insuranceprograms, we financed substantially all of our premiums for the 2006/2007renewal period and, at that time, Huntsman International entered into notespayable in the amount of $65.6 million due in the next twelve months. Asof December 31, 2006, the outstanding amount due under these notes is$36.8 million. Insurance premium financings are generally secured by theunearned premiums under such policies.

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**Compliance withCovenants**

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.

**Short-Term andLong-Term Liquidity**

We depend upon our credit facilities and other debtinstruments to provide liquidity for our operations and working capital needs.As of December 31, 2006, we had approximately $887.7 million ofcombined cash and combined unused borrowing capacity, consisting of $263.2million in cash, $606.5 million in availability under our Revolving Facility,$15.0 million attributable to our European Overdraft Facility andapproximately $3 million in availability under our A/R SecuritizationProgram. In January 2007, we voluntarily repaid $75.0 million of Term Loandebt with available liquidity.

Our liquidity has been significantly impacted by theclosing of the U.K. Petrochemicals Disposition on December 29, 2006. Wesold our European base chemicals and polymers business for an aggregatepurchase price of $685 million in cash, plus the assumption by the purchaser ofapproximately $126 million in unfunded pension liabilities. We used the netproceeds to defease the remaining $250 million outstanding principal amount ofour 9.875% 2009 Senior Notes and to repay $400 million of the debt under ourSenior Credit Facilities.

We anticipate that,going forward, our liquidity will be impacted by the following:

·       Asa result of the U.K. Petrochemicals Disposition, availability under the A/RSecuritization Program is being negatively impacted during certain periods ofthe year when our receivables are seasonally low, such as near year-end andlate summer. We anticipate this impact to be approximately $60 million duringsuch periods; for example, at December 31, 2006, our capacity under theA/R Securitization Program was limited to approximately $446 million.

·       Inconnection with the U.K. Petrochemical Disposition, we agreed to make paymentsto SABIC of approximately $35 million (£18 million) related to the transfer ofpension plan assets and liabilities. We accrued this liability in connectionwith the sale transaction and expect to fund the obligation in the first halfof 2007. The final sales price of the U.K. Petrochemical Disposition is alsosubject to adjustments relating to working capital and investment in the LDPEplant currently under construction in Wilton U.K. We have accrued a liabilityrelating to these adjustments of $14.5 million and expect to fund thisobligation in the first half of 2007.

·       Asa result of the fire damage at our Port Arthur, Texas facility that occurred onApril 29, 2006, we have received and anticipate receiving additionalsettlements of insurance claims, as well as incurring significant expendituresto rebuild the facility (see “—Casualty Losses and Insurance Recoveries”below).

·       Inconnection with the sale of our U.S. butadiene and MTBE business, $70 millionof the purchase price will be payable to us after the restart of our PortArthur, Texas facility that was damaged by fire and the related resumption ofcrude butadiene supply, provided that we achieve certain intermediate stepstoward restarting the facility within 30 months of the sale.

·       Weare currently finalizing the working capital settlement related to the TextileEffects Acquisition. As of December 31, 2006, we had recorded a receivablefor the working capital settlement of $21.4 million related to the TextileEffects Acquisition. We expect the working capital settlement amounts to befinalized and collected during the first half of 2007.

·       Weexpect to realize a total value from the Pending U.S. PetrochemicalsDispositions of approximately $761 million. Under the agreement, Flint HillsResources will acquire our U.S. base 

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chemicals and polymersmanufacturing assets for approximately $456 million in cash, plus the value ofinventory on the date of closing (approximately $286 million at December 31,2006). We will retain other elements of working capital, including accountsreceivable, accounts payable and certain accrued liabilities (net,approximately $19 million at December 31, 2006), which will be liquidated forcash in the ordinary course of business following the closing. Subject to customaryregulatory approvals and other closing conditions, the transaction is expectedto close during the third quarter of 2007, following the re-start of our PortArthur, Texas, olefins manufacturing facility. For more information, see “Note22. Casualty Losses and Insurance Recoveries—Port Arthur, Texas Plant Fire” toour consolidated financial statements included elsewhere in this report. Weexpect to use the net proceeds from this transation to repay debt. 

We believe our currentliquidity, together with funds generated by our businesses, is sufficient tomeet the short-term and long-term needs of our businesses, including fundingoperations, making capital expenditures and servicing our debt obligations inthe ordinary course.

**CapitalExpenditures**

Excluding capital expenditures relating to the firedamage at our Port Arthur, Texas facility discussed below, we expect to spendapproximately $525 million on capital projects in 2007. We expect to financeour capital expenditure commitments through a combination of cash flows fromoperations and financing arrangements.

We currently estimate that we will incur approximately$100 million of capital expenditures in 2007 related to the fire damage at ourPort Arthur, Texas facility. In addition, we currently estimate that repair andmaintenance expenses and other non-capital costs associated with the firedamage will be approximately $65 million during 2007.

Capital expenditures for theyear ended December 31, 2006 were $549.9 million as compared to $338.7million in 2005. The increase in capital expenditures in 2006 was largelyattributable to increased capital expenditures at the Wilton, U.K. LDPE projectwhich had approximately $176 million in capital spending during the yearended December 31, 2006 as compared to approximately $37 million spent in2005. As noted, the Wilton, U.K. LDPE project was sold as part of theU.K. Petrochemicals Disposition. In addition, during 2006, we spentapproximately $23 million relating to construction of our polyetheramine manufacturing facility in JurongIsland, Singapore, in addition to other expansionary capital projects.During the year ended December 31, 2006, we also completed our equityinvestments in HPS, our consolidated Chinese joint venture, and SLIC, ourunconsolidated Chinese joint venture, and during 2006, funded approximately$15 million as equity in HPS and $14 million as equity in SLIC. HPSand SLIC commenced operations during 2006.

**ContractualObligations and Commercial Commitments**

Ourobligations under long-term debt (including the current portion), leaseagreements and other contractual commitments as of December 31, 2006 aresummarized below (dollars in millions):
|                                            | ** ** | **2007** | ** ** | **2008-2009** | ** ** | **2010-2011** | ** ** | **After 2011** | ** ** | **Total** | ** ** |
|--------------------------------------------|------------|----------|------------|---------------|------------|---------------|------------|---------------------|------------|-----------|------------|
| Long-term debt,  including current portion |       | $        | 187.9      |          | $          | 211.2         |       | $                   | 358.8      |      |       | $ | 2,887.4 |   |   | $ | 3,645.3 |   |
| Interest(1)                                |       | 284.9    |       | 551.6         |       | 476.9         |       |                | 298.3      |      |       | 1,611.7 |   |
| Operating leases                           |       | 53.1     |       | 92.7          |       | 68.6          |       |                | 104.5      |      |       | 318.9 |   |
| Purchase  commitments(2)                   |       | 1,425.3  |       | 626.8         |       | 141.3         |       |                | 140.3      |      |       | 2,333.7 |   |
| Total(3)                                   |       | $        | 1,951.2    |          | $          | 1,482.3       |       | $                   | 1,045.6    |      |       | $ | 3,430.5 |   |   | $ | 7,909.6 |   |

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(1)          Interest calculatedusing interest rates as of December 31, 2006.

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(2)          We have various purchasecommitments extending through 2023 for materials, supplies and services enteredinto in the ordinary course of business. Included in the purchase commitmentstable above are contracts which require minimum volume purchases that extendbeyond one year or are renewable annually and have been renewed for 2006.Certain contracts allow for changes in minimum required purchase volumes in theevent of a temporary or permanent shutdown of a facility. To the extent thecontract requires a minimum notice period, such notice period has been includedin the above table. The contractual purchase price for substantially all ofthese contracts is variable based upon market prices, subject to annualnegotiations. We have estimated our contractual obligations by using the termsof our 2006 pricing for each contract. We also have a limited number ofcontracts which require a minimum payment, even if no volume is purchased. Webelieve that all of our purchase obligations will be utilized in our normaloperations.

(3)          Totalsdo not include expected tax payments. Totals also do not include commitmentspertaining to our pension and other postretirement obligations. Our estimatedfuture contributions to our pension and postretirement plans are as follows(dollars in millions):
|                                   | ** ** | **2007** | ** ** | **2008-2009** | ** ** | **2010-2011** | ** **  | **5-Year  Avereage  Annual** | ** ** |
|-----------------------------------|------------|----------|------------|---------------|------------|---------------|-------------|------------------------------|------------|
| Pension plans                     |       | $        | 158.6      |          |       | $             | 251.7  |                         |       |   | $ | 266.6 |   |   |   | 135.4 |   |   |
| Other  postretirement obligations |       | 12.4     |       |          | 24.6       |          |        |                         | 24.2       |   |   |   | 12.3 |   |   |
|                                   |            |          |            |               |            |               |             |                              |            |  |  |  |  |  |  |  |  |  |

 

**Off-Balance SheetArrangements**

***Receivables Securitization***

For a discussion of ourA/R Securitization Program, see “Note 16. Securitization of Accounts Receivable”to our consolidated financial statements included elsewhere in this report andincorporated herein by reference.

***Financing of Chinese MDI Facilities***

On September 19,2003, our Chinese joint ventures, HPS and SLIC, obtained secured financing forthe construction of production facilities. Details concerning HPS’ financingare described in “—Debt and Liquidity—Other Debt” above. SLIC obtained variouscommitted loans in the aggregate amount of approximately $229 million inU.S. dollar equivalents. As of December 31, 2006, there were$87.7 million and RMB 1,095 million ($140.2 million) inoutstanding borrowings under these facilities. The interest rate on thesefacilities is LIBOR plus 0.48% for U.S. dollar borrowings and 90% of thePeoples Bank of China rate for RMB borrowings. The loans are secured bysubstantially all the assets of SLIC and will be paid in 16 semiannualinstallments, beginning on June 30, 2007. We unconditionally guarantee 35%of any amounts due and unpaid by SLIC under the loans described above (exceptfor a $1.5 million VAT facility which is not guaranteed). Our guaranteeremains in effect until SLIC has commenced production of at least 70% ofcapacity for at least 30 days and achieved a debt service coverage ratioof at least 1:1. SLIC commenced operations in the third quarter of 2006.

**Restructuring, Impairmentand Plant Closing Costs**

For a discussion ofrestructuring, impairment and plant closing costs, see “Note 11. Restructuring,Impairment and Plant Closing Costs” to our consolidated financial statementsincluded elsewhere in this report and incorporated herein by reference.

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**Legal Proceedings**

For a discussion of legalproceedings, see “Note 20. Commitments and Contingencies—Legal Matters” to ourconsolidated financial statements included elsewhere in this report andincorporated herein by reference.

**Environmental,Health and Safety Matters**

We are committed to achieving and maintainingcompliance with all applicable EHS legal requirements, and we have developedpolicies and management systems that are intended to identify the multitude ofEHS legal requirements applicable to our operations, enhance compliance withapplicable legal requirements, ensure the safety of our employees, contractors,community neighbors and customers and minimize the production and emission ofwastes and other pollutants. Although EHS legal requirements are constantlychanging and are frequently difficult to comply with, these EHS managementsystems are designed to assist us in our compliance goals while also fosteringefficiency and improvement and minimizing overall risk to us.

For a further discussionof environmental, health and safety matters, see “Note 21. Environmental,Health and Safety Matters” to our consolidated financial statements includedelsewhere in this report and incorporated herein by reference.

**RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

For a discussion ofrecently issued accounting pronouncements, see “Note 2. Summary of SignificantAccounting Policies—Recently Issued Accounting Pronouncements” to ourconsolidated financial statements included elsewhere in this report andincorporated herein by reference.

**CRITICALACCOUNTING POLICIES**

The preparation offinancial statements and related disclosures in conformity with accountingprinciples generally accepted in the U.S. requires management to makejudgments, estimates and assumptions that affect the reported amounts in theconsolidated financial statements. Our significant accounting policies aresummarized in “Note 2. Summary of Significant Accounting Policies” to ourconsolidated financial statements included elsewhere in this report. Summarizedbelow are our critical accounting policies:

**Casualty Losses andInsurance Recoveries**

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

On September 22, 2005, we suspended operations atour Gulf Coast facilities in Texas and Louisiana as a result of hurricane Rita.In addition, we sustained property damage at our Port Neches and Port Arthur,Texas facilities as a result of the hurricane. We maintain customary insurancecoverage for property damage and business interruption. With respect to coverageof these losses, the deductible for property damage was $10 million per site,while business interruption coverage does not apply for the first 60 days.

In connection with thelosses incurred from hurricane Rita, we are in the process of completing insuranceclaims for property damage and business interruption. During 2006, we receivedinsurance recovery advances of $12.5 million, and, on January 23, 2007, weexecuted a sworn statement in proof of loss with the insurance companies toreceive additional insurance recovery advances of $14.0 million to be receivedduring the first quarter of 2007. The $26.5 million of insurance recoveries arerecorded in “Other operating income (expense)” on the accompanying consolidatedstatements of operations as they represent the recovery of losses previouslyrecognized in prior periods, of which $13.3 million was allocated to the 

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PerformanceProducts segment and $13.2 million was allocated to the Base Chemicals segment.The insurance receivable of $14.0 million is recorded within “Other currentassets” on the accompanying consolidated balance sheets. We and our insurersare working to reach a settlement on the remainder of the insurance claim andwe can provide no assurance with respect to the ultimate resolution of thismatter.

***Port Arthur, Texas Plant Fire***

On April 29, 2006, our Port Arthur, Texas olefinsmanufacturing plant experienced a major fire. With the exception of cyclohexaneoperations at the site, which were restarted in June 2006, the remainingoperations at the site remain shutdown. The damage is significant and, while noassurances can be made, preliminary indications are that we expect to restartthe facility early in the third quarter of 2007. The Port Arthur manufacturingplant is covered by property damage and business interruption insurance. Withrespect to coverage for this outage, the deductible for property damage is $10million and business interruption coverage does not apply for the first 60days.

During 2006 we incurred expenditures and losses forboth property damage and business interruption as a result of the Port Arthurfire. Net of the $10 million deductible, we incurred approximately $17.2million in property damages, including the write-off of damaged assets, coststo respond and clean up the facility and costs for the repair and maintenanceof damaged equipment, all of which were accrued for recovery by insurance, asrecovery from our insurers was considered probable. In addition, we spentapproximately $18.3 million in capital to rebuild the facility.

With respect to lost profits due to businessinterruption, we estimate lost margins during 2006 to be approximately $195million. Partially offsetting these lost margins, during 2006 we accrued for therecovery of costs during the non-deductible business interruption period fromour insurance policies of approximately $39.2 million, as recovery from ourinsurers was considered probable. We estimate the lost margins for businessinterruption attributed to the 60 day deductible period to beapproximately $50 million.

During the fourth quarter of 2006, we receivedinsurance recovery advances of $150.0 million, of which $56.4 million wasapplied to our insurance receivables related to recovery of costs incurred and$93.6 million has been recorded as a deferred gain and is included in “Accruedliabilities” on the accompanying consolidated balance sheets.

The incurrence of future fixed costs during thebusiness interruption period and the future repair and maintenance expense ofthe damaged equipment will be offset against the deferred gain. Any suchamounts incurred above the deferred gain will be recorded as an insurancereceivable if realization is deemed probable. Future insurance recovery advances,if any,  in excess of accrued fixed costsand other expenses relating to the damaged facilities will be recorded as adeferred gain, and any remaining deferred gain will not be recognized in ourconsolidated statements of operations until final settlement with our insurancecarriers.

We currently estimate thetotal cost to repair and replace the damaged equipment in order to restart thefacility to be approximately $200 million. We expect to collect nearly all ofthis amount less a $10 million deductible as property damage claimed underour insurance. The total estimable loss for business interruption will dependgreatly upon such factors as future market conditions and the final duration ofthe outage. We continue to work with our insurance carriers on the scope of ourinsurance claim and we can provide no assurance with respect to the ultimateresolution of this matter.

**Revenue Recognition**

We generate substantially all of our revenues throughsales in the open market and long-term supply agreements. We recognize revenuewhen it is realized or realizable and earned. Revenue for product sales 

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is recognized when a salesarrangement exists, risk and title to the product transfer to the customer,collectibility is reasonably assured and pricing is fixed or determinable.

Revenue arrangements thatcontain multiple deliverables, which relate primarily to the licensing oftechnology, are evaluated in accordance with EITF Issue No. 00-21 *Revenue Arrangements with Multiple Deliverables*to determine 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.

**Long-Lived Assets**

The determination of useful lives of our property,plant and equipment is considered a critical accounting estimate. Such livesare estimated based upon our historical experience, engineering estimates andindustry information and are reviewed when economic events indicate that we maynot be able to recover the carrying value of the assets. The estimated lives ofour property range from 3 to 60 years and depreciation is recorded on thestraight-line method. Inherent in our estimates of useful lives is theassumption that periodic maintenance and an appropriate level of annual capitalexpenditures will be performed. Without on-going capital improvements and maintenance,the productivity and cost efficiency declines and the useful lives of ourassets would be shorter.

Management uses judgment to estimate the useful livesof our long-lived assets. If the useful lives of our property, plant andequipment as of December 31, 2006 were to have been estimated to be oneyear greater or one year less, then depreciation expense for the year ended December 31,2006 would have been approximately $32 million less or $28 milliongreater, respectively.

We are required to evaluate our plant assets wheneverevents indicate that the carrying value may not be recoverable in the future orwhen management’s plans change regarding those assets, such as idling orclosing a plant. We evaluate impairment by comparing undiscounted cash flows ofthe related asset groups to the carrying value. Key assumptions in determiningthe future cash flows include the useful life, technology, competitivepressures, raw material pricing and regulations. During the third quarter of2006, we concluded that the long-lived assets of our European base chemicalsand polymers business were impaired based upon the expected sales price lesscost to sell. Accordingly, our Company and Huntsman International recorded impairmentcharges of $280.2 million and $260.2 million, respectively, during thethird quarter of 2006. During the fourth quarter of 2006, we tested the PO/MTBEassets for recoverability and concluded that these assets were not impaired. 

On February 15, 2007, we entered into anagreement to sell our U.S. based chemicals and polymers business and expect torealize a total value from the sale of approximately $761 million. See “Note31. Subsequent Events” to our consolidated financial statements includedelsewhere in this report. We expect to incur a loss in connection with the anticipated2007 sale of our U.S. base chemicals and polymers business. As of December 31,2006, these assets were classified as held and used in accordance with SFAS No. 144,*Accounting for the impairment or Disposal ofLong-Lived Assets*, because these assets were not immediatelyavailable for sale in their present condition due to the required repair and restartof the Port Arthur facility. We tested these assets for recoverability usingexpected future cash flows together with expected proceeds from the Port Arthurfire insurance recovery and concluded that these expected future cash flowswere in excess of the carrying value of the business expected to be sold.Therefore, we did not recognize an impairment charge as of December 31,2006. We will continue to assess these assets for recoverability during 2007.As the date of sale completion nears and insurance proceeds are received,future cash flows associated with these assets will diminish and, at some pointin 2007, we expect that future cash flows will no longer be sufficient torecover the carrying value of the business to be sold and we expect torecognize an impairment charge.

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**Restructuring andPlant Closing Costs**

We have recordedrestructuring charges in recent periods in connection with closing certainplant locations, work force reductions and other cost savings programs. Thesecharges are recorded when management has committed to a plan and incurred aliability related to the plan. Also in connection with the Textile EffectsAcquisition, we recorded liabilities for workforce reduction, non-cancelablelease termination costs and demolition, decommissioning and other restructuringcosts. Estimates for plant closing include the write-off of the carrying valueof the plant, any necessary environmental and/or regulatory costs, contracttermination and demolition costs. Estimates for work force reductions and othercosts savings are recorded based upon estimates of the number of positions tobe terminated, termination benefits to be provided and other information asnecessary. While management evaluates the estimates on a quarterly basis andwill adjust the reserve when information indicates that the estimate is aboveor below the initial estimate, management’s estimates on a project-by-projectbasis have not varied to a material degree. For further discussion of ourrestructuring activities, see “Note 11. Restructuring, Impairment and PlantClosing Costs” to our consolidated financial statements included elsewhere inthis report.

**Income Taxes**

We use the asset and liability method of accountingfor income taxes. Deferred income taxes reflect the net tax effects oftemporary 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 taxjurisdiction basis to analyze whether there is sufficient positive or negativeevidence to support a change in judgment about the realizability of the relateddeferred tax assets.

Subsequent to acquiring Huntsman Advanced Materials inJune 2003 and through December 31, 2005, substantially all non-U.S.operations of Huntsman Advanced Materials were treated as our branches for U.S.income tax purposes and were, therefore, subject to both U.S. and non-U.S.income tax. Effective January 1, 2006, Huntsman Advanced Materials foreignoperations are no longer being treated as our branches and are not subject toU.S. taxation on their earnings until those earnings are repatriated to theU.S., similar to our other non-U.S. entities.

For non-U.S. entities that are not treated as branchesfor U.S. tax purposes, we do not provide for income taxes on the undistributedearnings of these subsidiaries as earnings are reinvested and, in the opinionof management, will continue to be reinvested indefinitely.

As a matter of course, oursubsidiaries are regularly audited by various taxing authorities in both theU.S. and numerous non-U.S. jurisdictions. We believe adequate provision hasbeen made for all outstanding issues for all open years.

**Employee BenefitPrograms**

We sponsor several contributory and non-contributorydefined benefit plans, covering employees primarily in the U.S., the U.K.,Netherlands, Belgium and- Canada but also covering employees in a number ofother countries. We fund the material plans through trust arrangements (orlocal equivalents) where the assets are held separately from us. We alsosponsor unfunded postretirement plans which provide medical and life insurancebenefits covering certain employees in the U.S. and Canada. Amounts recorded inthe consolidated financial statements are recorded based upon actuarialvaluations performed by various independent actuaries. Inherent in thesevaluations are numerous assumptions regarding expected return on assets,discount rates, compensation increases, mortality rates and health care coststrends. These assumptions are disclosed in “Note 18. Employee Benefit Plans” toour consolidated financial statements included elsewhere in this report.

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Management,with the advice of its actuaries, uses judgment to make assumptions on whichour employee benefit plan liabilities and expenses are based. The effect of a1% change in three key assumptions is summarized as follows (dollars inmillions):

| ** **                     | ** ** | **Huntsman Corporation** | ** ** | **Huntsman International**      | ** ** |
|--------------------------------|------------|-------------------------------|------------|--------------------------------------|------------|
| **Assumptions**                | ** ** | ** **                    | ** ** | **Statement of  Operations(1)** | ** ** | **Balance Sheet  Impact(2)** | ** ** | **Statement of  Operations(1)** | ** ** | **Balance Sheet  Impact(2)** | ** ** |
| Discount rate                  |       |                          |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| —1% increase              |       |                          | $          | (35.0                                | )          |   |   | $ | (489.6 | ) |   |   | $ | (35.0 | ) |   |   | $ | (489.6 | ) |   |
| —1% decrease              |       |                          | 44.9       |                                 |       |   | 620.4 |   |   |   | 51.3 |   |   |   | 620.4 |   |   |
| Expected return  on assets     |       |                          |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| —1% increase              |       |                          | (23.0      | )                                    |       |   | — |   |   |   | (23.0 | ) |   |   | — |   |   |
| —1% decrease              |       |                          | 23.0       |                                 |       |   | — |   |   |   | 23.0 |   |   |   | — |   |   |
| Rate of  compensation increase |       |                          |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| —1% increase              |       |                          | 16.7       |                                 |       |   | 125.5 |   |   |   | 23.0 |   |   |   | 125.5 |   |   |
| —1% decrease              |       |                          | (17.1      | )                                    |       |   | (125.5 | ) |   |   | (22.9 | ) |   |   | (125.5 | ) |   |
|                                |            |                               |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Estimated impact on 2006net periodic benefit cost.

(2)          Estimated impact on December 31,2006 funded status.

**Stock-BasedCompensation Plans**

Managementuses judgment in determining assumptions used in the Black-Scholes valuationmodel to estimate fair value of its stock-based compensation plans. Because wedid not have stock-based compensation plans prior to our initial publicoffering of common stock in February 2005, our ability to use historicalexperience for assumptions related to stock-based compensation plans has beenlimited. The effect of a 10% change in two key assumptions is summarized asfollows (dollars in millions):

| **Assumptions**                                           | ** ** | ** ** | ** ** | **Statement  of Operations(1)** | ** ** | **Balance Sheet  Impact(2)** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|--------------------------------------|------------|-----------------------------------|------------|
| Expected  volatility                                      |       |       |       |                                 |       |                              |       |   |   |
| —10% increase                                        |       |       | $          | 2.2                                  |       |                              |       | $ | 2.2 |   |   |
| —10% decrease                                        |       |       | (2.0       | )                                    |       |                              | (2.0       | ) |   |
| Expected life of  stock options granted during the period |       |       |       |                                 |       |                              |       |   |   |
| —10% increase                                        |       |       | 0.6        |                                 |       |                              | 0.6        |   |   |
| —10% decrease                                        |       |       | (0.6       | )                                    |       |                              | (0.6       | ) |   |
|                                                           |            |            |            |                                      |            |                                   |            |  |  |  |  |  |  |

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(1)          Estimated impact on 2006compensation expense.

(2)          Estimated impact on December 31,2006 additional paid-in capital.

**EnvironmentalReserves**

Environmental remediation costs for our facilities areaccrued when it is probable that a liability has been incurred and the amountcan be reasonably estimated. Estimates of environmental reserves requireevaluating government regulation, available technology, site-specificinformation and remediation alternatives. We accrue an amount equal to our bestestimate of the costs to remediate based upon the available information.Adjustments to our estimates are made periodically based upon additionalinformation received as remediation progresses. For further information see “Note21. Environmental, Health and Safety Matters” to our consolidated financialstatements included elsewhere in this report.

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**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

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 the hedgeditem affects earnings. We perform effectiveness assessments in order to usehedge 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 participatedin some derivatives that were not designated as hedges 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 RISK**

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 andfloating 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 derivative instruments.

As of December 31, 2006, we had combined outstandingvariable rate borrowings of approximately $1.9 billion. Assuming a 1%increase in interest rates, without giving effect to any interest rate hedges,our annual interest rate exposure would increase by approximately $19 million.

From time to time, we may purchase interest rate swapsand/or interest rate collars to reduce the impact of changes in interest rateson our floating-rate long-term debt.

Interest rate contracts were recorded as a componentof other non-current liabilities as of December 31, 2006 and 2005. Theeffective portion of the changes in the fair value of the swaps are recorded inaccumulated other comprehensive loss as they are cash flow hedges, with anyineffectiveness recorded in interest expense.

As of December 31,2006 and 2005, we had entered into various types of interest rate contracts tomanage our interest rate risk on our long-term debt as indicated below (dollarsin millions):

| ** **                 | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|----------------------------|------------|-----------|------------|-----------|------------|
| Notional amount            |       | $         | 75.0       |      | $          | 83.3 |   |
| Fair value                 |       |      |       |      |       |
| Cash flow hedges           |       | 0.4       |       | —    |       |
| Non-designated derivatives |       | 0.3       |       | 0.4       |       |
| Maturity                   |       | 2007-2010 |       | 2006-2010 |       |
|                            |            |           |            |           |            |  |  |

 

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Forthe years ended December 31, 2006 and 2005, the changes in accumulatedother comprehensive (loss) income associated with cash flow hedging activitiesis indicated below:

| ** **                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Balance at  January 1           |       | $        | 2.1        |     | $          | 5.2 |   |
| Current period  change in fair value |       | (0.4     | )          | (1.9     | )          |
| Reclassifications  to earnings       |       | (1.6     | )          | (1.2     | )          |
| Balance at  December 31         |       | $        | 0.1        |     | $          | 2.1 |   |

 

During the twelve monthsending December 31, 2007, accumulated other comprehensive income ofapproximately $0.1 million is expected to be reclassified to earnings. Theactual amount that will be reclassified to earnings over the next twelve monthsmay vary from this amount due to changing market conditions. We are exposed tocredit losses in the event of nonperformance by a counterparty to the derivativefinancial instruments. We anticipate, however, that the counterparties will beable to fully satisfy obligations under the contracts. Market risk arises fromchanges in interest rates.

**FOREIGN EXCHANGE RATE RISK**

Our cash flows and earnings are subject to fluctuationsdue to exchange rate variation. Our sales prices are typically denominated inU.S. dollars, euros, francs, British pounds and certain Asian currencies. Fromtime to time, we may enter into foreign currency derivative instruments tominimize the short-term impact of movements in foreign currency rates. Wherepracticable, we generally net multicurrency cash balances among oursubsidiaries 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 one year or less). Wedo not hedge our currency exposures in a manner that would eliminate the effectof changes in exchange rates on our cash flows and earnings. Our A/RSecuritization Program in certain circumstances requires that we enter intoforward foreign currency hedges intended to hedge currency exposures.

During the year ended December 31, 2006, weentered into foreign currency instruments to minimize the foreign currencyimpact on forecasted capital expenditures payable in Singapore Dollarsassociated with the construction of our polyetheramine manufacturing facilityin Singapore. As of December 31, 2006, the notional amount of thesederivative instruments is approximately 13 million Singapore dollars, andthese instruments extend through April of 2007. These contracts are notdesignated as hedges for financial reporting purposes and are recorded atmarket value. Subsequent to December 31, 2006, we have entered intoadditional foreign currency derivatives with a notional amount of approximately9 million Singapore dollars extending through July, 2007.

A significant portion of our debt is denominated ineuros. We also finance certain of our non-U.S. subsidiaries with intercompanyloans that are, in some cases, denominated in currencies other than theentities’ functional currency. We manage the net foreign currency exposurecreated by this debt through various means, including cross-currency swaps, thedesignation of certain intercompany loans as permanent loans because they arenot expected to be repaid in the foreseeable future (“Permanent Loans”) and thedesignation of certain debt and swaps as net investment hedges.

Foreign currency transaction gains and losses onintercompany loans that are not designated as Permanent Loans are recorded inearnings. Foreign currency transaction gains and losses on intercompany loansthat are designated as Permanent Loans are recorded in other comprehensiveincome. From time to time, we review such designation of intercompany loans.

From time to time, we review our non-U.S. dollardenominated debt and swaps to determine the appropriate amounts designated ashedges. As of December 31, 2006, we have designated approximately 

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€525million of euro-denominated debt as a hedge of our net investments. As of December 31,2006, we had approximately €1,061 million in net euro assets.

In conjunction with the November 13,2006 offering of the 2013 Subordinated Notes and the 2014 Subordinated Notes,we redeemed a substantial portion of our U.S. dollar-denominated subordinateddebt with newly issued euro-denominated subordinated debt and unwound certainexisting cross-currency interest rate swaps. As of December 31, 2006, wehave outstanding one cross-currency interest rate swap pursuant to which wehave agreed to swap $31.1 million of 11.0% fixed rate debt payments for €25.0 millionof 9.4% fixed rate debt payments. At maturity, July 15, 2007, we arerequired to pay principal of €25.0 million and willreceive principal of $31.1 million. This swap is not designated as a hedge forfinancial reporting purposes. As of December 31, 2006, the fair value ofthis swap was $1.5 million and was recorded in other noncurrent assets in ourbalance sheet.

**COMMODITYPRICE RISK**

Our exposure to changingcommodity prices is somewhat limited since the majority of our raw materialsare acquired at posted or market related prices, and sales prices for many ofour finished products are at market related prices which are largely set on amonthly or quarterly basis in line with industry practice. In order to reduceoverall raw material cost volatility, from time to time we may enter intovarious commodity contracts to hedge our purchase of commodity products. We donot attempt to hedge our commodity exposure in a manner that would eliminatethe effects of changes in commodity prices on our cash flows and earnings.

**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financialstatements and the consolidated financial statements of Huntsman International requiredby this item are included on the pages immediately following the Index toConsolidated Financial Statements appearing on page F-1.

**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changesin our independent accountants, Deloitte & Touche LLP, ordisagreements with them on matters of accounting or financial disclosure.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES**

Our management, with theparticipation of our chief executive officer and chief financial officer, hasevaluated the effectiveness of the disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”)) of our Company andHuntsman International as of December 31, 2006. Based on this evaluationand the material weakness described below in “Management’s Report on InternalControl Over Financial Reporting,” our chief executive officer and chieffinancial officer have concluded that, as of December 31, 2006, the disclosurecontrols and procedures of our Company and Huntsman International were noteffective in ensuring that information required to be disclosed in the reportsthat we file or submit under the Exchange Act is (1) recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and (2) accumulated and communicated to our management, includingour chief executive officer and chief financial officer, as appropriate toallow timely decisions regarding required disclosure.

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**CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING**

No changes to our internalcontrol over financial reporting occurred during the quarter ended December 31,2006 that have materially affected, or are reasonably likely to materiallyaffect, the internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) of our Company and HuntsmanInternational.

**MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING**

Management is responsible for establishing andmaintaining adequate internal control over financial reporting. The internalcontrol framework and processes for our Company and Huntsman International aredesigned to provide reasonable assurance to management, HuntsmanInternational’s Board of Managers and our Board of Directors regarding thereliability of financial reporting and the preparation of consolidatedfinancial statements in accordance with GAAP.

Internal control over financial reporting for ourCompany and Huntsman International includes those policies and procedures that:

·       pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets;

·       providereasonable assurance that transactions are recorded properly to allow for thepreparation of financial statements in accordance with GAAP, and that receiptsand expenditures are being made only in accordance with authorizations ofmanagement, Huntsman International’s Board of Managers and our Board ofDirectors;

·       providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of assets that could have a material effect on theconsolidated financial statements; and

·       providereasonable assurance as to the detection of fraud.

Because of its inherent limitations, a system ofinternal control over financial reporting can provide only reasonable assuranceand may not prevent or detect misstatements. Further, because of changingconditions, effectiveness of internal control over financial reporting may varyover time.

Our management assessed the effectiveness of internalcontrol over financial reporting for our Company and Huntsman International andconcluded that because of the material weakness described below, as of December 31,2006, such internal control is not effective. In making this assessment,management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission in *InternalControl—Integrated Framework*(“COSO”). Our assessment and conclusionwas and is limited to the businesses we owned as of January 1, 2006, anddoes not pertain to the textile effects business we acquired during the year. Thetextile effects business, which was acquired on June 30, 2006, constituted5% and 9% of the net assets and total assets, respectively, and 4% and 5% ofthe revenues and net income, respectively, of our consolidated financialstatements as of and for the year ended December 31, 2006.  The textile effects business constituted 5%and 9% of the net assets and total assets, respectively, and 4% each of therevenues and net income of Huntsman International as of and for the year endedDecember 31, 2006. We are currently in the process of assessing internalcontrols for our textile effects business which will be subject to therequirements of the Sabanes-Oxley Act of 2002 beginning in 2007.

As of December 31, 2006, we had a materialweakness in the financial reporting process related to the accounting for acomplex, non-routine transaction. This control deficiency resulted in errors inthe third quarter calculation of an impairment loss on the sale of our Europeanbase chemicals and polymers business and the corresponding recording of thesale transaction, which closed on December 29, 2006. We 

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filed an amended quarterlyreport on Form 10-Q/A for the quarterly period ended September 30,2006 to reflect an additional non-cash impairment charge of $99.0 million.

Our independent auditors,Deloitte & Touche LLP, with direct access to our Board of Directorsthrough our Audit Committee, have audited the consolidated financial statementsprepared by our Company and Huntsman International. Their reports on theconsolidated financial statements are included in “Part II, Item 8.Financial Statements and Supplementary Data.” Management’s assessment ofinternal control over financial reporting has been audited byDeloitte & Touche LLP, as stated in their reports included herein.

**MANAGEMENT’SREMEDIATION PLAN**

Management takes its role in establishing, maintainingand evaluating internal controls over financial reporting seriously and hasidentified and is implementing the following steps necessary to address andremediate the material weakness described in “—Management’s Report on InternalControls over Financial Reporting” above:

·       Involveaccounting personnel with appropriate technical accounting expertise early in evaluationof complex, non-routine transactions to determine how such transactions willeffect our financial statements;

·       Reorganizethe accounting and finance departments to ensure that accounting managementwith adequate technical expertise, skills and knowledge of the complex,non-routine transactions are directly involved in the review and accountingevaluation of such transactions;

·       Ourinternal audit department will review the accounting for all material, complexand non-routine transactions; and

·       Properlydocument and evidence the reviews performed by management and our internalaudit department.

**MANAGEMENT’S PROCESS TO ASSESS THE EFFECTIVENESS OF INTERNALCONTROL OVER FINANCIAL REPORTING**

To comply with the requirements of Section 404 ofthe Sarbanes-Oxley Act of 2002, we completed a comprehensive compliance processto evaluate our internal control over financial reporting. We involvedemployees at all levels of our Company during 2006 in training, performing andevaluating our internal controls.

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Our management’sconclusion on the effectiveness of internal control over financial reporting isbased on a comprehensive evaluation and analysis of the five elements of COSO.Our management considered information from multiple sources as the basis itsconclusion—including self-assessments of the control activities within eachwork process, assessments of entity-level controls and internal controlattestations from significant nonconsolidated joint ventures and externalservice providers, as well as from key management. In addition, our internalcontrol processes contain self-monitoring mechanisms, and proactive steps aretaken to correct deficiencies as they are identified. We also maintain aninternal auditing program that independently assesses the effectiveness of internalcontrol over financial reporting within each of the five COSO elements.

| HUNTSMAN CORPORATION  HUNTSMAN INTERNATIONAL LLC |                                                    |                |   |
|--------------------------------------------------|---------------------------------------------------------|---------------------|--------|
| /s/ PETER R. HUNTSMAN                            |                                                    | /s/ J. KIMO  ESPLIN |   |
| Peter R. Huntsman                                | J. Kimo Esplin                                          |
| *President and Chief Executive  Officer*         | *Executive Vice President and Chief Financial  Officer* |
|  /s/ L.  RUSSELL HEALY                      |                                                    |                |
| L. Russell Healy                                 |                                                    |
| *Vice President and Controller*                  |                                                    |
| February 27, 2007                                |                                                    |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders ofHuntsman Corporation and subsidiaries

We have audited management’s assessment, included inthe accompanying management’s report on internal control over financialreporting, that Huntsman Corporation and subsidiaries (the “Company”) did notmaintain effective internal control over financial reporting as ofDecember 31, 2006, because of the effect of the material weaknessidentified in management’s assessment, based on criteria established in *Internal Control—Integrated Framework*issued by the Committeeof Sponsoring Organizations of the Treadway Commission. As described inmanagement’s report on internal control over financial reporting, management excludedfrom its assessment the internal control over financial reporting related tothe Textile Effects business, which was acquired on June 30, 2006, whichbusiness constitutes 5 percent and 9 percent of net and total assets,respectively, 4 percent of revenues, and 5 percent of net income of theconsolidated financial statement amounts as of and for the year endedDecember 31, 2006. Accordingly, our audit did not include the internalcontrol over financial reporting related to the Textile Effects business. TheCompany’s management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express anopinion on management’s assessment and an opinion on the effectiveness of theCompany’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the  policies orprocedures may deteriorate.

A material weakness is a significant deficiency, orcombination of significant deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements 

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will not be prevented or detected. The followingmaterial weakness has been identified and included in management’s assessment: 

The Company’s internal controls over complex,non-routine transactions were not appropriately designed, resulting in morethan a remote likelihood that a material misstatement would not be prevented ordetected. Our audit procedures identified a material misstatement related tothe impairment and related loss on disposal of the Company’s European basechemicals and polymers business which understated the impairment loss recordedin the quarter and nine months ended September 30, 2006 by $99 million and understatedthe total loss on disposal of this business for the year ended December 31,2006 by $99 million. The existence of this deficiency could cause othermisstatements in the recording of complex, non-routine transactions and suchpotential misstatements could be material.

This material weakness was considered in determiningthe nature, timing, and extent of audit tests applied in our audit of theconsolidated financial statements and financial statement schedules as of andfor the year ended December 31, 2006, of the Company and this report doesnot affect our report on such financial statements and financial statement schedules.

In our opinion, management’s assessment that theCompany did not maintain effective internal control over financial reporting asof December 31, 2006, is fairly stated, in all material respects, based onthe criteria established in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission. Also in our opinion, because of the effect of the materialweakness described above on the achievement of the objectives of the controlcriteria, the Company has not maintained effective internal control overfinancial reporting as of December 31, 2006, based on the criteria establishedin *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedules of theCompany as of and for the year ended December 31, 2006 and our reportdated February 28, 2007 expressed an unqualified opinion on thosefinancial statements and financial statement schedules and included an explanatoryparagraph regarding the adoption of FASB Statement No. 158 during 2006.
| /s/ DELOITTE &TOUCHE  LLP |
|------------------------------------|
| Houston, Texas                     |
| February 28, 2007                  |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Managers and Member ofHuntsman International LLC and subsidiaries

We have audited management’s assessment, included inthe accompanying management’s report on internal control over financialreporting, that Huntsman International LLC and subsidiaries (the “Company”) didnot maintain effective internal control over financial reporting as ofDecember 31, 2006, because of the effect of the material weaknessidentified in management’s assessment, based on criteria established in *Internal Control—Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission. As describedin management’s report on internal control over financial reporting, managementexcluded from its assessment the internal control over financial reportingrelated to the Textile Effects business, which was acquired on June 30,2006, which business constitutes 5 percent and 9 percent of net andtotal assets, respectively, 4 percent of revenues, and 4 percent ofnet income of the consolidated financial statement amounts as of and for theyear ended December 31, 2006. Accordingly, our audit did not include theinternal control over financial reporting related to the Textile Effectsbusiness. The Company’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting basedon our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and(3) provide reasonable assurance regarding prevention or timely detectionof unauthorized acquisition, use, or disposition of the company’s assets thatcould have a material effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

A material weakness is a significant deficiency, orcombination of significant deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements 

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will not be prevented or detected. The followingmaterial weakness has been identified and included in management’s assessment: 

The Company’s internal controls over complex,non-routine transactions were not appropriately designed, resulting in morethan a remote likelihood that a material misstatement would not be prevented ordetected. Our audit procedures identified a material misstatement related tothe impairment and related loss on disposal of the Company’s European basechemicals and polymers business which understated the impairment loss recordedin the quarter and nine months ended September 30, 2006 by $99 million and understatedthe total loss on disposal of this business for the year ended December 31,2006 by $99 million. The existence of this deficiency could cause othermisstatements in the recording of complex, non-routine transactions and suchpotential misstatements could be material.

This material weakness was considered in determiningthe nature, timing, and extent of audit tests applied in our audit of theconsolidated financial statements and financial statement schedule as of andfor the year ended December 31, 2006, of the Company and this report doesnot affect our report on such financial statements and financial statementschedule.

In our opinion, management’s assessment that theCompany did not maintain effective internal control over financial reporting asof December 31, 2006, is fairly stated, in all material respects, based on thecriteria established in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTradway Commission. Also in our opinion, because of the effect of the materialweakness described above on the achievement of the objectives of the control criteria,the Company has not maintained effective internal control over financialreporting as of December 31, 2006, based on the criteria established in *Internal Control—Integrated Framework*issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

We have alsoaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated financial statements andfinancial statement schedule of the Company as of and for the year endedDecember 31, 2006 and our report dated February 28, 2007 expressed anunqualified opinion on those financial statements and financial statementschedule and included an explanatory paragraph regarding the adoption of FASBStatement No. 158 during 2006.
| /s/ DELOITTE & TOUCHE  LLP |
|-------------------------------------|
| Houston, Texas                      |
| February 28, 2007                   |

 

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**ITEM 9B.**       OTHERINFORMATION

None.

**PART III**

**ITEM 10.**         DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating toour Directors (including identification of our Audit Committee’s financialexpert(s)) and executive officers is contained in the definitive ProxyStatement for the Annual Meeting of Stockholders of Huntsman Corporation to beheld on May 3, 2007, and is incorporated herein by reference. See also theinformation regarding executive officers of the registrant set forth in Part Iunder the caption “Executive Officers of the Registrant” in reliance on GeneralInstruction G to Form 10-K.

**Code of Ethics**

Our Company has adopted acode of ethics, as defined by Item 406(b) of Regulation S-K under theExchange Act, that applies to our principal executive officer, principalfinancial officer and principal accounting officer or controller. A copy of thecode of ethics is posted on our website, at www.huntsman.com. We intend todisclose any amendments to, or waivers from, our code of ethics on our website.

**ITEM 11.**         EXECUTIVECOMPENSATION

Information relating toexecutive compensation and our equity compensation plans is contained in thedefinitive Proxy Statement for the Annual Meeting of Stockholders of HuntsmanCorporation to be held on May 3, 2007, and is incorporated herein byreference.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Information with respect to beneficial ownership ofour common stock by each Director and all Directors and officers of our Companyas a group is contained in the definitive Proxy Statement for the AnnualMeeting of Stockholders of Huntsman Corporation to be held on May 3, 2007,and is incorporated herein by reference.

Information relating to any person who beneficiallyowns in excess of 5 percent of the total outstanding shares of our commonstock is contained in the definitive Proxy Statement for the Annual Meeting ofStockholders of Huntsman Corporation to be held on May 3, 2007, and isincorporated herein by reference.

Information with respectto compensation plans under which equity securities are authorized for issuanceis contained in the definitive Proxy Statement for the Annual Meeting ofStockholders of Huntsman Corporation to be held on May 3, 2007, and isincorporated herein by reference.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

Information with respectto certain relationships and related transactions is contained in thedefinitive Proxy Statement for the Annual Meeting of Stockholders of HuntsmanCorporation to be held on May 3, 2007, and is incorporated herein byreference.

**ITEM 14.**         PRINCIPALACCOUNTANT FEES AND SERVICES

Thefollowing table shows the aggregate fees billed to us (including HuntsmanInternational) by Deloitte & Touche LLP, the member firms of DeloitteTouche Tohmatsu and their respective affiliates 

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(collectively, “Deloitte & Touche”) in eachof the last two fiscal years for the services indicated (dollars in millions):

| ** **          | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit Fees          |       | $        | 17.0       |     | $          | 13.1 |   |
| Audit-Related  Fees |       | 1.7      |       | 1.2      |       |
| Tax Fees            |       | 4.9      |       | 4.5      |       |
| All Other Fees      |       | —   |       | —   |       |
| Total               |       | $        | 23.6       |     | $          | 18.8 |   |

 

**AuditFees.**   Fees for audit services include feesassociated with annual audits, reviews of annual reports on Form 10-Kand quarterly reports on Form 10-Q, statutory audits requiredinternationally, services related to comfort letters and consents andassistance with other filings and public offering documents filed with the SEC.

**Audit-RelatedFees.**   Fees for audit-related servicesprincipally include due diligence in connection with acquisitions and related accountingconsultations, compliance with financing arrangements and attest services thatwere not required by statute or regulation.

**TaxFees.**   Fees for tax services include taxcompliance, tax advice and tax planning including, but not limited to,international tax compliance and advice, federal and state tax advice, mergersand acquisitions tax advice and assistance with the preparation of foreign taxreturns (including expatriate tax return preparation).

**All Other Fees.**   Allother fees include fees for services not included in audit fees, audit-relatedfees and tax fees.

**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

(a)           Documents filed withthis report.

1.                 ConsolidatedFinancial Statements:

**See Index to Consolidated FinancialStatements on page F-1**

Our investment in Sasol-Huntsman GmbH and Co. KG meetscertain significance test requirements pursuant to Rule 3-09 ofRegulation S-X for the year ended December 31, 2005. We intend to file by,June 30, 2007, an amendment to this annual report on Form 10-Kto include the separate financial statements of Sasol-Huntsman GmbH and Co. KG.

2.                 FinancialStatement Schedules:

Otherthan as stated on the Index to Consolidated Financial Statements on page F-1with respect to Schedule I and Schedule II, financial statementschedules are omitted because they are not required or are not applicable orthe required information is shown in the financial statements or notes thereto.

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3.                 Exhibits:

The exhibits tothis report are listed on the Exhibit Index below.

(b)          Description of exhibits.
| Number | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **Description** | ** ** |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|------------|
| 2.1    |       | Asset Purchase Agreement, dated as of April 5,  2006, by and among Texas Petrochemicals L.P., Huntsman Petrochemical  Corporation and Huntsman Fuels, L.P. (incorporated by reference to  Exhibit 2.1 to our current report on Form 8-K filed on  April 11, 2006.                                                                                                                                                                                                        |
| 2.2    |       | Second Amendment to Asset Purchase Agreement, dated  as of June 14, 2006, by and among Texas Petrochemicals L.P., Huntsman  Petrochemical Corporation and Huntsman Fuels, L.P. (incorporated by reference  to Exhibit 2.1 to our current report on Form 8-K filed on  June 16, 2006)                                                                                                                                                                                     |
| 2.3    |       | Asset Purchase Agreement, dated February 15,  2007 among Flint Hills Resources, LLC, Huntsman International LLC, Huntsman  Petrochemical Corporation, Huntsman International Chemicals Corporation,  Huntsman Polymers Holdings Corporation, Huntsman Expandable Polymers Company,  LLC, Huntsman Polymers Corp. and Huntsman Chemical Company of Canada, Inc.  (incorporated by reference to Exhibit 2.1 to our current report on  Form 8-K filed on February 20, 2007) |
| 3.1    |       | Amended and  Restated Certificate of Incorporation of the Company (incorporated by  reference to Exhibit 3.1 to our registration statement on Form S-1  (File No. 333-120749))                                                                                                                                                                                                                                                                                                               |
| 3.2    |       | Certificate of  Designations, Preferences and Rights of 5% Mandatory Convertible Preferred  Stock (incorporated by reference to Exhibit 3.01 to our current report on  Form 8-K filed February 16, 2005 (File No. 001-32427))                                                                                                                                                                                                                                                      |
| 3.3    |       | Amended and  Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to  our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                      |
| 4.1    |       | 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 the annual report on Form 10-K/A of Huntsman  International LLC for the year ended December 31, 2001)                                                                                                  |
| 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  Supplemental Indenture, dated as of January 11, 2002, 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 4.7 to amendment no. 1 to the annual report on Form 10-K/A  of Huntsman International LLC for the year ended December 31, 2001)                                                             |
| 4.6    |       | Amended and  Restated Indenture, dated as of June 14, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $200,000,000 91¤2%  Senior Subordinated Notes due 2007 (incorporated by reference to  Exhibit 4.27 to the registration statement on Form S-4 of Huntsman  LLC (File No. 333-112279))                                                               |
| 4.7    |       | Form of Amended  and Restated $200,000,000 91¤2% Senior  Subordinated Note due 2007 (included as Exhibit A to Exhibit 4.6)                                                                                                                                                                                                                                                                                                                                                         |

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| 4.8  |   | First  Supplemental Indenture, dated as of July 11, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $200,000,000 91¤2%  Senior Subordinated Notes due 2007 (incorporated by reference to  Exhibit 4.29 to the registration statement on Form S-4 of Huntsman  LLC (File No. 333-112279))                                                                           |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9  |   | Second  Supplemental Indenture, dated as of August 5, 2002, among Huntsman  Corporation (now known as Huntsman LLC), as Issuer, each of the Guarantors  party thereto and Wilmington Trust Company, as Trustee, relating to the  $200,000,000 91¤2%  Senior Subordinated Notes due 2007 (incorporated by reference to  Exhibit 4.30 to the registration statement on Form S-4 of Huntsman  LLC (File No. 333-112279))                                                                        |
| 4.10 |   | Amended and  Restated Indenture, dated as of June 14, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (incorporated by reference to Exhibit 4.31 to  the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))   |
| 4.11 |   | Form of Amended  and Restated Fixed Rate Note due 2007 (included as Exhibit A to Exhibit 4.10)                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.12 |   | Form of Amended  and Restated Floating Rate Note due 2007 (included as Exhibit B to  Exhibit 4.10)                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.13 |   | Form of Guarantee  relating to the $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (included as Exhibit F to Exhibit 4.10)                                                                                                                                                                                                                                                                                     |
| 4.14 |   | First  Supplemental Indenture, dated as of July 11, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated Floating  Rate Notes due 2007 (incorporated by reference to Exhibit 4.34 to the  registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))     |
| 4.15 |   | Second  Supplemental Indenture, dated as of August 15, 2002, among Huntsman  Corporation (now known as Huntsman LLC), as Issuer, each of the Guarantors  party thereto and Wilmington Trust Company, as Trustee, relating to the  $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (incorporated by reference to Exhibit 4.35 to  the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279)) |
| 4.16 |   | Indenture, dated  as of September 30, 2003, among Huntsman LLC, the Guarantors party thereto  and HSBC Bank USA, as Trustee, relating to the 115¤8%  Senior Secured Notes due 2010 (incorporated by reference to Exhibit 4.36 to  the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))                                                                                                                                                                              |
| 4.17 |   | Form of  Unrestricted 115¤8%  Senior Secured Note due 2010 (included as Exhibit A-2 to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.18 |   | Form of Guarantee  relating to the 115¤8%  Senior Secured Notes due 2010 (included as Exhibit E to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                             |
| 4.19 |   | Indenture, dated  as of June 30, 2003, among Huntsman Advanced Materials LLC, as Issuer, each  of the Guarantors named therein and Wells Fargo Bank Minnesota, National  Association, as Trustee relating to 11% Senior Secured Notes due 2010 and  Senior Secured Floating Rate Notes due 2008 (incorporated by reference to  Exhibit 4.1 to the registration statement on Form S-4 of Huntsman  Advanced Materials LLC (File No. 333-115344))                                                        |

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| 4.20 |   | Form of  Unrestricted Fixed Rate Note (included as Exhibit A-3 to Exhibit 4.19)                                                                                                                                                                                                                                                                                                                                                           |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.21 |   | Form of  Unrestricted Floating Rate Note (included as Exhibit A-4 to Exhibit 4.19)                                                                                                                                                                                                                                                                                                                                                        |
| 4.22 |   | Form of Guarantee  (included as Exhibit E to Exhibit 4.19)                                                                                                                                                                                                                                                                                                                                                                                |
| 4.23 |   | Registration  Rights Agreement, dated as of June 30, 2003, among Huntsman Advanced  Materials LLC and the Guarantors named therein, as Issuers, and Deutsche Bank  Securities Inc. and UBS Securities LLC, as Initial Purchasers (incorporated  by reference to Exhibit 4.5 to the registration statement on Form S-4  of Huntsman Advanced Materials LLC (File No. 333-115344))                                                          |
| 4.24 |   | First  Supplemental Indenture, dated as of April 10, 2003, between Vantico Group  S.A., as issuer, and The Bank of New York, as trustee (incorporated by  reference to Exhibit 4.7 to the registration statement of Form S-4  of Huntsman Advanced Materials LLC (File No. 333-115344))                                                                                                                                              |
| 4.25 |   | Second  Supplemental Indenture, dated as of June 17, 2003, between Vantico Group  S.A., as issuer, and The Bank of New York, as trustee (incorporated by  reference to Exhibit 4.8 to the registration statement of Form S-4  of Huntsman Advanced Materials LLC (File No. 333-115344))                                                                                                                                              |
| 4.26 |   | Third  Supplemental Indenture, dated as of June 30, 2003, between Vantico Group  S.A., as issuer, and The Bank of New York, as trustee (incorporated by  reference to Exhibit 4.51 to the registration statement on Form S-4  of HMP Equity Holdings Corporation (File No. 333-116100))                                                                                                                                              |
| 4.27 |   | Indenture, dated  as of June 22, 2004, among Huntsman LLC, the Guarantors party thereto and  HSBC Bank USA, as Trustee, relating to the 111¤2%  Senior Notes due 2012 and Senior Floating Rate Notes due 2011 (incorporated  by reference to Exhibit 4.1 to the quarterly report on Form 10-Q of  Huntsman LLC for the three months ended June 30, 2004)                                                                             |
| 4.28 |   | Form of  Restricted Fixed Rate Note due 2012 (included as Exhibit A-1 to Exhibit  4.27)                                                                                                                                                                                                                                                                                                                                                   |
| 4.29 |   | Form of  Restricted Floating Rate Note due 2011 (included as Exhibit A-2 to  Exhibit 4.27)                                                                                                                                                                                                                                                                                                                                                |
| 4.30 |   | Form of Guarantee  relating to the 111¤2%  Senior Notes due 2012 and Senior Floating Rate Notes due 2011 (included as  Exhibit E to Exhibit 4.45)                                                                                                                                                                                                                                                                                    |
| 4.31 |   | Indenture, dated  as of December 17, 2004, among Huntsman International LLC, as Issuer, the  Guarantors named therein and Wells Fargo Bank, National Association, as  Trustee, relating to the 73¤8% Senior  Subordinated Notes due 2015 and the 71¤2% Senior  Subordinated Notes due 2015 (incorporated by reference to Exhibit 4.1 to the  current report on Form 8-K of Huntsman International LLC filed December  23, 2004) |
| 4.32 |   | Form of  Restricted 73¤8%  Senior Subordinated Note denominated in dollars due 2015 (included as Exhibit  A-1 to Exhibit  4.31)                                                                                                                                                                                                                                                                                                 |
| 4.33 |   | Form of  Restricted 71¤2%  Senior Subordinated Note denominated in euros due 2015 (included as Exhibit A-2  to Exhibit 4.31)                                                                                                                                                                                                                                                                                                         |
| 4.34 |   | Form of  Unrestricted 73¤8%  Senior Subordinated Note denominated in dollars due 2015 (included as Exhibit  A-3 to Exhibit  4.31)                                                                                                                                                                                                                                                                                               |
| 4.35 |   | Form of  Unrestricted 71¤2%  Senior Subordinated Note denominated in euros due 2015 (included as Exhibit A-4  to Exhibit 4.31)                                                                                                                                                                                                                                                                                                       |
| 4.36 |   | Form of Guarantee  (included as Exhibit E to Exhibit 4.31)                                                                                                                                                                                                                                                                                                                                                                                |
| 4.37 |   | Registration  Rights Agreement dated as of February 10, 2005 by and among the Company and  the stockholders signatory thereto (incorporated by reference to Exhibit 10.1  to our current report on Form 8-K filed February 16, 2005 (File  No. 001-32427))                                                                                                                                                                           |
| 4.38 |   | Form of stock  certificate of Huntsman Corporation (incorporated by reference to Exhibit A  to Exhibit 3.01 to our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                              |
| 4.39 |   | Form of mandatory  convertible preferred stock certificate of Huntsman Corporation (incorporated  by reference to Exhibit A to Exhibit 3.01 to our current report on Form 8-K  filed February 16, 2005 (File No. 001-32427))                                                                                                                                                                                                              |

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| 4.40 |   | Supplemental  Indenture, dated as of July 11, 2005, among Huntsman LLC, the Guarantors  named therein and HSBC Bank USA, National Association, as Trustee, relating  to the 111¤2%  Huntsman LLC Senior Notes due 2012 and Huntsman LLC 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)                                                                                                                                                                                                                                |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.41 |   | Supplemental  Indenture, dated as of July 13, 2005 among Huntsman LLC, the Guarantors named  therein and HSBC Bank USA, National Association, as Trustee, relating to the 115¤8% Huntsman LLC Senior Secured  Notes due 2010 (incorporated by reference to Exhibit 4.2 to the current  report on Form 8-K of Huntsman LLC filed July 15, 2005)                                                                                                                                                                                                                                                                                |
| 4.42 |   | Supplemental  Indenture dated August 16, 2005 to Indenture dated March 13, 2001, as  amended, by and among Huntsman International LLC, the guarantors named  therein, and The Bank of New York, as trustee, relating to Huntsman  International LLC’s euro denominated 101¤8% Senior Subordinated Notes due  2009 (incorporated by reference to Exhibit 4.2 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                                                                                      |
| 4.43 |   | Supplemental  Indenture dated August 16, 2005 to Indenture dated as December 17, 2004 by  and among Huntsman International LLC, 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 Huntsman  International LLC’s dollar denominated 73¤8% Senior Subordinated Notes due  2015 and euro denominated 71¤2% Senior Subordinated Notes due  2015 (incorporated by reference to Exhibit 4.4 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005) |
| 4.44 |   | Supplemental  Indenture dated August 16, 2005, to Indenture dated as of September 30,  2003  by and among Huntsman  International LLC (as successor to Huntsman LLC), the guarantors named  therein, and HSBC Bank USA, National Association, as trustee, relating to  Huntsman International LLC’s 115¤8% Senior Secured Notes due 2010, originally issued by  Huntsman LLC (incorporated by reference to Exhibit 4.7 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                      |
| 4.45 |   | Supplemental  Indenture dated August 16, 2005, to Indenture dated as of June 22, 2004  by and among Huntsman International LLC (as  successor to Huntsman LLC), the guarantors named therein, and HSBC Bank USA,  National Association, as trustee, relating to Huntsman International LLC’s 111¤2%  Senior Notes due 2012 and Senior Floating Rate Notes due 2011, originally  issued by Huntsman LLC (incorporated by reference at Exhibit 4.10 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                           |
| 4.46 |   | Form of  Restricted Stock Agreement for Outside Directors (incorporated by reference  to Exhibit 4.7 of our registration statement on Form S-8 filed February 10,  2006 (File No. 333-131729))                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.47 |   | Form of  Restricted Stock Unit Agreement for Outside Directors (incorporated be  reference to Exhibit 4.8 of our registration statement on Form S-8 filed  February 10, 2006 (File No. 333-131729))                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.48 |   | Indenture, dated  as of November 13, 2006, among Huntsman International LLC, as Issuer,  the Guarantors party thereto, and Wells Fargo Bank, National Association, as  Trustee, relating to the $200,000,000 77¤8%  Senior Subordinated Notes due 2014 and the €400,000,000 67¤8  Senior Subordinated Notes due 2013  (incorporated by reference to Exhibit 4.1 to our quarterly report on  Form 10-Q for the three months ended September 30, 2006, filed on  November 14, 2006)                                                                                                     |
| 4.49 |   | Form of  Restricted 77¤8%  Senior Subordinated Note denominated in dollars due 2014 (included as  Exhibit A-1 to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.50 |   | Form of  Restricted 67¤8%  Senior Subordinated Note denominated in euros due 2013 (included as  Exhibit A-2 to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

112

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| 4.51  |   | Form of  Unrestricted 77¤8%  Senior Subordinated Note denominated in dollars due 2014 (included as Exhibit A-3  to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                 |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.52  |   | Form of  Unrestricted 67¤8%  Senior Subordinated Note denominated in euros due 2013 (included as  Exhibit A-4 to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                   |
| 4.53  |   | Exchange and  Registration Rights Agreement, dated as of November 13, 2006, among  Huntsman International LLC, as Issuer, the Guarantors party thereto, and the Purchasers  as defined therein, relating to $200,000,000 aggregated principal amount of  the 77¤8%  Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.2  to our quarterly report on Form 10-Q for the three months ended  September 30, 2006, filed on November 14, 2006 |
| 10.1  |   | Business  Consulting Agreement, dated as of June 3, 2003, between Huntsman  International LLC and Jon M. Huntsman (incorporated by reference to Exhibit  10.41 to the registration statement on Form S-4 of Huntsman  International LLC (File No. 333-106482))                                                                                                                                                                                                                             |
| 10.2  |   | Aircraft Dry  Lease, dated as of September 14, 2001, between Jstar Corporation and Airstar  Corporation (incorporated by reference to Exhibit 10.10 to the registration  statement on Form S-4 of Huntsman LLC (File No. 333-112279))                                                                                                                                                                                                                                                      |
| 10.3  |   | Huntsman Cost  Reduction Incentive Plan and Form of Participation Agreement (incorporated by  reference to Exhibit 10.1 to the current report on Form 8-K of HMP  Equity Holdings Corporation filed on November 23, 2004)                                                                                                                                                                                                                                                                  |
| 10.4  |   | Gift Agreement by  and among Huntsman Group Inc. and the Jon and Karen Huntsman Foundation  (incorporated by reference to Exhibit 10.17 to our registration statement on  Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                  |
| 10.5  |   | Pledge,  Assignment and Collateral Agency Agreement dated February 16, 2005 between  the Company and Citibank, N.A. (incorporated by reference to Exhibit 10.2 to  our current report on Form 8-K filed February 16, 2005 (File No. 001-32427))                                                                                                                                                                                                                                            |
| 10.6  |   | Huntsman  Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.19  to our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                   |
| 10.7  |   | Form of  Nonqualified Stock Option Agreement (incorporated by reference to Exhibit  10.20 to our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                 |
| 10.8  |   | Form of  Restricted Stock Agreement (incorporated by reference to Exhibit 10.21 to our  registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                          |
| 10.9  |   | Form of Stock  Appreciation Rights Agreement (incorporated by reference to Exhibit 10.22 to  our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                 |
| 10.10 |   | Form of Phantom  Share Agreement (incorporated by reference to Exhibit 10.23 to our registration  statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                             |
| 10.11 |   | Form of Executive  Severance Plan (incorporated by reference to Exhibit 10.24 to amendment  No. 3 to our registration statement on Form S-1 dated February 8,  2005 (File No. 333-120749))                                                                                                                                                                                                                                                                                            |
| 10.12 |   | Form of  Indemnification Agreement (incorporated by reference to Exhibit 10.25 to our  registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                           |
| 10.13 |   | Employment  Agreement with Paul Hulme (incorporated by reference to Exhibit 10.24 to  amendment No. 1 to our registration statement on Form S-1 dated January  6, 2005 (File No. 333-120749))                                                                                                                                                                                                                                                                                              |
| 10.14 |   | Employment  Agreement with Anthony Hankins (incorporated by reference to Exhibit 10.27 to  our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                   |
| 10.15 |   | Huntsman  Supplemental Executive Retirement Plan, as amended through the sixth  amendment, April 21, 2005 (incorporated by reference to Exhibit 10.1 to our  quarterly report on Form 10-Q for the three-months ended March 31, 2005)                                                                                                                                                                                                                                                 |

113

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| 10.16 |   | Credit Agreement  dated August 16, 2005 among Huntsman International LLC, Deutsche Bank AG New  York Branch as Administrative Agent and the other financial institutions  named therein (incorporated by reference to Exhibit 10.1 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                 |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17 |   | 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 Huntsman International LLC’s 115¤8% Senior Secured Notes  (incorporated by reference to Exhibit 10.2 to Huntsman International  LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                                                                                                                                                                 |
| 10.18 |   | Second Amendment  to Amended and Restated Pooling Agreement, dated August 16, 2005, among  Huntsman Receivables France LLC, Huntsman (Europe), BVBA and J.P. Morgan Bank  (incorporated by reference to Exhibit 10.4 to Huntsman International LLC’s  current report on Form 8-K filed on August 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.19 |   | 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 Huntsman International LLC’s  current report on Form 8-K filed on August 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.20 |   | Form of  Non-qualified Stock Option Agreement for Outside Directors (incorporated by  reference to Exhibit 10.1 to our current report on Form 8-K filed November 8,  2005 (File No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.21 |   | Amended and  Restated Huntsman Supplemental Executive Retirement Plan (incorporated by  reference to Exhibit 10.1 of our current report on Form 8-K filed December  30, 2005 (File No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.22 |   | Huntsman  Supplemental Executive MPP Plan (incorporated be reference to Exhibit 10.2 of  our current report on Form 8-K filed December 30, 2005 (File No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.23 |   | Amended and  Restated Huntsman Supplemental Savings Plan (incorporated be reference to  Exhibit 10.3 of our current report on Form 8-K filed December 30, 2005 (File  No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.24 |   | Huntsman Outside  Directors Elective Deferral Plan (incorporated be reference to Exhibit 10.4  of our current report on Form 8-K filed December 30, 2005 (File No.  001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.25 |   | Second Amended  and Restated Pooling Agreement, among Huntsman Receivables Finance LLC,  Huntsman (Europe) BVBA and J.P. Morgan Bank (Ireland), as trustee, dated  as of April 18, 2006 (incorporated by reference to Exhibit 10.1 to  our quarterly report on Form 10-Q for the three months ended  March 31, 2006, filed on May 9, 2006)                                                                                                                                                                                                                                                                                                                                                   |
| 10.26 |   | Amended and  Restated 2000-1 Supplement to Second Amended and Restated Pooling Agreement,  among Huntsman Receivables Finance LLC, Huntsman (Europe) BVBA, Jupiter  Securitization Corporation, the several financial institutions party thereto  as funding agents, the Series 2000-1 Conduit Purchasers party thereto,  the several financial institutions party thereto as Series 2000-1 APA  Banks, J.P.Morgan Securities Ltd., JPMorgan Chase Bank, N.A., and J.P.Morgan  (Ireland) plc, as trustee, dated as of April 18, 2006 (incorporated by  reference to Exhibit 10.2 to our quarterly report on Form 10-Q for  the three months ended March 31, 2006, filed on May 9, 2006) |
| 10.27 |   | Amended and  Restated Contribution Agreement, between Huntsman International LLC and  Huntsman Receivables Finance LLC, dated as of April 18, 2006  (incorporated by reference to Exhibit 10.3 to our quarterly report on  Form 10-Q for the three months ended March 31, 2006, filed on May 9,  2006)                                                                                                                                                                                                                                                                                                                                                                                            |

114

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| 10.28  |   | Second Amended  and Restated Servicing Agreement, dated as of April 18, 2006, among  Huntsman Receivables Finance LLC, Huntsman (Europe) BVBA, the various  affiliates of Huntsman International LLC party thereto as local servicers,  J.P.Morgan Bank (Ireland), as Trustee, PricewaterhouseCoopers LLP, and  Huntsman International LLC (incorporated by reference to Exhibit 10.4 to  our quarterly report on Form 10-Q for the three months ended  March 31, 2006, filed on May 9, 2006) |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.29  |   | Consent and  Second Amendment to Credit Agreement and Amendment to Security Documents,  dated June 30, 2006, by and among Huntsman International LLC, as  Borrower, Deutsche Bank AG New York Branch, as Administrative Agent and  Collateral Agent, and the other financial institutions party thereto  (incorporated by reference to Exhibit 10.1 to our current report on  Form 8-K filed on July 7, 2006)                                                                                      |
| 10.30* |   | Withdrawal of  Originator, dated November 28, 2006, among Huntsman Receivables Finance  LLC, Huntsman (Europe) BVBA, the various affiliates of Huntsman International  LLC party thereto as local servicers, J.P.Morgan Bank (Ireland), as Trustee,  PricewaterhouseCoopers LLP, and Huntsman International LLC                                                                                                                                                                                                   |
| 21.1*  |   | Subsidiaries of  the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 23.1*  |   | Consent of  Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

----

*                    Filedherewith.

115

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrants have duly caused this report to be signed on their behalfby the undersigned, thereunto duly authorized.

**Dated:March 1, 2007**
|        |   | HUNTSMAN CORPORATION        |
|--------|--------|-----------------------------|
|   |   | HUNTSMAN INTERNATIONAL  LLC |
|   |   | By:                         | /S/  J. KIMO ESPLIN |
|   |   |                        | J. Kimo Esplin*Executive Vice President and Chief Financial Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of Huntsman Corporationand in the capacities indicated on the 1st day of March 2007.
| /s/ JON M. HUNTSMAN                                                                                  |   | /s/ PETER R.  HUNTSMAN                                                                           |
|------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|
| Jon M. Huntsman*Chairman of the Board and Director*                                                  |   | Peter R. Huntsman*President, Chief Executive Officer and Director (Principal Executive Officer)* |
| /s/ J. KIMO ESPLIN                                                                                   |   | /s/ L. RUSSELL HEALY                                                                             |
| J. Kimo Esplin*Executive Vice President and Chief Financial Officer (Principal Financial  Officer)*  |   | L. Russell Healy *Vice President and Controller  (Principal Accounting Officer)*                 |
| /s/ H. WILLIAM LICHTENBERGER                                                                         |   | /s/ WAYNE A. REAUD                                                                               |
| H. William Lichtenberger*Chairman of the Nominating and Corporate Governance Committee and Director* |   | Wayne A. Reaud*Chairman of the Compensation Committee and Director*                              |
| /s/ RICHARD MICHAELSON                                                                               |   | /s/ DAVID J. MATLIN                                                                              |
| Richard Michaelson*Chairman of the Audit Committee and Director*                                     |   | David J. Matlin*Director*                                                                        |
| /s/ MARSHA J. EVAN                                                                                   |   | /s/ CHRISTOPHER R. PECHOCK                                                                       |
| Marsha J. Evan*Director*                                                                             |   | Christopher R. Pechock*Director*                                                                 |
| /s/ NOLAN D. ARCHIBALD                                                                               |   | /s/ ALVIN V. SHOEMAKER                                                                           |
| Nolan D. Archibald*Director*                                                                         |   | Alvin V. Shoemaker*Director*                                                                     |

 

116

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Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of Huntsman InternationalLLC and in the capacities indicated on the 1st day of March 2007.
| /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/ L. RUSSELL HEALY                                                                              |
| J. Kimo Esplin*Executive Vice President and Chief Financial Officer (Principal Financial  Officer)* |   | L. Russell Healy*Vice President and Controller  (Principal Accounting Officer)*                   |
|                                                                                                |   | /s/ SAMUEL D. SCRUGGS                                                                             |
|                                                                                                |   | Samuel D. Scruggs*Manager*                                                                        |

 

117

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**HUNTSMANCORPORATION AND SUBSIDIARIESHUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                                   | ** ** | **Page**   |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| **Huntsman Corporation and Subsidiaries and  Huntsman International LLC and Subsidiaries:**                                       | ** ** | ** ** |
| **Huntsman Corporation and Subsidiaries:**                                                                                        | ** ** | ** ** |
| **Consolidated Financial Statements**                                                                                             |       |       |
| Report of Independent Registered Public Accounting  Firm                                                                          |       | F-2        |
| Consolidated Balance Sheets as of December 31,  2006 and 2005                                                                |       | F-3        |
| Consolidated Statements of Operations and  Comprehensive Income (Loss) for the Years Ended December 31, 2006, 2005  and 2004 |       | F-4        |
| Consolidated Statements of Stockholders’ Equity  (Deficit) for the Years Ended December 31, 2006, 2005 and 2004    |       | F-5        |
| Consolidated Statements of Cash Flows for the Years  Ended December 31, 2006, 2005 and 2004                                  |       | F-6        |
| **Huntsman International LLC and Subsidiaries:**                                                                                  |       |       |
| **Consolidated Financial Statements**                                                                                             | ** ** |       |
| Report of Independent Registered Public Accounting  Firm                                                                          | ** ** | F-7        |
| Consolidated  Balance Sheets as of December 31, 2006 and 2005                                                                | ** ** | F-8        |
| Consolidated Statements of Operations and  Comprehensive Income (Loss) for the Years Ended December 31, 2006, 2005  and 2004 |       | F-9        |
| Consolidated Statements of Member’s Equity for the  Years Ended December 31, 2006, 2005 and 2004                        |       | F-10       |
| Consolidated Statements of Cash Flows for the Years  Ended December 31, 2006, 2005 and 2004                                  |       | F-11       |
| **Huntsman Corporation and Subsidiaries and  Huntsman International LLC and Subsidiaries:**                                       |       |       |
| **Notes to Consolidated Financial Statements**                                                                                    |       | F-12       |
| Schedule to Consolidated Financial Statements,  Schedule I—Condensed Financial Information of Registrant                     |       | F-94       |
| Schedule to Consolidated Financial Statements,  Schedule II—Valuation and Qualifying Accounts                                |       | F-98       |

 

F-1

----

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**To the Board of Directors andStockholders ofHuntsman Corporation and subsidiaries**

We have audited the accompanying consolidated balancesheets of Huntsman Corporation and subsidiaries (the “Company”) as of December 31,2006 and 2005, and the related consolidated statements of operations andcomprehensive income (loss), stockholders’ equity (deficit), and cash flows foreach of the three years in the period ended December 31, 2006. Our audits alsoincluded the financial statement schedules listed in the index on page F-1.These financial statements and financial statement schedules are theresponsibility of the Company’s management. Our responsibility is to express anopinion on the financial statements and financial statement schedules based onour audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position of HuntsmanCorporation and subsidiaries as of December 31, 2006 and 2005, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2006, in conformity with accountingprinciples generally accepted in the United States of America. Also, in ouropinion, such financial statement schedules, when considered in relation to thebasic consolidated financial statements taken as a whole, present fairly, inall material respects, the information set forth therein.

As discussed in Note 1 tothe consolidated financial statements, the consolidated financialstatements reflect the financial position and results of operations and cashflows as if Huntsman Holdings LLC and Huntsman Corporation were combined forall periods presented.

As discussed in Note 2 to the consolidatedfinancial statements, the Company adopted FASB Interpretation No. 46R, *Consolidation of Variable Interest Entities*,on January 1, 2005; FASB Interpretation No. 47, *Accounting for Conditional Asset RetirementObligations*, on December 31, 2005; and FASB Statement No. 158,*Employers’ Accounting for Defined Benefit Pensionsand Other Postretirement Plans*, on December 31, 2006.

As discussed in Note 2 to the consolidatedfinancial statements, the Company changed the measurement date for its pensionand other postretirement benefit plans from December 31 to November 30during 2005.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, based on the criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated February 28, 2007 expressed an unqualified opinion onmanagement’s assessment of the effectiveness of the Company’s internal controlover financial reporting and an adverse opinion on the effectiveness of theCompany’s internal control over financial reporting because of a materialweakness.
| /s/ DELOITTE & TOUCHE  LLP |   |
|-------------------------------------|--------|
| Houston, Texas                      |
| February 28, 2007                   |

 

F-2

----

**HUNTSMAN CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Dollars in Millions)**

| ** **                                                                                                                                                                     | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **ASSETS**                                                                                                                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Current assets:**                                                                                                                                                            | ** ** | ** **            | ** ** | ** ** | ** ** |
| Cash and cash equivalents                                                                                                                                                      |       | $                     | 263.2      |   | $ | 142.8 |   |
| Accounts and notes receivables (net of allowance for  doubtful accounts of $39.0 and $33.7, respectively)                                                                      |       | 1,243.2               |       | 1,475.2 |   |
| Accounts receivable from affiliates                                                                                                                                            |       | 14.1                  |       | 7.4 |   |
| Inventories, net                                                                                                                                                               |       | 1,520.1               |       | 1,309.2 |   |
| Prepaid expenses                                                                                                                                                               |       | 55.7                  |       | 46.2 |   |
| Deferred income taxes                                                                                                                                                          |       | 64.6                  |       | 31.2 |   |
| Other current assets                                                                                                                                                           |       | 175.7                 |       | 84.0 |   |
| **Total current assets**                                                                                                                                                       |       | 3,336.6               |       | 3,096.0 |   |
| Property, plant and equipment, net                                                                                                                                             |       | 4,059.4               |       | 4,643.2 |   |
| Investment in unconsolidated affiliates                                                                                                                                        |       | 201.0                 |       | 175.6 |   |
| Intangible assets, net                                                                                                                                                         |       | 187.6                 |       | 216.3 |   |
| Goodwill                                                                                                                                                                       |       | 90.2                  |       | 91.2 |   |
| Deferred income taxes                                                                                                                                                          |       | 190.4                 |       | 94.2 |   |
| Notes receivable from affiliates                                                                                                                                               |       | —                |       | 3.0 |   |
| Other noncurrent assets                                                                                                                                                        |       | 379.7                 |       | 551.0 |   |
| **Total assets**                                                                                                                                                               |       | $                     | 8,444.9    |   | $ | 8,870.5 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                 | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Current  liabilities:**                                                                                                                                                      | ** ** | ** **            | ** ** | ** ** | ** ** |
| Accounts payable                                                                                                                                                               |       | $                     | 1,006.2    |   | $ | 1,093.5 |   |
| Accounts payable to affiliates                                                                                                                                                 |       | 12.0                  |       | — |   |
| Accrued liabilities                                                                                                                                                            |       | 857.6                 |       | 747.2 |   |
| Deferred income taxes                                                                                                                                                          |       | 9.4                   |       | 2.4 |   |
| Current portion of long-term debt                                                                                                                                              |       | 187.9                 |       | 44.6 |   |
| **Total current liabilities**                                                                                                                                                  |       | 2,073.1               |       | 1,887.7 |   |
| Long-term debt                                                                                                                                                                 |       | 3,457.4               |       | 4,413.3 |   |
| Deferred income taxes                                                                                                                                                          |       | 192.6                 |       | 258.3 |   |
| Other noncurrent liabilities                                                                                                                                                   |       | 955.8                 |       | 770.2 |   |
| **Total liabilities**                                                                                                                                                          |       | 6,678.9               |       | 7,329.5 |   |
| Minority interests in common stock of consolidated  subsidiaries                                                                                                               |       | 29.4                  |       | 20.4 |   |
| **Commitments  and contingencies (Notes 20 and 21)**                                                                                                                           | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Stockholders’  equity:**                                                                                                                                                | ** ** | ** **            | ** ** | ** ** | ** ** |
| Common stock $0.01 par value, 1,200,000,000 shares  authorized, 221,549,461 and 221,200,997 issued and 220,652,429 and  220,451,484 outstanding in 2006 and 2005, respectively |       | 2.2                   |       | 2.2 |   |
| Mandatory convertible preferred stock $0.01 par  value, 100,000,000 shares authorized, 5,750,000 issued and outstanding                                                        |       | 287.5                 |       | 287.5 |   |
| Additional paid-in capital                                                                                                                                                     |       | 2,798.4               |       | 2,779.8 |   |
| Unearned stock-based compensation                                                                                                                                              |       | (12.5                 | )          | (11.8 | ) |
| Accumulated deficit                                                                                                                                                            |       | (1,277.6              | )          | (1,505.8 | ) |
| Accumulated other comprehensive loss                                                                                                                                           |       | (61.4                 | )          | (31.3 | ) |
| **Total stockholders’ equity**                                                                                                                                            |       | 1,736.6               |       | 1,520.6 |   |
| **Total  liabilities and stockholders’ equity**                                                                                                                           |       | $                     | 8,444.9    |   | $ | 8,870.5 |   |

 

See accompanying notes to consolidated financial statements.

F-3

----

**HUNTSMAN CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME (LOSS)**

**(Dollars in Millions)**

| ** **                                                                                                                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues:**                                                                                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade sales, services and  fees                                                                                           |       | $                                          | 10,543.7   |   | $ | 10,570.7 |   | $ | 9,506.9 |   |
| Related party sales                                                                                                       |       | 79.9                                       |       | 106.2 |   | 55.6 |   |
| **Total  revenues**                                                                                                       |       | 10,623.6                                   |       | 10,676.9 |   | 9,562.5 |   |
| **Cost of  goods sold**                                                                                                   |       | 9,084.1                                    |       | 9,061.5 |   | 8,358.7 |   |
| **Gross  profit**                                                                                                         |       | 1,539.5                                    |       | 1,615.4 |   | 1,203.8 |   |
| **Operating expenses:**                                                                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Selling, general and  administrative                                                                                      |       | 795.3                                      |       | 660.6 |   | 638.8 |   |
| Research and development                                                                                                  |       | 115.4                                      |       | 95.5 |   | 96.2 |   |
| Other operating (income)  expense                                                                                         |       | (127.7                                     | )          | 30.2 |   | (77.0 | ) |
| Restructuring, impairment  and plant closing costs                                                                        |       | 20.0                                       |       | 114.1 |   | 282.9 |   |
| Total expenses                                                                                                            |       | 803.0                                      |       | 900.4 |   | 940.9 |   |
| **Operating  income**                                                                                                     |       | 736.5                                      |       | 715.0 |   | 262.9 |   |
| Interest expense,  net                                                                                                    |       | (350.7                                     | )          | (426.6 | ) | (607.2 | ) |
| Interest expense—affiliate                                                                                           |       | —                                     |       | — |   | (5.4 | ) |
| Loss on accounts  receivable securitization program                                                                       |       | (16.1                                      | )          | (9.0 | ) | (13.3 | ) |
| Equity in income  of investment in unconsolidated affiliates                                                              |       | 3.6                                        |       | 8.2 |   | 4.0 |   |
| Loss on early  extinguishment of debt                                                                                     |       | (27.1                                      | )          | (322.5 | ) | (25.6 | ) |
| Other income  (expense)                                                                                                   |       | 1.3                                        |       | (0.1 | ) | (0.2 | ) |
| **Income  (loss) from continuing operations before income taxes and minority interest**                                   | ** ** | 347.5                                      | ** ** | (35.0 | ) | (384.8 | ) |
| Income tax benefit                                                                                                        |       | 49.0                                       |       | 6.1 |   | 72.0 |   |
| Minority interest  in subsidiaries’ income                                                                           |       | (2.9                                       | )          | (1.7 | ) | (7.2 | ) |
| **Income  (loss) from continuing operations**                                                                             |       | 393.6                                      |       | (30.6 | ) | (320.0 | ) |
| (Loss) income from  discontinued operations (including loss on disposal of $301.8 in 2006 and  $36.4 in 2005), net of tax |       | (219.7                                     | )          | 23.7 |   | 92.3 |   |
| **Income  (loss) before extraordinary gain and accounting changes**                                                       | ** ** | 173.9                                      | ** ** | (6.9 | ) | (227.7 | ) |
| Extraordinary gain  on the acquisition of a business, net of tax of nil                                                   |       | 55.9                                       |       | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax of $2.9                                                 |       | —                                     |       | (27.7 | ) | — |   |
| **Net  income (loss)**                                                                                                    |       | 229.8                                      |       | (34.6 | ) | (227.7 | ) |
| Preferred stock  dividends                                                                                                |       | —                                     |       | (43.1 | ) | (87.7 | ) |
| **Net  income (loss) available to common stockholders**                                                                   |       | $                                          | 229.8      |   | $ | (77.7 | ) | $ | (315.4 | ) |
| **Net  income (loss)**                                                                                                    |       | $                                          | 229.8      |   | $ | (34.6 | ) | $ | (227.7 | ) |
| Other  comprehensive income (loss)                                                                                        |       | 149.0                                      |       | (212.3 | ) | 70.5 |   |
| **Comprehensive  income (loss)**                                                                                          |       | $                                          | 378.8      |   | $ | (246.9 | ) | $ | (157.2 | ) |
| **Basic income (loss) per share:**                                                                                        | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss) from  continuing operations                                                                                 |       | $                                          | 1.78       |   | $ | (0.33 | ) | $ | (1.85 | ) |
| (Loss) income from  discontinued operations, net of tax                                                                   |       | (0.99                                      | )          | 0.11 |   | 0.42 |   |
| Extraordinary gain  on the acquisition of a business, net of tax                                                          |       | 0.25                                       |       | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax                                                         |       | —                                     |       | (0.13 | ) | — |   |
| Net income (loss)                                                                                                         |       | $                                          | 1.04       |   | $ | (0.35 | ) | $ | (1.43 | ) |
| Weighted average  shares                                                                                                  |       | 220.6                                      |       | 220.5 |   | 220.5 |   |
| **Diluted income (loss) per share:**                                                                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss) from  continuing operations                                                                                 |       | $                                          | 1.69       |   | $ | (0.33 | ) | $ | (1.85 | ) |
| (Loss) income from  discontinued operations, net of tax                                                                   |       | (0.94                                      | )          | 0.11 |   | 0.42 |   |
| Extraordinary gain  on the acquisition of a business, net of tax                                                          |       | 0.24                                       |       | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax                                                         |       | —                                     |       | (0.13 | ) | — |   |
| Net income (loss)                                                                                                         |       | $                                          | 0.99       |   | $ | (0.35 | ) | $ | (1.43 | ) |
| Weighted average  shares                                                                                                  |       | 233.1                                      |       | 220.5 |   | 220.5 |   |

 

See accompanying notes to consolidated financial statements.

F-4

----

**HUNTSMAN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)(Dollars in Millions)**
|                                                                                                      | ** ** | **Shares**            | ** **  | ** **                                       | ** ** | ** **        | ** ** | ** **                             | ** ** | ** **                                       | ** **    | ** **                           | ** ** | ** **                                    | ** **                                  | ** **               | ** ** | ** **                                                    | ** **                      |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|--------------------------------------------------|------------|-------------------|------------|----------------------------------------|------------|--------------------------------------------------|---------------|--------------------------------------|------------|-----------------------------------------------|---------------------------------------------|--------------------------|------------|---------------------------------------------------------------|---------------------------------|
| ** **                                                                                           | ** ** | **Common Stock** | ** **  | **Mandatory  convertible  preferred stock** | ** ** | **Common  stock** | ** ** | **Preferred  members’  interest** | ** ** | **Mandatory  convertible  preferred stock** | ** **    | **Additional  paid-in capital** | ** ** | **Unearned stock-  based  compensation** | ** **                                  | **Accumulated  deficit** | ** ** | **Accumulated other  comprehensive  (loss) income** | ** **                      | **Total** | ** ** |
| Balance, January 1, 2004                                                                        |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | $ — |                                 |       |                                          | $ 194.4                                |                     |       |                                                          | $    — |   |   |   | $ 800.2 |   |   |   | $    — |   |   |   | $ (1,243.5 | ) |   |   | $  61.2 |   |   | $ (187.7 | ) |
| Net loss                                                                                             |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | (227.7 | ) |   |   | — |   |   | (227.7 | ) |
| Purchase accounting adjustment                                                                       |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | 1.3                                         |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 49.3 |   |   | 50.6 |   |
| Other comprehensive income                                                                           |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 70.5 |   |   | 70.5 |   |
| Dividends accrued on redeemable preferred member’s interest                                |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | (87.7 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   | (87.7 | ) |
| Balance, December 31, 2004                                                                      |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | 195.7                                       |                     |       |                                                          | —                          |   |   |   | 712.5 |   |   |   | — |   |   |   | (1,471.2 | ) |   |   | 181.0 |   |   | (382.0 | ) |
| Net loss                                                                                             |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | (34.6 | ) |   |   | — |   |   | (34.6 | ) |
| Other comprehensive loss                                                                             |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (212.3 | ) |   | (212.3 | ) |
| Exchange of previous common and preferred members’ interest  and warrants for common stock |       |                  | 164,769,665 |                                             |       |              | —     |                                   |       |                                             | 1.6           |                                 |       |                                          | (195.7                                      | )                        |       |                                                          | —                          |   |   |   | 885.5 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 691.4 |   |
| Issuance of common stock and mandatory  convertible preferred stock                                  |       |                  | 55,681,819  |                                             |       |              | 5,750,000  |                                   |       |                                             | 0.6           |                                 |       |                                          | —                                      |                     |       |                                                          | 287.5                           |   |   |   | 1,203.8 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 1,491.9 |   |
| Issuance of nonvested stock awards                                                                   |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | 16.3 |   |   |   | (16.3 | ) |   |   | — |   |   |   | — |   |   | — |   |
| Recognition of stock-based compensation                                                              |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | 4.8 |   |   |   | 4.5 |   |   |   | — |   |   |   | — |   |   | 9.3 |   |
| Dividends declared on mandatory convertible preferred  stock                                         |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | (43.1 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   | (43.1 | ) |
| Balance, December 31, 2005                                                                      |       |                  | 220,451,484 |                                             |       |              | 5,750,000  |                                   |       |                                             | 2.2           |                                 |       |                                          | —                                      |                     |       |                                                          | 287.5                           |   |   |   | 2,779.8 |   |   |   | (11.8 | ) |   |   | (1,505.8 | ) |   |   | (31.3 | ) |   | 1,520.6 |   |
| Net income                                                                                           |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | 229.8 |   |   |   | — |   |   | 229.8 |   |
| Other comprehensive income                                                                           |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 149.0 |   |   | 149.0 |   |
| Issuance of nonvested stock awards                                                                   |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | 9.0 |   |   |   | (9.0 | ) |   |   | — |   |   |   | — |   |   | — |   |
| Vesting of stock awards                                                                              |       |                  | 278,531     |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | 0.2 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 0.2 |   |
| Recognition of stock-based compensation                                                              |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | 9.4 |   |   |   | 8.3 |   |   |   | — |   |   |   | — |   |   | 17.7 |   |
| Cumulative effect of adoption of SFAS No. 158,  net of tax                                 |       |                  | —      |                                             |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (179.1 | ) |   | (179.1 | ) |
| Repurchase and cancellation of stock awards                                                          |       |                  | (77,586     | )                                                |       |              | —     |                                   |       |                                             | —        |                                 |       |                                          | —                                      |                     |       |                                                          | —                          |   |   |   | — |   |   |   | — |   |   |   | (1.6 | ) |   |   | — |   |   | (1.6 | ) |
| Balance,  December 31, 2006                                                                     |       |                  | 220,652,429 |                                             |       |              | 5,750,000  |                                   |       |                                             | $ 2.2    |                                 |       |                                          | $      — |                     |       |                                                          | $ 287.5                    |   |   |   | $ 2,798.4 |   |   |   | $ (12.5 | ) |   |   | $ (1,277.6 | ) |   |   | $ (61.4 | ) |   | $ 1,736.6 |   |

 

See accompanying notes to consolidated financial statements

F-5

----

**HUNTSMAN CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in Millions)**

| ** **                                                                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating Activities:**                                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                                         |       | $                                          | 229.8      |   | $ | (34.6 | ) | $ | (227.7 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Extraordinary gain  on the acquistion of a business, net of tax                           |       | (55.9                                      | )          | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax                         |       | —                                     |       | 27.7 |   | — |   |
| Equity in income  of unconsolidated affiliates                                            |       | (3.6                                       | )          | (8.2 | ) | (4.0 | ) |
| Depreciation and  amortization                                                            |       | 465.7                                      |       | 500.8 |   | 536.8 |   |
| Provision for  losses on accounts receivable                                              |       | 6.4                                        |       | 4.2 |   | 0.7 |   |
| Loss on disposal  of businesses/assets, net                                               |       | 209.4                                      |       | 35.4 |   | 2.4 |   |
| Loss on early  extinguishment of debt                                                     |       | 27.1                                       |       | 322.5 |   | 25.6 |   |
| Noncash interest  expense                                                                 |       | 5.1                                        |       | 49.8 |   | 166.0 |   |
| Noncash  restructuring, impairment and plant closing costs                                |       | 18.1                                       |       | 58.6 |   | 138.0 |   |
| Deferred income  taxes                                                                    |       | (82.4                                      | )          | (3.1 | ) | (64.5 | ) |
| Net unrealized  (gain) loss on foreign currency transactions                              |       | (42.4                                      | )          | 15.3 |   | (111.7 | ) |
| Stock-based  compensation                                                                 |       | 18.4                                       |       | 9.5 |   | — |   |
| Minority interest  in subsidiaries’ income                                           |       | 2.9                                        |       | 1.7 |   | 7.2 |   |
| Other, net                                                                                |       | 4.4                                        |       | (13.3 | ) | (14.0 | ) |
| Changes in operating assets and liabilities:                                              |       |                                       |       |   |   |   |   |
| Accounts and notes  receivables                                                           |       | 228.1                                      |       | 61.3 |   | (348.1 | ) |
| Inventories, net                                                                          |       | (58.8                                      | )          | (96.9 | ) | (158.9 | ) |
| Prepaid expenses                                                                          |       | (14.5                                      | )          | 45.8 |   | 31.0 |   |
| Other current  assets                                                                     |       | (50.6                                      | )          | (38.1 | ) | 116.0 |   |
| Other noncurrent  assets                                                                  |       | 162.8                                      |       | (78.6 | ) | (48.9 | ) |
| Accounts payable                                                                          |       | 21.5                                       |       | 68.6 |   | 28.1 |   |
| Accrued liabilities                                                                       |       | 22.0                                       |       | (19.5 | ) | 88.3 |   |
| Other noncurrent  liabilities                                                             |       | (220.4                                     | )          | 59.7 |   | 18.5 |   |
| **Net cash  provided by operating activities**                                            |       | 893.1                                      |       | 968.6 |   | 180.8 |   |
| **Investing Activities:**                                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                     |       | (549.9                                     | )          | (338.7 | ) | (226.6 | ) |
| Acquisition of  business, net of cash acquired                                            |       | (176.9                                     | )          | — |   | — |   |
| Acquisition of  minority interest                                                         |       | —                                     |       | (124.8 | ) | — |   |
| Proceeds from sale  of businesses/assets                                                  |       | 894.5                                      |       | 23.7 |   | 5.2 |   |
| Investment in  unconsolidated affiliates, net                                             |       | (11.9                                      | )          | (1.8 | ) | (13.3 | ) |
| Net investment in  government securities, restricted as to use                            |       | 14.4                                       |       | (30.1 | ) | — |   |
| Change in  restricted cash                                                                |       | —                                     |       | 8.9 |   | 1.6 |   |
| Other, net                                                                                |       | 3.7                                        |       | (0.9 | ) | 3.1 |   |
| **Net cash  provided by (used in) investing activities**                                  |       | 173.9                                      |       | (463.7 | ) | (230.0 | ) |
| **Financing Activities:**                                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (repayments)  borrowings under revolving loan facilities                              |       | (6.3                                       | )          | (118.7 | ) | 113.8 |   |
| Net repayments of  overdraft and other short-term debt                                    |       | (6.8                                       | )          | — |   | (10.6 | ) |
| Repayments of  long-term debt                                                             |       | (1,784.0                                   | )          | (4,010.7 | ) | (2,822.8 | ) |
| Proceeds from  long-term debt                                                             |       | 872.4                                      |       | 2,235.0 |   | 2,869.8 |   |
| Net borrowings  (repayments) on notes payable                                             |       | 10.9                                       |       | (33.9 | ) | (19.6 | ) |
| Debt issuance  costs paid                                                                 |       | (12.8                                      | )          | (17.3 | ) | (35.5 | ) |
| Call premiums  related to early extinguishment of debt                                    |       | (30.4                                      | )          | (146.0 | ) | (17.0 | ) |
| Dividend paid to  preferred stockholders                                                  |       | (14.4                                      | )          | (10.8 | ) | — |   |
| Net proceeds from  issuance of common and preferred stock                                 |       | —                                     |       | 1,491.9 |   | — |   |
| Contribution from  minority shareholder                                                   |       | 6.2                                        |       | 3.6 |   | — |   |
| Other, net                                                                                |       | 4.0                                        |       | 3.9 |   | 5.4 |   |
| **Net cash  (used in) provided by financing activities**                                  |       | (961.2                                     | )          | (603.0 | ) | 83.5 |   |
| Effect of exchange  rate changes on cash                                                  |       | 14.6                                       |       | (2.3 | ) | 11.1 |   |
| Increase  (decrease) in cash and cash equivalents                                         |       | 120.4                                      |       | (100.4 | ) | 45.4 |   |
| Cash and cash  equivalents at beginning of period                                         |       | 142.8                                      |       | 243.2 |   | 197.8 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                          | 263.2      |   | $ | 142.8 |   | $ | 243.2 |   |
| **Supplemental cash flow information:**                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid for  interest                                                                   |       | $                                          | 396.5      |   | $ | 411.9 |   | $ | 455.6 |   |
| Cash paid for income  taxes                                                               |       | 40.3                                       |       | 27.6 |   | 29.2 |   |

 

See accompanying notes to consolidated financial statements.

F-6

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

**To the Board of Managers and MemberofHuntsman International LLC and subsidiaries**

We have audited theaccompanying consolidated balance sheets of Huntsman International LLC andsubsidiaries (the “Company”) as of December 31, 2006 and 2005, and therelated consolidated statements of operations and comprehensive income (loss),member’s equity, and cash flows for each of the three years in the period endedDecember 31, 2006. Our audits also included the financial statementschedule listed in the index on page F-1. These financial statementsand financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the financialstatements and financial statement schedule based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Huntsman International LLC and subsidiaries as of December 31,2006 and 2005, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2006, inconformity with accounting principles generally accepted in the United Statesof America. Also, in our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, presents fairly, in all material respects, the information set forththerein.

As discussed in Note 1 tothe consolidated financial statements, the consolidated financial statementsreflect the financial position and results of operations and cash flows as ifHuntsman International Holdings LLC, Huntsman LLC, Huntsman Advanced MaterialsHoldings LLC and Huntsman International LLC were combined for all periodspresented.

Asdiscussed in Note 2 to the consolidated financial statements, theCompany adopted FASB Interpretation No. 46R, *Consolidation of Variable Interest Entities*, on January 1,2005; FASB Interpretation No. 47, *Accountingfor Conditional Asset Retirement Obligations*, on December 31,2005; and FASB Statement No. 158, *Employers’ Accounting forDefined Benefit Pensions and Other Postretirement Plans*, on December 31,2006.

As discussed inNote 2 to the consolidated financial statements, the Company changed themeasurement date for its pension and other postretirement benefit plans from December 31to November 30 during 2005.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, based on the criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated February 28, 2007 expressed an unqualified opinion onmanagement’s assessment of the effectiveness of the Company’s internal controlover financial reporting and an adverse opinion on the effectiveness of theCompany’s internal control over financial reporting because of a materialweakness.
| /s/ DELOITTE & TOUCHE  LLP |   |
|-------------------------------------|--------|
| Houston, Texas                      |
| February 28, 2007                   |

 

F-7

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Dollarsin Millions)**

| ** **                                                                                                | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **ASSETS**                                                                                                |       |                  |       |   |   |   |   |   |   |
| **Current  assets:**                                                                                      | ** ** |                  |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                 |       |                  | $          | 246.0 |   |   |   | $ | 132.5 |   |   |
| Accounts and notes receivables (net of allowance for  doubtful accounts of $39.0 and $33.7, respectively) |       |                  | 1,243.3    |   |   |   | 1,475.2 |   |   |
| Accounts receivable from affiliates                                                                       |       |                  | 19.5       |   |   |   | 10.4 |   |   |
| Inventories, net                                                                                          |       |                  | 1,520.1    |   |   |   | 1,309.2 |   |   |
| Prepaid expenses                                                                                          |       |                  | 55.7       |   |   |   | 45.9 |   |   |
| Deferred income taxes                                                                                     |       |                  | 70.7       |   |   |   | 31.2 |   |   |
| Other current assets                                                                                      |       |                  | 161.6      |   |   |   | 69.9 |   |   |
| **Total current assets**                                                                                  |       |                  | 3,316.9    |   |   |   | 3,074.3 |   |   |
| Property, plant and equipment, net                                                                        |       |                  | 3,829.5    |   |   |   | 4,336.7 |   |   |
| Investment in  unconsolidated affiliates                                                                  |       |                  | 201.0      |   |   |   | 175.6 |   |   |
| Intangible  assets, net                                                                                   |       |                  | 192.6      |   |   |   | 222.0 |   |   |
| Goodwill                                                                                                  |       |                  | 90.2       |   |   |   | 91.2 |   |   |
| Deferred income  taxes                                                                                    |       |                  | 188.7      |   |   |   | 94.2 |   |   |
| Notes receivable  from affiliates                                                                         |       |                  | —     |   |   |   | 3.0 |   |   |
| Other noncurrent  assets                                                                                  |       |                  | 376.6      |   |   |   | 636.0 |   |   |
| **Total assets**                                                                                          |       |                  | $          | 8,195.5 |   |   |   | $ | 8,633.0 |   |   |
| **LIABILITIES  AND MEMBERS’ EQUITY**                                                                 | ** ** |                  |       |   |   |   |   |   |   |
| **Current  liabilities:**                                                                                 | ** ** |                  |       |   |   |   |   |   |   |
| Accounts payable                                                                                          |       |                  | $          | 1,006.2 |   |   |   | $ | 1,092.7 |   |   |
| Accounts payable to affiliates                                                                            |       |                  | 16.7       |   |   |   | 8.7 |   |   |
| Accrued liabilities                                                                                       |       |                  | 841.7      |   |   |   | 732.3 |   |   |
| Deferred income taxes                                                                                     |       |                  | 9.4        |   |   |   | 2.4 |   |   |
| Current portion of long-term debt                                                                         |       |                  | 187.9      |   |   |   | 44.6 |   |   |
| **Total current liabilities**                                                                             |       |                  | 2,061.9    |   |   |   | 1,880.7 |   |   |
| Long-term debt                                                                                            |       |                  | 3,457.4    |   |   |   | 4,413.3 |   |   |
| Deferred income  taxes                                                                                    |       |                  | 161.6      |   |   |   | 216.9 |   |   |
| Other noncurrent  liabilities                                                                             |       |                  | 952.1      |   |   |   | 770.0 |   |   |
| **Total liabilities**                                                                                     |       |                  | 6,633.0    |   |   |   | 7,280.9 |   |   |
| **Minority interests**                                                                                    |       |                  | 29.4       |   |   |   | 20.4 |   |   |
| **Commitments  and contingencies (Notes 20 and 21)**                                                      | ** ** |                  |       |   |   |   |   |   |   |
| **Members’  equity:**                                                                                | ** ** |                  |       |   |   |   |   |   |   |
| Members’ equity, 2,728 units issued and outstanding                                                  |       |                  | 2,811.8    |   |   |   | 2,794.0 |   |   |
| Accumulated deficit                                                                                       |       |                  | (1,150.4   | ) |   |   | (1,384.0 | ) |   |
| Accumulated other comprehensive loss                                                                      |       |                  | (128.3     | ) |   |   | (78.3 | ) |   |
| **Total members’ equity**                                                                            |       |                  | 1,533.1    |   |   |   | 1,331.7 |   |   |
| **Total  liabilities and members’ equity**                                                           |       |                  | $          | 8,195.5 |   |   |   | $ | 8,633.0 |   |   |

 

See accompanying notes to consolidated financial statements

F-8

----

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME (LOSS)**

**(Dollars in Millions)**

| ** **                                                                                                                     | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues:**                                                                                                                  |       |                                       |       |   |   |   |   |
| Trade sales,  services and fees                                                                                                |       | $                                          | 10,543.7   |   | $ | 10,570.7 |   | $ | 9,506.9 |   |
| Related party  sales                                                                                                           |       | 79.9                                       |       | 106.2 |   | 55.6 |   |
| **Total  revenues**                                                                                                            |       | 10,623.6                                   |       | 10,676.9 |   | 9,562.5 |   |
| **Cost of  goods sold**                                                                                                        |       | 9,067.1                                    |       | 9,043.9 |   | 8,337.3 |   |
| **Gross profit**                                                                                                               |       | 1,556.5                                    |       | 1,633.0 |   | 1,225.2 |   |
| **Operating  expenses:**                                                                                                       |       |                                       |       |   |   |   |   |
| Selling, general  and administrative                                                                                           |       | 794.8                                      |       | 661.4 |   | 635.5 |   |
| Research and  development                                                                                                      |       | 115.4                                      |       | 95.5 |   | 96.2 |   |
| Other operating  (income) expense                                                                                              |       | (127.7                                     | )          | 30.2 |   | (77.0 | ) |
| Restructuring,  impairment and plant closing costs                                                                             |       | 20.0                                       |       | 114.1 |   | 282.9 |   |
| Total expenses                                                                                                                 |       | 802.5                                      |       | 901.2 |   | 937.6 |   |
| **Operating  income**                                                                                                          |       | 754.0                                      |       | 731.8 |   | 287.6 |   |
| Interest expense, net                                                                                                          |       | (355.2                                     | )          | (425.6 | ) | (592.6 | ) |
| Loss on accounts  receivable securitization program                                                                            |       | (16.1                                      | )          | (9.0 | ) | (13.3 | ) |
| Equity in income  of investment in unconsolidated affiliates                                                                   |       | 3.6                                        |       | 8.2 |   | 4.0 |   |
| Loss on early extinguishment  of debt                                                                                          |       | (39.0                                      | )          | (167.3 | ) | (25.6 | ) |
| Other income  (expense)                                                                                                        |       | 1.3                                        |       | (0.2 | ) | (0.2 | ) |
| **Income (loss) from continuing operations before  income taxes and minority interest**                                        |       | 348.6                                      |       | 137.9 |   | (340.1 | ) |
| Income tax  benefit (expense)                                                                                                  |       | 30.0                                       |       | (13.2 | ) | 66.3 |   |
| Minority interest  in subsidiaries’ income                                                                                |       | (2.9                                       | )          | (1.7 | ) | (7.2 | ) |
| **Income  (loss) from continuing operations**                                                                                  |       | 375.7                                      |       | 123.0 |   | (281.0 | ) |
| (Loss) income  from discontinued operations (including loss on disposal of $280.1 in  2006 and $36.4 in 2005), net of tax |       | (198.0                                     | )          | 25.2 |   | 93.3 |   |
| **Income  (loss) before extraordinary gain and accounting changes**                                                            |       | 177.7                                      |       | 148.2 |   | (187.7 | ) |
| Extraordinary  gain on the acquisition of a business, net of tax of nil                                                        |       | 55.9                                       |       | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax of $3.3                                                      |       | —                                     |       | (27.5 | ) | — |   |
| **Net  income (loss)**                                                                                                         |       | 233.6                                      |       | 120.7 |   | (187.7 | ) |
| Other  comprehensive income (loss)                                                                                             |       | 182.8                                      |       | (222.3 | ) | 69.9 |   |
| **Comprehensive  income (loss)**                                                                                               |       | $                                          | 416.4      |   | $ | (101.6 | ) | $ | (117.8 | ) |

 

See accompanying notes to consolidated financial statements

F-9

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF MEMBER’S EQUITY(Dollars in Millions)**

| ** **                                                      | ** ** | **Members’ equity** | ** ** | **Accumulated ** | ** ** | **Accumulated other   comprehensive (loss) ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------|------------|-----------------------|------------|-------------------------------------------------------------------|------------|------------|------------|
| ** **                                                      | ** ** | **Units**                     | ** ** | **Amount**            | ** ** | **deficit**                                                       | ** ** | **income** | ** ** | **Total** | ** ** |
| Balance,  January 1, 2004                                  |       | 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                 |       | 1,728                         |       | 1,269.9               |       |                                                              | —     |       |       |   | — |   |   | 1,269.9 |   |
| Balance,  December 31, 2005                                |       | 2,728                         |       | 2,794.0               |       |                                                              | (1,384.0   | )          |       |   | (78.3 | ) |   | 1,331.7 |   |
| Net income                                                      |       | —                        |       | —                |       |                                                              | 233.6      |       |       |   | — |   |   | 233.6 |   |
| Contribution from  parent, net of distributions                 |       | —                        |       | 17.8                  |       |                                                              | —     |       |       |   | — |   |   | 17.8 |   |
| Cumulative effect  of adoption of SFAS No. 158, net of tax |       | —                        |       | —                |       |                                                              | —     |       |       |   | (232.8 | ) |   | (232.8 | ) |
| Other  comprehensive income                                     |       | —                        |       | —                |       |                                                              | —     |       |       |   | 182.8 |   |   | 182.8 |   |
| Balance,  December 31, 2006                                |       | 2,728                         |       | $                     | 2,811.8    |                                                              |       | $          | (1,150.4   | ) |   |   | $ | (128.3 | ) |   | $ | 1,533.1 |   |

 

See accompanying notes to consolidated financial statements

F-10

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in Millions)**

| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating Activities:**                                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                                         |       | $                                          | 233.6      |   | $ | 120.7 |   | $ | (187.7 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Extraordinary gain  on the acquisition of a business, net of tax                          |       | (55.9                                      | )          | — |   | — |   |
| Cumulative effect  of changes in accounting principle, net of tax                         |       | —                                     |       | 27.5 |   | — |   |
| Equity in income  of unconsolidated affiliates                                            |       | (3.6                                       | )          | (8.2 | ) | (4.0 | ) |
| Depreciation and  amortization                                                            |       | 439.1                                      |       | 473.9 |   | 499.0 |   |
| Provision for  losses on accounts receivable                                              |       | 6.4                                        |       | 4.2 |   | 0.7 |   |
| Loss on disposal  of businesses/assets, net                                               |       | 187.7                                      |       | 35.4 |   | 2.4 |   |
| Loss on early  extinguishment of debt                                                     |       | 39.0                                       |       | 167.3 |   | 25.6 |   |
| Noncash interest  expense                                                                 |       | 8.8                                        |       | 47.2 |   | 145.5 |   |
| Noncash  restructuring, impairment and plant closing costs                                |       | 18.1                                       |       | 58.6 |   | 138.0 |   |
| Deferred income  taxes                                                                    |       | (63.2                                      | )          | 16.2 |   | (58.3 | ) |
| Net unrealized  (gain) loss on foreign currency transactions                              |       | (42.4                                      | )          | 15.3 |   | (111.7 | ) |
| Noncash  compensation                                                                     |       | 18.4                                       |       | 9.5 |   | — |   |
| Minority interest  in subsidiaries’ income                                           |       | 2.9                                        |       | 1.7 |   | 7.2 |   |
| Other, net                                                                                |       | (1.1                                       | )          | 0.7 |   | (1.8 | ) |
| Changes in operating  assets and liabilities:                                             |       |                                       |       |   |   |   |   |
| Accounts and notes receivable                                                             |       | 229.3                                      |       | 65.2 |   | (316.0 | ) |
| Inventories, net                                                                          |       | (58.8                                      | )          | (96.9 | ) | (155.3 | ) |
| Prepaid expenses                                                                          |       | (17.7                                      | )          | 44.4 |   | 30.2 |   |
| Other current assets                                                                      |       | (50.7                                      | )          | (37.6 | ) | 88.4 |   |
| Other noncurrent assets                                                                   |       | 235.3                                      |       | (115.7 | ) | (36.7 | ) |
| Accounts payable                                                                          |       | 21.5                                       |       | 72.3 |   | 19.4 |   |
| Accrued liabilities                                                                       |       | 21.0                                       |       | (34.1 | ) | 89.6 |   |
| Other noncurrent liabilities                                                              |       | (284.2                                     | )          | 113.4 |   | 6.6 |   |
| **Net cash  provided by operating activities**                                            |       | 883.5                                      |       | 981.0 |   | 181.1 |   |
| **Investing  Activities:**                                                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                     |       | (549.9                                     | )          | (338.7 | ) | (226.6 | ) |
| Acquisition of  business, net of cash acquired                                            |       | (176.9                                     | )          | — |   | — |   |
| Proceeds from sale  of businesses/assets                                                  |       | 894.5                                      |       | 23.7 |   | 5.2 |   |
| Investment in  unconsolidated affiliates, net                                             |       | (11.9                                      | )          | (1.8 | ) | (5.8 | ) |
| Change in  restricted cash                                                                |       | —                                     |       | 8.9 |   | 1.6 |   |
| Other, net                                                                                |       | 3.4                                        |       | (0.9 | ) | 3.1 |   |
| **Net cash  provided by (used in) investing activities**                                  |       | 159.2                                      |       | (308.8 | ) | (222.5 | ) |
| **Financing  Activities:**                                                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (repayments)  borrowings under revolving loan facilities                              |       | (6.3                                       | )          | (118.7 | ) | 113.8 |   |
| Net repayments of  overdraft facility                                                     |       | (6.8                                       | )          | — |   | (10.6 | ) |
| Repayments of  long-term debt                                                             |       | (1,784.0                                   | )          | (3,461.1 | ) | (2,822.8 | ) |
| Proceeds from  long-term debt                                                             |       | 872.4                                      |       | 2,235.0 |   | 2,869.8 |   |
| Net borrowings  (repayments) on notes payable                                             |       | 13.9                                       |       | (31.6 | ) | (19.6 | ) |
| Debt issuance  costs paid                                                                 |       | (12.8                                      | )          | (17.3 | ) | (35.6 | ) |
| Call premiums  related to early extinguishment of debt                                    |       | (30.4                                      | )          | (104.7 | ) | (17.0 | ) |
| Dividend to parent  for acquisition of minority interest                                  |       | —                                     |       | (124.8 | ) | — |   |
| Contribution from  parent                                                                 |       | —                                     |       | 837.6 |   | — |   |
| Contribution from  minority shareholder                                                   |       | 6.2                                        |       | 3.6 |   | — |   |
| Other, net                                                                                |       | 4.0                                        |       | 1.1 |   | 5.4 |   |
| **Net cash  provided by (used in) provided by financing activities**                      |       | (943.8                                     | )          | (780.9 | ) | 83.4 |   |
| Effect of exchange rate changes on cash                                                   |       | 14.6                                       |       | (2.3 | ) | 11.1 |   |
| Increase (decrease) in cash and cash equivalents                                          |       | 113.5                                      |       | (111.0 | ) | 53.1 |   |
| Cash and cash  equivalents at beginning of period                                         |       | 132.5                                      |       | 243.5 |   | 190.4 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                          | 246.0      |   | $ | 132.5 |   | $ | 243.5 |   |
| **Supplemental cash flow information:**                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid for interest                                                                    |       | $                                          | 397.4      |   | $ | 413.6 |   | $ | 375.0 |   |
| Cash paid for  income taxes                                                               |       | 40.3                                       |       | 31.5 |   | 29.2 |   |

 

See accompanying notes to consolidated financial statements

F-11

----

**HUNTSMANCORPORATION AND SUBSIDIARIESHUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 GENERAL

**CERTAINDEFINITIONS**

For convenience in this report,the terms “Company,” “our,” “us,” or “we” may be used to refer to HuntsmanCorporation and, unless the context otherwise requires, its subsidiaries andpredecessors. Any references to our “Company,” “we,” “us” or “our” as of a dateprior to October 19, 2004 (the date of our formation) are to HuntsmanHoldings, LLC and its subsidiaries (including their respective predecessors).In this report, “Huntsman International Holdings” refers to HuntsmanInternational Holdings LLC (our 100% owned subsidiary that merged into HuntsmanInternational LLC on August 16, 2005) and, unless the context otherwiserequires, its subsidiaries; “Huntsman International” refers to HuntsmanInternational LLC (our 100% owned subsidiary) and, unless the context otherwiserequires, its subsidiaries; “Huntsman Advanced Materials” refers to HuntsmanAdvanced Materials Holdings LLC (our 100% owned indirect subsidiary, themembership interests of which we contributed to Huntsman International on December 20,2005) and, unless the context otherwise requires, its subsidiaries; “HuntsmanLLC” refers to Huntsman LLC (our 100% owned subsidiary that merged intoHuntsman International on August 16, 2005); “HPS” refers to HuntsmanPolyurethanes Shanghai Ltd. (our consolidated splitting joint venture withShanghai Chlor-Alkali Chemical Company, Ltd); “SLIC” refers to ShanghaiLiengheng Isocyanate Investment BV (our unconsolidated manufacturing jointventure with BASF AG and three Chinese chemical companies); “HMP” refers to HMPEquity Holdings Corporation (our 100% owned subsidiary that merged into us on March 17,2005); “HMP Equity Trust” refers to HMP Equity Trust (the holder ofapproximately 59% of our common stock); and “MatlinPatterson” refers toMatlinPatterson Global Opportunities Partners L.P., MatlinPatterson GlobalOpportunities Partners (Bermuda) L.P. and MatlinPatterson Global OpportunitiesPartners B, L.P. (collectively, an owner of HMP Equity Trust).

Each capitalized term usedwithout definition in these notes to consolidated financial statements has themeaning specified in the Annual Report on Form 10-K to which thesenotes to consolidated financial statements are included.

**DESCRIPTIONOF BUSINESS**

We are among the world’slargest global manufacturers of differentiated chemical products; we alsomanufacture inorganic and commodity chemical products. Our products comprise abroad range of chemicals and formulations, which we market in more than 100countries to a diversified group of consumer and industrial customers. Ourproducts are used in a wide range of applications, including those in theadhesives, aerospace, automotive, construction products, durable andnon-durable consumer products, electronics, medical, packaging, paints andcoatings, power generation, refining, synthetic fiber, textile chemicals anddye industries. We are a leading global producer in many of our key productlines, including MDI, amines, surfactants, epoxy-based polymer formulations,textile chemicals, dyes, maleic anhydride and titanium dioxide.

**COMPANY**

We were formed in 2004 to hold, among other things,the equity interests of Huntsman International, Huntsman Advanced Materials andHuntsman LLC. Huntsman International  wasformed in 1999 to 

F-12

----

operate businessesacquired in a transaction among Huntsman International Holdings, HuntsmanSpecialty and ICI.

In February 2005,we completed an initial public offering of common stock and mandatoryconvertible preferred stock. In connection with our initial public offering, wecompleted the Reorganization Transaction, in which our predecessor, HuntsmanHoldings, LLC, became our wholly owned subsidiary and the existing beneficialholders of the common and preferred members’ interests of Huntsman Holdings,LLC received shares of our common stock in exchange for their interests. Alsoduring 2005, we completed a series of transactions designed to simplify ourconsolidated group’s financing and public reporting structure, to reduce ourcost of financing and to facilitate other organizational efficiencies,including the following:

·       On August 16, 2005, wecompleted the Affiliate Mergers, pursuant to which Huntsman LLC and HuntsmanInternational Holdings were merged into Huntsman International. As a result ofthe Huntsman LLC Merger, Huntsman International succeeded to the assets, rightsand obligations of Huntsman LLC. Huntsman International entered into supplementalindentures under which it assumed the obligations of Huntsman LLC under itsoutstanding debt securities. The Huntsman International subsidiaries thatguarantee Huntsman International’s outstanding debt securities now provideguarantees with respect to these securities, and all of Huntsman LLC’ssubsidiaries that guaranteed its debt securities continue to provide guaranteeswith respect to these debt securities. In addition, Huntsman LLC’s guarantorsubsidiaries executed supplemental indentures to guarantee all of HuntsmanInternational’s outstanding debt securities.

·       In December 2005, wecompleted the Huntsman Advanced Materials Minority Interest Transaction,pursuant to which

·        weagreed to pay $125 million to affiliates of SISU Capital Limited and otherthird parties to acquire the 9.7% of the equity of Huntsman Advanced Materialsthat we did not already own;

·        weamended our senior secured credit facilities and increased our existing DollarTerm Loan by $350 million;

·        weused proceeds from the increased Dollar Term Loan, together with approximately$74 million of cash on hand, to acquire the equity interest in HuntsmanAdvanced Materials, to redeem Huntsman Advanced Materials’ $250 million ofoutstanding 11% senior secured notes due 2010, to pay $35.6 million incall premiums plus accrued interest, and to pay other related costs; and

·        wethen contributed our 100% ownership interest in Huntsman Advanced Materials toHuntsman International.

As a result of these transactions, we now operate all ofour businesses through Huntsman International and substantially all of our debtobligations are obligations of Huntsman International and/or its subsidiaries.

On June 27, 2006, we sold the assets comprisingour U.S. butadiene and MTBE business operated by our Base Chemicals segment. OnJune 30, 2006, we completed the Textile Effects Acquisition pursuant towhich we acquired Ciba’s global textile effects business. On December 29,2006, we sold our European base chemicals and polymers business to SABIC. Formore information concerning these transactions, see “Note 3. DiscontinuedOperations” and “Note 4. Business Dispositions and Combination.”

HMP Equity Trust holdsapproximately 59% of our common stock. Jon M. Huntsman and Peter R. Huntsmancontrol the voting of the shares of our common stock held by HMP Equity Trust.However, the shares of our common stock held by HMP Equity Trust will not bevoted in favor of certain fundamental corporate actions without the consent ofMatlinPatterson, through its representatives David J. Matlin or 

F-13

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ChristopherR. Pechock, and Jon M. Huntsman and Peter R. Huntsman have agreed to cause allof the shares of our common stock held by HMP Equity Trust to be voted in favorof the election to our board of directors of two nominees designated byMatlinPatterson.

**ACCOUNTINGFOR CERTAIN TRANSACTIONS**

The Reorganization Transaction was accounted for as anexchange of shares between entities under common control similar to the poolingmethod. Our consolidated financial statements presented herein reflect theresults of operations and cash flows as if Huntsman Holdings, LLC and ourCompany were combined for all periods presented.

The Affiliate Mergers andthe contribution of our ownership interest in Huntsman Advanced Materials toHuntsman International were accounted for as an exchange of shares betweenentities under common control similar to the pooling method. HuntsmanInternational’s consolidated financial statements presented herein reflect theresults of operations and cash flows as if Huntsman International Holdings,Huntsman LLC, Huntsman Advanced Materials and Huntsman International werecombined for all periods presented.

**HUNTSMANCORPORATION AND HUNTSMAN INTERNATIONAL FINANCIAL STATEMENTS**

Except whereotherwise indicated, these notes relate to the consolidated financialstatements for each of our Company and Huntsman International. The differencesbetween our financial statements and Huntsman International’s financialstatements relate primarily to the following:

·       purchase accountingrecorded at our Company for the step-acquisition of Huntsman InternationalHoldings in May 2003;

·       HMP debt that was reflectedat our Company and that was repaid in 2005; and

·       the different capitalstructures.

**2.**                 SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

**PRINCIPLESOF CONSOLIDATION**

Our consolidated financialstatements include the accounts of our wholly-owned and majority-ownedsubsidiaries and any variable interest entities for which we are the primarybeneficiary. All intercompany accounts and transactions have been eliminated,except for intercompany sales between continuing and discontinued operations.

**USEOF ESTIMATES**

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

**RECLASSIFICATIONS**

Certain amounts in theconsolidated financial statements for prior periods have been reclassified toconform with the current presentation.

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**REVENUERECOGNITION**

We generate substantiallyall of our revenues through sales in the open market and long-term supplyagreements. We recognize revenue when it is realized or realizable and earned.Revenue for product sales is recognized when a sales arrangement exists, riskand title to the product transfer to the customer, collectibility is reasonablyassured and pricing is fixed or determinable. The transfer of risk and title tothe product to the customer usually occurs at the time shipment is made.

Revenue arrangements thatcontain multiple deliverables, which relate primarily to licensing oftechnology, are evaluated in accordance with EITF Issue No. 00-21 *Revenue Arrangements with Multiple Deliverables* to determinewhether the arrangements should be divided into separate units of accountingand how the arrangement consideration should be measured and allocated amongthe separate units of accounting.

**COST OF GOODS SOLD**

We classify the costs ofmanufacturing and distributing our products as cost of goods sold.Manufacturing costs include variable costs, primarily raw materials and energy,and fixed expenses directly associated with production. Manufacturing costsalso include, among other things, plant site operating costs and overhead,production planning and logistics costs, repair and maintenance costs, plantsite purchasing costs, engineering and technical support costs, anddepreciation and amortization expense. Distribution, freight and warehousingcosts are also included in cost of goods sold.

**CASH AND CASH EQUIVALENTS**

We consider cash inchecking accounts and cash in short-term highly liquid investments with anoriginal maturity of three months or less to be cash and cash equivalents. Cashflows from discontinued operations are not presented separately in theaccompanying consolidated statements of cash flows.

**SECURITIZATION OF ACCOUNTSRECEIVABLE**

In connection with our A/RSecuritization Program, we securitize certain trade receivables. The A/RSecuritization Program is structured so that we grant a participating undividedinterest in certain of our trade receivables to a qualified off-balance sheetentity, which is recognized as a sale of accounts receivable. We retain theservicing rights and a retained interest in the securitized receivables. Lossesare recorded on the sale and are based on the carrying value of the receivablesas allocated between the receivables sold and the retained interests and theirrelative fair value at the date of the transfer. Retained interests aresubsequently carried at fair value which is estimated based on the presentvalue of expected cash flows, calculated using management’s best estimates ofkey assumptions including credit losses and discount rates commensurate withthe risks involved. For more information, see “Note 16. Securitization ofAccounts Receivable.”

**INVENTORIES**

Inventories are stated atthe lower of cost or market, with cost determined using last-in first-out,first-in first-out, and average costs methods for different components ofinventory.

**PROPERTY, PLANT AND EQUIPMENT**

Property,plant and equipment is stated at cost less accumulated depreciation.Depreciation is computed using the straight-line method over the estimateduseful 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   |

 

F-15

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Interest expense capitalized as part of plant andequipment was $16.4 million, $9.3 million and $6.7 million forthe years ended December 31, 2006, 2005 and 2004, respectively.

Periodic maintenance andrepairs applicable to major units of manufacturing facilities (a “turnaround”)are accounted for on the deferral basis by capitalizing the costs of theturnaround and amortizing the costs over the estimated period until the nextturnaround. Normal maintenance and repairs of plant and equipment are chargedto expense as incurred. Renewals, betterments and major repairs that materiallyextend the useful life of the assets are capitalized, and the assets replaced,if any, are retired.

**INVESTMENT IN UNCONSOLIDATEDAFFILIATES**

Investments in companiesin which we exercise significant management influence, but do not control, areaccounted for using the equity method. Investments in companies in which we donot exercise significant influence are accounted for using the cost method.

**INTANGIBLEASSETS AND GOODWILL**

Intangibleassets are stated at cost (fair value at the time of acquisition) and areamortized using the straight-line method over the estimated useful lives or thelife 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 costsin excess of fair values assigned to the underlying net assets of acquiredbusinesses. Goodwill is not subject to any method of amortization, but istested for impairment annually (at the beginning of the third quarter) and whenevents and circumstances indicate that an impairment may have occurred. Whenthe fair value is less than the related carrying value of the related reportingunit, we are required to reduce the amount of goodwill through a charge toearnings. Fair value is estimated based on projected discounted cash flows.

**OTHER NON-CURRENTASSETS**

Other non-current assetsconsist primarily of spare parts, deferred debt issuance costs, the overfundedportion related to defined benefit plans for employees and capitalizedturnaround costs. Debt issuance costs are amortized using the interest methodover the term of the related debt.

**CARRYINGVALUE OF LONG-LIVED ASSETS**

We review long-livedassets and all amortizable intangible assets, other than goodwill, forimpairment whenever events or changes in circumstances indicate that thecarrying amount of these assets may not be recoverable. Recoverability is basedupon current and anticipated undiscounted cash flows, and we recognize animpairment when such estimated cash flows are less than the carrying value ofthe asset. Measurement of the amount of impairment, if any, is based upon thedifference between carrying value and fair value. Fair value is generallyestimated by discounting estimated future cash flows using a discount ratecommensurate with the risks involved. See “Note 3. Discontinued Operations” and“Note 11. Restructuring, Impairment and Plant Closing Costs.”

**FINANCIALINSTRUMENTS**

The carrying amountreported in the balance sheet for cash and cash equivalents, accountsreceivable and accounts payable approximates fair value because of theimmediate or short-term maturity of these 

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financialinstruments. The carrying value of the senior secured credit facilities of oursubsidiaries approximates fair value since they bear interest at a variablerate plus an applicable margin. The fair value of the fixed rate and floatingrate notes of our subsidiaries is estimated based on interest rates that arecurrently available to us for issuance of debt with similar terms and remainingmaturities. The fair value of government securities is estimated usingprevailing market prices. See “Note 17. Fair Value of Financial Instruments.”

**INCOME TAXES**

We use the asset and liability method of accountingfor income taxes. Deferred income taxes reflect the net tax effects oftemporary 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 have been established against the entire U.S., and amaterial portion of the non-U.S., deferred tax assets due to an uncertainty ofrealization. Valuation allowances are reviewed each period on a taxjurisdiction by tax jurisdiction basis to analyze whether there is sufficientpositive or negative evidence to support a change in judgment about therealizability of the related deferred tax assets.

Subsequent to acquiring Huntsman Advanced Materials inJune 2003 and through December 2005, substantially all non-U.S.operations of Huntsman Advanced Materials were treated as our branches for U.S.income tax purposes and were, therefore, subject to both U.S. and non-U.S.income tax. Effective January 1, 2006, Huntsman Advanced Materials foreignoperations are no longer being treated as our branches and are not subject toU.S. taxation on their earnings until those earnings are repatriated to theU.S., similar to our other non-U.S. entities.

For non-U.S. entities thatare not treated as branches for U.S. tax purposes, we do not provide for incometaxes on the undistributed earnings of these subsidiaries as earnings arereinvested and, in the opinion of management, will continue to be reinvestedindefinitely.

**DERIVATIVESAND HEDGING ACTIVITIES**

All derivatives, whetherdesignated in hedging relationships or not, are recorded on the balance sheetat fair value. If the derivative is designated as a fair value hedge, thechanges in the fair value of the derivative and the hedged items are recognizedin earnings. If the derivative is designated as a cash flow hedge, changes inthe fair value of the derivative are recorded in other comprehensive income, tothe extent effective, and will be recognized in the income statement when thehedged item affects earnings. Changes in the fair value of the hedge in the netinvestment of certain international operations are recorded in othercomprehensive income, to the extent effective. We perform effectivenessassessments in order to use hedge accounting at each reporting period. For aderivative that does not qualify or has not been designated as a hedge, changesin fair value are recognized in earnings.

**ENVIRONMENTALEXPENDITURES**

Environmental relatedrestoration and remediation costs are recorded as liabilities when siterestoration and environmental remediation and clean-up obligations are eitherknown or considered probable and the related costs can be reasonably estimated.Other environmental expenditures that are principally maintenance orpreventative in nature are recorded when incurred are expensed or capitalizedas appropriate. See “Note 21. Environmental, Health and Safety Matters.”

**ASSET RETIREMENT OBLIGATIONS**

We accrue for assetretirement obligations, which consist primarily of landfill closure costs andasbestos abatement costs, in the period in which the obligations are incurred.Asset retirement obligations 

F-17

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areaccrued at estimated fair value. When the liability is initially recorded, wecapitalize the cost by increasing the carrying amount of the related long-livedasset. Over time, the liability is accreted to its settlement value and thecapitalized cost is depreciated over the useful life of the related asset. Uponsettlement of the liability, we will recognize a gain or loss for anydifference between the settlement amount and the liability recorded. See “Note12. Asset Retirement Obligations.”

**PENSIONS  ANDPOSTRETIREMENT BENEFITS**

In 2005, we changed themeasurement date of our pension and postretirement benefit obligations from December 31to November 30. We believe the one-month change of the measurement dateimproves internal control procedures by allowing more time to review thecompleteness and accuracy of the actuarial benefit information. The effect ofthe change in measurement date on the respective obligations and assets of theplan resulted in a cumulative effect of a change in accounting principlecredit, net of tax of $1.9 million, of $4.0 million ($0.02 decreasein loss per share) for us and a cumulative effect of a change in accountingprinciple credit, net of tax of $1.5 million, of $4.2 million forHuntsman International recorded as of January 1, 2005. See “Note 18.Employee Benefit Plans.”

**RESEARCH  AND  DEVELOPMENT**

Research and developmentcosts are expensed as incurred.

**FOREIGN CURRENCY TRANSLATION**

The accounts of our operating subsidiaries outside ofthe U.S., except for those operating in highly inflationary economicenvironments, consider local currency to be the functional currency.Accordingly, assets and liabilities are translated at rates prevailing at thebalance sheet date. Revenues, expenses, gains and losses are translated at aweighted average rate for the period. Cumulative translation adjustments arerecorded to stockholders’ equity as a component of accumulated othercomprehensive income (loss).

Subsidiaries that operate in economic environmentsthat are highly inflationary consider the U.S. dollar to be the functional currencyand include gains and losses from remeasurement to the U.S. dollar from thelocal currency in the statement of operations. The accounts of certain financesubsidiaries outside of the U.S. also consider the U.S. dollar to be thefunctional currency.

Transaction gains andlosses are recorded in the statement of operations and were a net loss of$0.5 million, a net loss of $29.1 million and a net gain of $116.1 millionfor the years ended December 31, 2006, 2005 and 2004, respectively.

**STOCK-BASED COMPENSATION**

We adopted SFAS No. 123R,*Share-Based Payment,* on January 1,2005. SFAS No. 123R requires entities to measure the cost of employeeservices received in exchange for an award of equity instruments based on thegrant-date fair value of the award. That cost will be recognized over theperiod during which the employee is required to provide services in exchangefor the award. We have applied this standard prospectively to share-basedawards. See “Note 24. Stock-Based Compensation Plan.” We did not haveshare-based awards prior to the awards issued in connection with our initialpublic offering in 2005.

**NET INCOME (LOSS)PER SHARE**

Basic income (loss) per share excludes dilution and iscomputed by dividing net income (loss) available to common stockholders by theweighted average number of shares outstanding during the period. Diluted income(loss) per share reflects potential dilution and is computed by dividing net income(loss) available to common stockholders by the weighted average number ofshares outstanding during the 

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period increased by thenumber of additional shares that would have been outstanding as dilutivesecurities.

In connection with our Reorganization Transaction andinitial public offering of common stock on February 16, 2005, we issued 203,604,545shares of common stock. On March 14, 2005, we issued 16,846,939 shares ofcommon stock in exchange for the HMP Warrants. Also on February 16, 2005,we issued 5,750,000 shares of 5% mandatory convertible preferred stock. Thispreferred stock is convertible into between 10,162,550 shares and 12,499,925shares of our common stock, subject to anti-dilution adjustments, depending onthe average market price of our common stock over the 20 trading-day periodending on the third trading day prior to conversion. All share and per sharedata reflected in these consolidated financial statements have beenretroactively restated to give effect to the shares issued in connection withthe Reorganization Transaction and our initial public offering of common stockon February 16, 2005 and the shares issued in connection with the exchangeof the HMP Warrants on March 14, 2005, as if such shares had been issuedat the beginning of the period. As a result of the change in our corporate structure in connection with theReorganization Transaction and our initial public offering, per share resultsfor 2006 and 2005 are not comparable with those of 2004.

Basicand diluted income (loss) per share is calculated as follows (in millions,except share amounts):

| ** **                                                                                                    | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Numerator:**                                                                                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic and diluted income (loss)  from continuing operations available to common stockholders (numerator):** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss) from continuing operations                                                                      |       | $                                          | 393.6      |   | $ | (30.6 | ) | $ | (320.0 | ) |
| Preferred stock  dividends                                                                                    |       | —                                     |       | (43.1 | ) | (87.7 | ) |
| Income (loss)  from continuing operations available to common stockholders                                    |       | $                                          | 393.6      |   | $ | (73.7 | ) | $ | (407.7 | ) |
| **Basic and diluted net income  (loss) available to common stockholders (numerator):**                   | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                                                             |       | $                                          | 229.8      |   | $ | (34.6 | ) | $ | (227.7 | ) |
| Preferred stock  dividends                                                                                    |       | —                                     |       | (43.1 | ) | (87.7 | ) |
| Net income (loss)  available to common stockholders                                                           |       | $                                          | 229.8      |   | $ | (77.7 | ) | $ | (315.4 | ) |
| **Shares (denominator):**                                                                                     | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted average  shares outstanding                                                                          |       | 220,618,478                                |       | 220,451,484 |   | 220,451,484 |   |
| **Dilutive securities:**                                                                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stock-based  awards                                                                                           |       | 23,970                                     |       | — |   | — |   |
| Preferred stock  conversion                                                                                   |       | 12,499,925                                 |       | — |   | — |   |
| Total dilutive shares  outstanding assuming conversion                                                        |       | 233,142,373                                |       | 220,451,484 |   | 220,451,484 |   |

 

Additional stock-based awards of 4,320,784 and2,773,093 weighted average equivalent shares of stock were outstanding duringthe years ended December 31, 2006 and 2005, respectively. In addition, thepreferred stock would have converted into 12,499,925 shares of common stock forthe year ended December 31, 2005. However, these stock-based awards andpreferred stock conversion were not included in the computation of dilutedearnings per share because the effect would be anti-dilutive.

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**RECENTLY ISSUED ACCOUNTINGPRONOUNCEMENTS**

We adopted SFAS No. 151,*Inventory Costs—an amendment of ARB No. 43,*on January 1, 2006. SFAS No. 151 requires abnormal amounts ofidle facility expense, freight costs, handling costs and wasted materialexpense to be recognized as current-period charges. It also requires thatallocation of fixed production overhead to the costs of conversion be based onthe normal capacity of the production facilities. The adoption of SFAS No. 151did not have an impact on our consolidated financial statements.

We adopted SFAS No. 154,*Accounting Changes and Error Corrections—areplacement of APB Opinion No. 20 and FASB Statement No. 3,*on January 1, 2006. SFAS No. 154 requires retrospective applicationto prior periods’ financial statements of changes in accounting principle,unless it is impracticable to determine either the period-specific effects orthe cumulative effect of the change or unless specific transition provisionsare proscribed in the accounting pronouncements. SFAS No. 154 does notchange the accounting guidance for reporting a correction of an error inpreviously issued financial statements or a change in accounting estimate. Wewill apply this standard prospectively.

In September 2005,the EITF reached a consensus on Issue No. 04-13,*Accounting for Purchase and Sales of Inventory withthe Same Counterparty,* which requires companies to recognize anexchange of finished goods for raw materials or work-in-process within the sameline of business at fair value. All other exchanges of inventory should bereflected at the carrying amounts. This pronouncement is effective fortransactions entered into or modified after March 31, 2006. The adoptionof EITF Issue No. 04-13 did not have a significant impact on ourconsolidated financial statements.

In June 2006, theEITF reached a consensus on Issue No. 06-2,*Accounting for Sabbatical Leave and Other SimilarBenefits Pursuant to FASB Statement No. 43,*  that concludes that an employee’s right to acompensated absence under a sabbatical or other similar benefit arrangementaccumulates; therefore, such benefits should be accrued over the requiredservice period. This pronouncement is effective for fiscal years beginningafter December 15, 2006. The adoption of this pronouncement is notexpected to have a significant impact on our consolidated financial statements.

In June 2006, theFASB issued FIN 48, *Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement No. 109.*FIN48 clarifies the accounting for uncertainty in income taxes recognized inaccordance with SFAS No. 109 by prescribing a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Thisinterpretation is effective for fiscal years beginning after December 15,2006. We expect the cumulative effect of changes in accounting principle foradoption of FIN 48 in the first quarter 2007 to be immaterial.

In June 2006, theEITF reached a consensus on Issue 06-3, *How TaxesCollected from Customers and Remitted to Governmental Authorities Should BePresented in the Income Statement (That Is, Gross versus Net Presentation)*,that concludes that the presentation of taxes within the Issue’s scope is anaccounting policy decision that should be disclosed. If the taxes are reportedon a gross basis, companies are required to disclose the amounts of those taxesif such amounts are deemed significant. This pronouncement is effective forinterim and annual reporting periods beginning after December 15, 2006. Wecurrently present taxes within the scope of this Issue on a net basis.

In September 2006,the FASB issued SFAS No. 157,*FairValue Measurements*. SFAS No. 157 defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements. This statement is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years. We are reviewing SFAS No. 157 todetermine the statement’s impact on our consolidated financial statements.

In September 2006,the FASB issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements* No. 87, 88, 106, and 132(R). SFAS 

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No. 158requires us to recognize the overfunded or underfunded status of our definedbenefit postretirement plan(s) (other than multiemployer plans) as anasset or liability in our statement of financial position and to recognizechanges in the funded status in the year in which the changes occur throughcomprehensive income. In addition, effective for fiscal years ending after December 15,2008, SFAS No. 158 requires a company to measure the funded status of aplan as of the date of its year-end statement of financial position. As of theend of 2008, we will be required to measure the funded status of our plans asof December 31. For further information regarding the impact of adoptingthis accounting standard, see “Note 18. Employee Benefit Plans.”

In September 2006,the Securities and Exchange Commission released Staff Accounting Bulletin No. 108(“SAB 108”) which provides guidance on how the effects of the carryover orreversal of prior year misstatements should be considered in quantifying acurrent year misstatement. SAB 108 requires entities to quantify the effects ofunadjusted errors using both a balance sheet and an income statement approach.Entities are required to evaluate whether either approach results in aquantifying misstatement that is material. We adopted SAB 108 effective 2006.The adoption of SAB 108 did not have an impact on our consolidated financialstatements.

In September 2006,the FASB issued FAS Staff Position (“FSP”) No. AUG AIR-1,*Accounting for Planned Major Maintenance Activities*. ThisFSP prohibits the use of the accrue-in-advance method of accounting for plannedmajor maintenance activities and is effective for fiscal years beginning after December 15,2006*.*We do not expect the adoption of thisFSP to have a significant impact on our consolidated financial statements.

In December 2006, theFASB issued FSP EITF 00-19-2, *Accountingfor Registration Payment Arrangements*. This FSP requires that the contingent obligation to make futurepayments or otherwise transfer consideration under a registration paymentarrangement should be separately recognized and measured in accordance withSFAS No. 5, *Accounting for Contingencies*.This FSP is effective immediately forregistration payment arrangements that are entered into or modified subsequentto the FSP issuance date. For registration statements that were entered intoprior to the issuance date, this guidance is effective for financial statementsissued for fiscal years beginning after December 15, 2006, and interimperiods within that fiscal year. On November 13, 2006, we completedan offering of subordinated notes which contains a registration paymentarrangement. See “Note 14. Debt.” We are evaluating the impact of this FSP asit relates to our November 13, 2006 note offering but do not believe theadoption of this FSP will have a significant impact on our consolidatedfinancial statements.

In February 2007, the FASBissued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities—Including an amendment of FASB StatementNo. 115.* SFAS No. 159 permits companies to choose tomeasure many financial instruments and certain other items at fair value inorder to mitigate volatility in reported earnings caused by measuring relatedassets and liabilities differently without having to apply complex hedgeaccounting provisions. SFAS No. 159 is effective as of the beginning ofthe first fiscal year that begins after November 15, 2007. We areevaluating SFAS No. 159 to determine the statement’s impact on ourconsolidated financial statements.

**3.**                 DISCONTINUEDOPERATIONS

**EUROPEAN BASE CHEMICALS AND POLYMERS BUSINESS**

On December 29, 2006, we completed the U.K.Petrochemicals Disposition in which we sold all of the outstanding equityinterests of Huntsman Petrochemicals (UK) Limited for an aggregate purchaseprice of $685 million in cash plus the assumption by the purchaser ofapproximately $126 million in unfunded pension liabilities. The final salesprice is subject to agreement by SABIC on adjustments relating to working capital,investment in our LDPE plant currently under construction in Wilton, U.K. andunfunded pension liabilities. As a result of this transaction, SABIC acquiredour European base chemicals and 

F-21

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polymers business. The transaction did not include ourTeesside, U.K.-based Pigments operations or the Wilton, U.K.-based aniline andnitrobenzene operations of our Polyurethanes segment. We used the net proceedsfrom the transaction to legally defease the remaining $250 million outstandingprincipal amount of our 9.875% senior notes due 2009 and to repay $400 millionof the debt under our Senior Credit Facilities.

Theresults of operations of our European base chemicals and polymers business forcurrent and prior periods have been classified as discontinued operations inour financial statements in accordance with SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*. The carrying value of assets and liabilities soldat December 29, 2006 was as follows (dollars in millions):

| ** **                          | ** ** | **Huntsman  Corporation** | ** ** | **Huntsman  International** | ** ** |
|-------------------------------------|------------|---------------------------|------------|-----------------------------|------------|
| **ASSETS**                          | ** ** |                      | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Accounts and  notes receivable, net |       |                      | $          | 264.1                       | ** ** |   |   | $ | 264.1 | ** ** |   |
| Inventories, net                    |       |                      | 162.4      | ** **                  |       |   | 162.4 | ** ** |   |
| Other current  assets               |       |                      | 12.7       | ** **                  |       |   | 12.7 | ** ** |   |
| Property, plant  and equipment, net |       |                      | 568.1      | ** **                  |       |   | 538.9 | ** ** |   |
| Other noncurrent  assets            |       |                      | 57.9       | ** **                  |       |   | 57.9 | ** ** |   |
| **Total assets**                    |       |                      | 1,065.2    | ** **                  |       |   | 1,036.0 | ** ** |   |
| **LIABILITIES**                     | ** ** |                      | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Accounts payable                    |       |                      | 190.5      | ** **                  |       |   | 190.5 | ** ** |   |
| Other current  liabilities          |       |                      | 120.8      | ** **                  |       |   | 111.5 | ** ** |   |
| Other noncurrent  liabilities       |       |                      | 61.4       | ** **                  |       |   | 61.4 | ** ** |   |
| **Total liabilities**               |       |                      | 372.7      | ** **                  |       |   | 363.4 | ** ** |   |
| **Net  assets**                     |       |                      | $          | 692.5                       | ** ** |   |   | $ | 672.6 | ** ** |   |

 

The following results ofour European base chemicals and polymers business have been presented asdiscontinued operations in the accompanying consolidated statements ofoperations (dollars in millions):

**HuntsmanCorporation:**

| ** **                                              | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                |       | $                                          | 2,524.6    |   | $ | 2,284.7 |   | $ | 1,863.9 |   |
| Costs and  expenses                                     |       | (2,406.6                                   | )          | (2,187.5 | ) | (1,720.9 | ) |
| Loss on disposal                                        |       | (301.8                                     | )          | — |   | — |   |
| Operating (loss)  income                                |       | (183.8                                     | )          | 97.2 |   | 143.0 |   |
| Income tax  expense                                     |       | (34.0                                      | )          | (29.6 | ) | (42.9 | ) |
| (Loss) income from  discontinued operations, net of tax |       | $                                          | (217.8     | ) | $ | 67.6 |   | $ | 100.1 |   |

 

**HuntsmanInternational:**

| ** **                                                   | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                     |       | $                                          | 2,524.6    |   | $ | 2,284.7 |   | $ | 1,863.9 |   |
| Costs and  expenses                                          |       | (2,406.6                                   | )          | (2,186.0 | ) | (1,719.4 | ) |
| Loss on disposal                                             |       | (280.1                                     | )          | — |   | — |   |
| Operating income                                             |       | (162.1                                     | )          | 98.7 |   | 144.5 |   |
| Income tax expense                                           |       | (34.0                                      | )          | (29.6 | ) | (43.4 | ) |
| (Loss) income from  discontinued operations, net of tax |       | $                                          | (196.1     | ) | $ | 69.1 |   | $ | 101.1 |   |

 

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The loss on disposal in 2006 includes the thirdquarter 2006 impairment of long-lived assets of $280.2 million for us and$260.2 million for Huntsman International resulting from the write-down ofthese assets to the selling price, less estimated cost to sell. In connectionwith the U.K. Petrochemical Disposition, we agreed to make payments to SABIC ofapproximately $35 million (£18 million) related to the transfer of pensionplan assets and liabilities. We accrued this liability in connection with thesale transaction and expect to fund the obligation in the first half of 2007. Thefinal sales price of the U.K. Petrochemical Disposition is also subject toadjustments relating to working capital and investment in the LDPE plantcurrently under construction in Wilton U.K. We have accrued a liabilityrelating to these adjustments of $14.5 million and expect to fund thisobligation in the first half of 2007. In addition, we expect to incur a pensionsettlement loss of approximately $16 million during 2007. The Europeanbase chemicals and polymers business is reported in our Base Chemicalsoperating segment in the accompanying consolidated financial statements.

In connection with thesale, we agreed to indemnify the buyer with respect to any losses resultingfrom any environmental liability related to the pre-sale operations of theassets sold. These indemnities have various payment thresholds and time limitsdepending on the site and type of claim. Generally, we are not required to payunder these indemnification obligations until claims against us exceed £0.1million (approximately $0.2 million at December 31, 2006) individually or£1.0 million (approximately $2.0 million at December 31, 2006) in theaggregate. We also agreed to indemnify the buyer with respect to certain taxliabilities. Our maximum exposure generally shall not exceed $600 million inthe aggregate. We believe that there is a remote likelihood that we will berequired to pay any significant amounts under the indemnity provision. As aresult, we have estimated that the fair value of this indemnity at the date ofthe closing of the sale is minimal, and accordingly, no amounts have beenrecorded.

**TDI BUSINESS**

On July 6,2005, we sold our TDI business. The sale involved the transfer of our TDIcustomer list and sales contracts. We discontinued the use of our remaining TDIassets. TDI has been accounted for as a discontinued operation under SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*. Accordingly, the following results of TDI havebeen presented as discontinued operations in the accompanying consolidatedstatements of operations (dollars in millions):

| ** **                                     | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                       |       | $                                          | —     |   | $ | 24.4 |   | $ | 59.4 |   |
| Costs and  expenses                            |       | (1.9                                       | )          | (31.9 | ) | (67.2 | ) |
| Loss on disposal                               |       | —                                     |       | (36.4 | ) | — |   |
| Operating loss                                 |       | (1.9                                       | )          | (43.9 | ) | (7.8 | ) |
| Income tax  (expense) benefit                  |       | —                                     |       | — |   | — |   |
| Loss from discontinued  operations, net of tax |       | $                                          | (1.9       | ) | $ | (43.9 | ) | $ | (7.8 | ) |

 

The loss on disposal of$36.4 million for the year ended December 31, 2005 included an impairmentof long-lived assets of $24.7 million. We expect to incur approximately $0.4million of additional costs related to the TDI transaction through the first quarterof 2007. The TDI business is reported in our Polyurethanes segment.

**4.**                 BUSINESSDISPOSITIONS AND COMBINATIONS

**SALEOF U.S. BUTADIENE AND MTBE BUSINESS**

On June 27, 2006, we sold the assets comprisingour U.S. butadiene and MTBE business operated by our Base Chemicals segment.The total sales price was approximately $274 million, of which $204.0 million 

F-23

----

was paid to us during 2006.The additional $70 million will be payable to us after the restart of our PortArthur, Texas olefins unit that was damaged in a fire (see “Note 22. CasualtyLosses and Insurance Recoveries—Port Arthur, Texas Plant Fire”) and the relatedresumption of crude butadiene supply; provided that we achieve certainintermediate steps toward restarting the plant and the restart occurs within 30months of this sale. In connection with this sale, we recognized a pre-tax gainof $90.3 million, of which $9.5 million was due to the liquidation of LIFOreserves. We expect to recognize an additional pre-tax gain of $70 million uponcompletion of the conditions referenced above.

Thecarrying values of the major assets and liabilities sold at June 27, 2006were as follows (dollars in millions):

| **ASSETS**                          | ** ** |   | ** ** | ** ** |       |
|-------------------------------------|------------|--------|------------|------------|------------|
| Accounts and  notes receivable, net |       |   | $          | 80.3       | ** ** |   |
| Inventories, net                    |       |   | 12.7       | ** ** |       |
| Other current  assets               |       |   | 2.6        | ** ** |       |
| Property, plant  and equipment, net |       |   | 83.2       | ** ** |       |
| Other noncurrent  assets            |       |   | 2.0        | ** ** |       |
| **Total assets**                    |       |   | 180.8      | ** ** |       |
| **LIABILITIES**                     | ** ** |   | ** ** | ** ** |       |
| Accounts payable                    |       |   | 65.7       | ** ** |       |
| Accrued  liabilities                |       |   | 0.1        | ** ** |       |
| Other noncurrent  liabilities       |       |   | 1.3        | ** ** |       |
| **Total liabilities**               |       |   | 67.1       | ** ** |       |
| **Net  assets**                     |       |   | $          | 113.7      | ** ** |   |

 

The results of operations of this business were notclassified as a discontinued operation under applicable accounting rules becauseof the expected continuing cash flows from the MTBE business we continue tooperate in our Polyurethanes segment.

In connection with thesale, we indemnified the buyer with respect to any losses resulting from (i) thebreach of representations and warranties contained in the asset purchaseagreement, (ii) any pre-sale liabilities related to the pre-saleoperations of the assets sold not assumed by the buyer, and (iii) anyenvironmental liability related to the pre-sale operations of the assets sold.We are not required to pay under these indemnification obligations until claimsagainst us exceed $5 million. Upon exceeding this $5 millionthreshold, we generally are obligated to provide indemnification for any lossesin excess of $5 million, up to a limit of $137.5 million. We believethat there is a remote likelihood that we will be required to pay anysignificant amounts under the indemnity provision. As a result, we haveestimated that the fair value of this indemnity at the date of the closing ofthe sale is minimal, and accordingly, no amounts have been recorded.

**TEXTILEEFFECTS ACQUISITION**

On June 30, 2006, we acquired Ciba’s textileeffects business for approximately $172.1 million (CHF 215 million) incash, of which $139.2 million was paid on June 30, 2006 and $32.9 millionwas paid on July 3, 2006. This purchase price is subject to finalizationof post-closing working capital adjustments, which are currently estimated tobe $21.4 million. The operating results of the textile effects business havebeen consolidated with our operating results beginning on July 1, 2006 andare reported with our advanced materials operations as part of our Materialsand Effects segment.

Wehave accounted for the Textile Effects Acquisition using the purchase method inaccordance with SFAS No. 141,*BusinessCombinations.*As such, we analyzed the fair value of tangible andintangible assets 

F-24

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acquired and liabilities assumed, and we determinedthe excess of fair value of net assets acquired over cost. Because the fairvalue of the acquired assets and liabilities assumed exceeded the acquisitionprice, the valuation of the long-lived assets acquired was reduced to zero inaccordance with SFAS No. 141. Accordingly, no basis was assigned toproperty, plant and equipment or any other non-current assets and the remainingexcess was recorded as an extraordinary gain, net of taxes (which were notapplicable because the gain was recorded in purchase accounting). Thepreliminary allocation of the purchase price to the assets and liabilitiesacquired is summarized as follows (dollars in millions):

| Acquisition cost:                                                                                                |   |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Acquisition payment, exclusive of post-closing  working capital adjustment                                       |   |   | $      | 172.1  |   |   |
| Estimated post-closing working capital adjustment                                                                |   |   | (21.4  | )      |   |
| Direct costs of acquisition                                                                                      |   |   | 12.5   |   |   |
| Total acquisition  costs                                                                                         |   |   | 163.2  |   |   |
| Fair value of  assets acquired and liabilities assumed:                                                          |   |   |   |   |   |
| Cash                                                                                                             |   |   | 7.7    |   |   |
| Accounts receivable                                                                                              |   |   | 253.7  |   |   |
| Inventories                                                                                                      |   |   | 233.6  |   |   |
| Prepaid expenses and other current assets                                                                        |   |   | 12.6   |   |   |
| Deferred taxes                                                                                                   |   |   | 2.3    |   |   |
| Accounts payable                                                                                                 |   |   | (95.8  | )      |   |
| Accrued liabilities                                                                                              |   |   | (34.3  | )      |   |
| Short-term debt                                                                                                  |   |   | (5.0   | )      |   |
| Noncurrent liabilities                                                                                           |   |   | (155.7 | )      |   |
| Total fair value  of net assets acquired                                                                         |   |   | 219.1  |   |   |
| Extraordinary gain on  the acquisition of a business—excess of fair value of net assets acquired  over cost |   |   | $      | 55.9   |   |   |

 

This purchase price allocation is preliminary pendingfinalization of the determination of the fair value of assets acquired andliabilities assumed, including final valuation of working capital acquired,finalization of restructuring plans, estimates of asset retirement obligationsand determination of related deferred taxes. We are assessing and formulatingplans to exit certain activities of the textile effects business and expect toinvoluntarily terminate the employment of, or relocate, certain textile effectsemployees. We estimate that we will eliminate up to 650 positions and willcreate approximately 300 new positions, globally. These plans include the exitof various manufacturing, sales and administrative activities throughout thebusiness through 2009. This preliminary purchase price allocation includesrecorded liabilities for workforce reduction, non-cancelable lease terminationcosts, demolition and decommissioning and other restructuring costs of$65.4 million, $3.4 million, $1.5 million and $4.8 million,respectively. We have not yet finalized plans to exit certain businessactivities and may record additional liabilities for workforce reduction, orother restructuring costs as these plans are finalized. We expect that it isreasonably possible that material changes to the allocation could occur. Anychanges to our purchase price allocation will be recorded as an adjustment tothe extraordinary gain in future periods.

F-25

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The following tablesreflect our and Huntsman International’s results of operations on an unauditedpro forma basis as if the Textile Effects Acquisition had been completed at thebeginning of each period presented utilizing historical results for each entity(dollars in millions, except per share amounts):

**Huntsman Corporation**

| ** **                                                     | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                       |       | $                                                        | 11,142.1   |   | $ | 11,699.9 |   | $ | 10,602.8 |   |
| Income (loss)  before extraordinary gain and accounting change |       | 193.1                                                    |       | 44.1 |   | (230.9 | ) |
| Net income (loss)                                              |       | 249.0                                                    |       | 72.3 |   | (175.0 | ) |
| Basic income  (loss) per share                                 |       | 1.13                                                     |       | 0.13 |   | (1.19 | ) |
| Diluted income (loss)  per share                               |       | 1.07                                                     |       | 0.13 |   | (1.19 | ) |
|                                                                |            |                                                          |            |  |  |  |  |  |  |  |

 

**Huntsman International**

| ** **                                                                | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                                  |       | $                                                        | 11,142.1   |   | $ | 11,699.9 |   | $ | 10,602.8 |   |
| Income (loss)  before extraordinary gain and accounting accounting change |       | 196.9                                                    |       | 199.2 |   | (190.9 | ) |
| Net income (loss)                                                         |       | 252.8                                                    |       | 227.6 |   | (135.0 | ) |
|                                                                           |            |                                                          |            |  |  |  |  |  |  |  |

 

Our pro forma net income(loss) and the pro forma net income (loss) for Huntsman International reflectan extraordinary gain on the Textile Effects Acquisition of $55.9 millionfor the years ended December 31, 2006, 2005 and 2004.

**HUNTSMAN ADVANCEDMATERIALS ACQUISITION**

On June 30,2003, we acquired 88.2% of the equity of Huntsman Advanced Materials for totalconsideration of $521.8 million and began reporting Huntsman Advanced Materialsas a consolidated subsidiary. On March 19, 2004, we acquired an additional2.1% equity in Huntsman Advanced Materials for $7.2 million. On December 20,2005, we acquired the remaining 9.7% ownership interest in Huntsman AdvancedMaterials for $124.8 million. Subsequent to December 20, 2005, we own 100%of Huntsman Advanced Materials. We have accounted for this step acquisitionusing the purchase method. The allocation of the December 20, 2005purchase price to the assets and liabilities of Huntsman Advanced Materials issummarized as follows (dollars in millions):

| Cash                                     |   |   | $     | 2.3    |   |   |
|------------------------------------------|--------|--------|-------|--------|--------|--------|
| Property, plant and equipment            |   |   | 10.9  |   |   |
| Goodwill                                 |   |   | 88.0  |   |   |
| Intangible assets                        |   |   | 3.2   |   |   |
| Deferred taxes                           |   |   | (0.3  | )      |   |
| Noncurrent liabilities                   |   |   | (0.6  | )      |   |
| Accumulated other comprehensive income   |   |   | (2.3  | )      |   |
| Total fair value  of net assets acquired |   |   | 101.2 |   |   |
| Reversal of  minority interest           |   |   | 23.6  |   |   |
| Cash paid for  acquisition               |   |   | $     | 124.8  |   |   |

 

F-26

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The acquired intangibleassets represent trademarks and patents which have a weighted-average usefullife of approximately 15 – 30 years. The goodwill, none of which is deductiblefor tax purposes, was assigned to the Materials and Effects segment.

**5.**                 INVENTORIES

Inventories consisted ofthe following (dollars in millions):

| ** **                 | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Raw materials and supplies |       | $                     | 320.1      |   | $ | 374.1 |   |
| Work in progress           |       | 109.8                 |       | 82.1 |   |
| Finished goods             |       | 1,204.3               |       | 972.7 |   |
| **Total**                  |       | 1,634.2               |       | 1,428.9 |   |
| LIFO reserves              |       | (114.1                | )          | (119.7 | ) |
| **Net**                    |       | $                     | 1,520.1    |   | $ | 1,309.2 |   |

 

As of December 31,2006 and 2005, approximately 16% and 15%, respectively, of inventories wererecorded using the LIFO cost method. At December 31, 2006 and 2005, theexcess of current cost over the stated LIFO value was $114.1 million and $119.7million, respectively.

For the years ended December 31,2006, 2005, and 2004, inventory quantities were reduced, resulting in aliquidation of certain LIFO inventory layers carried at costs that were lowerthan the cost of current purchases, the effect of which reduced cost of salesby approximately $0.1 million, $0.8 million and $2.0 million,respectively.

In the normal course ofoperations, we at times exchange raw materials and finished goods with othercompanies for similar inventories for the purpose of reducing transportationcosts. The net open exchange positions are valued at our cost. Net amountsdeducted from or added to inventory under open exchange agreements, whichrepresent the net amounts payable or receivable by us under open exchangeagreements, were approximately $9.7 million receivable and $3.8 million payable(30.9 million and 8.8 million pounds of feedstock and products) at December 31,2006 and 2005, respectively.

**6.**                 PROPERTY,PLANT AND EQUIPMENT

Thecost and accumulated depreciation of property, plant and equipment were asfollows (dollars in millions):

**Huntsman Corporation**

| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Land                          |       | $                     | 121.1      |   | $ | 139.0 |   |
| Buildings                     |       | 571.5                 |       | 516.9 |   |
| Plant and equipment           |       | 5,644.6               |       | 6,254.1 |   |
| Construction in progress      |       | 303.5                 |       | 321.5 |   |
| **Total**                     |       | 6,640.7               | ** ** | 7,231.5 |   |
| Less accumulated depreciation |       | (2,581.3              | )          | (2,588.3 | ) |
| **Net**                       |       | $                     | 4,059.4    | ** ** | $ | 4,643.2 |   |

 

Depreciation expense forthe years ended December 31, 2006, 2005 and 2004 was $430.3 million,$464.5 million and $491.2 million, respectively, of which$45.7 million, $61.1 million and $62.0 million related todiscontinued operations, respectively.

F-27

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**Huntsman International**

| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Land                          |       | $                     | 121.1      |   | $ | 139.0 |   |
| Buildings                     |       | 571.5                 |       | 516.9 |   |
| Plant and equipment           |       | 5,751.9               |       | 6,297.4 |   |
| Construction in progress      |       | 303.5                 |       | 321.5 |   |
| **Total**                     |       | 6,748.0               | ** ** | 7,274.8 |   |
| Less accumulated depreciation |       | (2,918.5              | )          | (2,938.1 | ) |
| **Net**                       |       | $                     | 3,829.5    | ** ** | $ | 4,336.7 |   |

 

Depreciation expense forthe years ended December 31, 2006, 2005 and 2004 was $402.8 million,$436.8 million and $452.1 million, respectively, of which$45.7 million, $59.6 million and $60.6 million related todiscontinued operations, respectively.

Property, plant andequipment includes gross assets acquired under capital leases of $20.3 millionand $21.6 million at December 31, 2006 and 2005, respectively; relatedamounts included in accumulated depreciation were $10.0 million and$8.5 million at December 31, 2006 and 2005, respectively.

**7.**                 INVESTMENT INUNCONSOLIDATED AFFILIATES

Ourownership percentage and investment in unconsolidated affiliates were asfollows (dollars in millions):

| ** **                                                | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Equity Method:                                       |       |                  |       |   |   |
| Polystyrene Australia Pty Ltd. (50%)                      |       | $                     | 3.3        |   | $ | 3.3 |   |
| Arabian Polyol Ltd (40)%                                  |       | 3.9                   |       | 3.5 |   |
| Sasol-Huntsman GmbH and Co. KG (50%)                      |       | 28.9                  |       | 22.6 |   |
| Louisiana Pigment Company, L.P. (50%)                     |       | 115.0                 |       | 116.8 |   |
| BASF Huntsman Shanghai Isocyanate Investment BV  (50%)(1) |       | 46.1                  |       | 25.9 |   |
| Others                                                    |       | 1.3                   |       | 1.0 |   |
| Total equity method investments                           |       | 198.5                 |       | 173.1 |   |
| Cost Method:                                              |       |                  |       |   |   |
| Gulf Advanced Chemicals Industry Corporation (4.35%)      |       | 2.5                   |       | 2.5 |   |
| Total investments                                         |       | $                     | 201.0      |   | $ | 175.6 |   |

----

(1)   We own 50% of BASF Huntsman Shanghai Isocyanate Investment BV.BASF Huntsman Shanghai Isocyanate Investment BV owns a 70% interest in SLIC,thus giving us an indirect 35% interest in SLIC.

F-28

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***Summarized Financial Information of UnconsolidatedAffiliates***

Summarized applicablefinancial information of Sasol-Huntsman GmbH and Co KG as of December 31,2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004 ispresented below (dollars in millions):

| ** **             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current assets         |       | $        | 26.9       |     | $          | 19.3     |       |   |   |
| Noncurrent assets      |       | 46.6     |       | 74.7     |       |     |       |
| Current liabilities    |       | 3.6      |       | 7.6      |       |     |       |
| Noncurrent liabilities |       | 8.5      |       | 41.2     |       |     |       |
| Revenues               |       | 91.3     |       | 58.9     |       | $        | 58.1       |   |
| Gross profit           |       | 22.8     |       | 12.1     |       | 11.9     |       |
| Net income             |       | 7.3      |       | 15.9     |       | 5.3      |       |
|                        |            |          |            |          |            |          |            |  |  |  |

 

Summarizedapplicable financial information of our remaining unconsolidated affiliates,Louisiana Pigment Company, Rubicon LLC (for periods prior to its consolidationon January 1, 2005), BASF Huntsman Shanghai Isocyanate Investment BVand Polystyrene Australia Pty Ltd. as of December 31, 2006 and 2005and for the years ended December 31, 2006, 2005 and 2004 is presentedbelow (dollars in millions):

| ** **  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------|------------|----------|------------|----------|------------|----------|------------|
| Assets      |       | $        | 357.7      |     | $          | 337.1    |       |   |   |
| Liabilities |       | 37.7     |       | 44.8     |       |     |       |
| Revenues    |       | 334.1    |       | 299.8    |       | $        | 1,055.5    |   |
| Net income  |       | 0.1      |       | 0.4      |       | 2.9      |       |
|             |            |          |            |          |            |          |            |  |  |  |

 

**8.**                 INTANGIBLE ASSETS

Thegross carrying amount and accumulated amortization of intangible assets were asfollows (dollars in millions):

**Huntsman Corporation**

| ** **                          | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **Carrying**                    | ** ** | **Accumulated**                 | ** ** | ** ** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Amount**                      | ** ** | **Amortization**                | ** ** | **Net** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Net** | ** ** |
| Patents, trademarks, and technology |       |                            | $          | 356.2                           |       |   |   | $ | 195.0 |   |   | $ | 161.2 |   |   | $ | 367.8 |   |   |   | $ | 172.1 |   |   | $ | 195.7 |   |
| Licenses and other agreements       |       |                            | 39.4       |                            |       |   | 13.3 |   |   | 26.1 |   |   | 29.2 |   |   |   | 14.5 |   |   | 14.7 |   |
| Non-compete agreements              |       |                            | 17.7       |                            |       |   | 17.4 |   |   | 0.3 |   |   | 17.8 |   |   |   | 15.6 |   |   | 2.2 |   |
| Other intangibles                   |       |                            | 10.0       |                            |       |   | 10.0 |   |   | — |   |   | 13.3 |   |   |   | 9.6 |   |   | 3.7 |   |
| **Total**                           |       |                            | $          | 423.3                           |       |   |   | $ | 235.7 |   |   | $ | 187.6 |   |   | $ | 428.1 |   |   |   | $ | 211.8 |   |   | $ | 216.3 |   |

 

During 2006 and 2005, wereversed certain valuation allowances on deferred tax assets related to prioracquisitions and recorded a corresponding reduction to intangible assets ofapproximately $1.1 million and $0.8 million, respectively.

Amortization expense was$28.2 million, $27.6 million and $35.8 million for the years ended December 31,2006, 2005 and 2004, respectively.

F-29

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Estimatedfuture amortization expense for intangible assets over the next five years isas follows (dollars in millions):

| **Year ending December 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 27.5       |       |
| 2008                                        |       | 26.3       |       |
| 2009                                        |       | 25.9       |       |
| 2010                                        |       | 25.6       |       |
| 2011                                        |       | 19.6       |       |
|                                             |            |            |            |            |            |  |

 

**Huntsman International**

| ** **                          | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **Carrying**                    | ** ** | **Accumulated**                 | ** ** | ** ** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Amount**                      | ** ** | **Amortization**                | ** ** | **Net** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Net** | ** ** |
| Patents, trademarks, and technology |       |                            | $          | 356.2                           |       |   |   | $ | 195.0 |   |   | $ | 161.2 |   |   | $ | 367.8 |   |   |   | $ | 172.1 |   |   | $ | 195.7 |   |
| Licenses and other agreements       |       |                            | 39.4       |                            |       |   | 13.3 |   |   | 26.1 |   |   | 29.2 |   |   |   | 14.5 |   |   | 14.7 |   |
| Non-compete agreements              |       |                            | 17.7       |                            |       |   | 17.4 |   |   | 0.3 |   |   | 17.8 |   |   |   | 15.6 |   |   | 2.2 |   |
| Other intangibles                   |       |                            | 18.1       |                            |       |   | 13.1 |   |   | 5.0 |   |   | 21.1 |   |   |   | 11.7 |   |   | 9.4 |   |
| **Total**                           |       |                            | $          | 431.4                           |       |   |   | $ | 238.8 |   |   | $ | 192.6 |   |   | $ | 435.9 |   |   |   | $ | 213.9 |   |   | $ | 222.0 |   |

 

During 2006 and 2005, Huntsman International reversedcertain valuation allowances on deferred tax assets related to prioracquisitions and recorded a corresponding reduction to intangible assets ofapproximately $1.1 million and $0.8 million, respectively.

Amortization expense for Huntsman International was$29.1 million, $28.4 million and $37.1 million for the years ended December 31,2006, 2005 and 2004, respectively.

Huntsman International’sestimated future amortization expense for intangible assets over the next fiveyears is as follows (dollars in millions):

| **Year ending December 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 28.3       |       |
| 2008                                        |       | 27.0       |       |
| 2009                                        |       | 26.7       |       |
| 2010                                        |       | 26.4       |       |
| 2011                                        |       | 20.3       |       |
|                                             |            |            |            |            |            |  |

 

F-30

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**9.**                 OTHER NONCURRENTASSETS

Othernoncurrent assets consisted of the following (dollars in millions):

**Huntsman Corporation**

| ** **                                                  | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Prepaid pension  costs                                      |       | $                     | 69.4       |   | $ | 149.1 |   |
| Debt issuance  costs                                        |       | 34.6                  |       | 27.7 |   |
| Capitalized  turnaround costs                               |       | 40.4                  |       | 83.5 |   |
| Spare parts  inventory                                      |       | 89.9                  |       | 121.5 |   |
| Catalyst assets                                             |       | 14.7                  |       | 16.6 |   |
| Deposits                                                    |       | 17.7                  |       | 15.2 |   |
| Investment in  government securities (restricted as to use) |       | 3.5                   |       | 17.0 |   |
| Other noncurrent  assets                                    |       | 109.5                 |       | 120.4 |   |
| **Total**                                                   |       | $                     | 379.7      |   | $ | 551.0 |   |

 

**Huntsman International**

| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Prepaid pension costs         |       | $                     | 69.4       |   | $ | 244.9 |   |
| Debt issuance costs           |       | 35.0                  |       | 43.0 |   |
| Capitalized turnaround  costs |       | 40.4                  |       | 83.5 |   |
| Spare parts inventory         |       | 89.9                  |       | 121.5 |   |
| Catalyst assets               |       | 14.7                  |       | 16.6 |   |
| Deposits                      |       | 17.7                  |       | 15.2 |   |
| Other noncurrent assets       |       | 109.5                 |       | 111.3 |   |
| **Total**                     |       | $                     | 376.6      |   | $ | 636.0 |   |

 

Amortization expense ofcatalyst assets for the years ended December 31, 2006, 2005 and 2004 was $7.2million, $8.7 million and $9.8 million, respectively.

F-31

----

**10.**          ACCRUEDLIABILITIES

Accrued liabilitiesconsisted of the following (dollars in millions):

**Huntsman Corporation**

| ** **                             | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Payroll, severance and  related costs  |       | $                     | 120.1      |   | $ | 108.8 |   |
| Interest                               |       | 50.8                  |       | 93.9 |   |
| Volume and rebate  accruals            |       | 97.0                  |       | 88.1 |   |
| Income taxes                           |       | 74.2                  |       | 64.9 |   |
| Taxes (property and VAT)               |       | 80.4                  |       | 87.3 |   |
| Restructuring and plant  closing costs |       | 47.0                  |       | 55.2 |   |
| Environmental accruals                 |       | 6.1                   |       | 7.1 |   |
| Deferred gain on  insurance recovery   |       | 93.6                  |       | — |   |
| Pension liabilities                    |       | 9.8                   |       | 21.8 |   |
| Self-insured casualty  loss reserves   |       | 19.2                  |       | 16.6 |   |
| Other miscellaneous  accruals          |       | 259.4                 |       | 203.5 |   |
| **Total**                              |       | $                     | 857.6      |   | $ | 747.2 |   |

 

**HuntsmanInternational**

| ** **                            | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Payroll, severance and related costs  |       | $                     | 120.1      |   | $ | 108.8 |   |
| Interest                              |       | 50.8                  |       | 93.9 |   |
| Volume and rebate accruals            |       | 97.0                  |       | 88.1 |   |
| Income taxes                          |       | 72.9                  |       | 64.0 |   |
| Taxes (property and VAT)              |       | 80.4                  |       | 87.6 |   |
| Restructuring and plant closing costs |       | 47.0                  |       | 55.2 |   |
| Environmental accruals                |       | 6.1                   |       | 7.1 |   |
| Deferred gain on insurance recovery   |       | 93.6                  |       | — |   |
| Pension liabilities                   |       | 9.8                   |       | 21.8 |   |
| Self-insured casualty loss reserves   |       | 19.2                  |       | 16.6 |   |
| Other miscellaneous accruals          |       | 244.8                 |       | 189.2 |   |
| **Total**                             |       | $                     | 841.7      |   | $ | 732.3 |   |

 

**11.**          RESTRUCTURING,IMPAIRMENT AND PLANT CLOSING COSTS

While we continuously focus on identifyingopportunities to reduce our operating costs and maximize our operatingefficiency, we have substantially implemented our comprehensive global costreduction program, referred to as “Project Coronado.” Project Coronado was aprogram designed to reduce our annual fixed manufacturing and selling, generaland administrative costs, as measured at 2002 levels, by $200 million. Inconnection with Project Coronado, we announced the closure of eight smaller,less competitive manufacturing units in our Polyurethanes, Materials andEffects, Performance Products and Pigments segments. These and other actionshave resulted in the reduction of approximately 1,500 positions in thesebusinesses since 2000.

F-32

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As of December 31,2006, 2005 and 2004, accrued restructuring, impairment and plant closing costsby type of cost and initiative consisted of the following (dollars inmillions):

| ** **                                                                    | ** ** | **Workforce  reductions(1)** | ** ** | **Demolition and  decommissioning** | ** ** | **Non-cancelable  lease costs** | ** ** | **Other  restructuring  costs** | ** ** | **Total(2)** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------|------------|
| Accrued  liabilities as of January 1, 2004                               |       |                         | $          | 66.4                                     |       |                                 |       | $                               | 4.1        |         |       |   | $ | 0.2 |   |   |   | $ | 6.1 |   |   |   | $ | 76.8 |   |   |
| Partial reversal  of Advanced Materials opening balance sheet liabilities     |       |                         | (2.9       | )                                        |       |                                 | —     |                            |       |         | (0.6       | ) |   |   | 0.7 |   |   |   | (2.8 | ) |   |
| 2004 charges for  2003 initiatives                                            |       |                         | 25.1       |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | 0.4 |   |   |   | 25.5 |   |   |
| 2004 charges for  2004 initiatives                                            |       |                         | 90.1       |                                     |       |                                 | 4.9        |                            |       |         | 6.4        |   |   |   | 18.0 |   |   |   | 119.4 |   |   |
| 2004 payments for  2003 initiatives                                           |       |                         | (48.0      | )                                        |       |                                 | —     |                            |       |         | (0.4       | ) |   |   | (3.0 | ) |   |   | (51.4 | ) |   |
| 2004 payments for  2004 initiatives                                           |       |                         | (29.2      | )                                        |       |                                 | (0.6       | )                               |       |         | —     |   |   |   | (4.6 | ) |   |   | (34.4 | ) |   |
| Non-cash  settlements                                                         |       |                         | —     |                                     |       |                                 | —     |                            |       |         | (0.5       | ) |   |   | — |   |   |   | (0.5 | ) |   |
| Net activity of  discontinued operations                                      |       |                         | 14.8       |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | 14.8 |   |   |
| Foreign currency  effect on reserve balance                                   |       |                         | 5.7        |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | 5.7 |   |   |
| 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                                            |       |                         | 21.2       |                                     |       |                                 | 0.5        |                            |       |         | 0.6        |   |   |   | 13.4 |   |   |   | 35.7 |   |   |
| 2005 charges for  2005 initiatives                                            |       |                         | 13.6       |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | 0.2 |   |   |   | 13.8 |   |   |
| Reversal of  reserves no longer required                                      |       |                         | (6.3       | )                                        |       |                                 | (0.1       | )                               |       |         | (0.8       | ) |   |   | (1.2 | ) |   |   | (8.4 | ) |   |
| Partial reversal  of Advanced Materials opening balance sheet liabilities     |       |                         | (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                                           |       |                         | (60.8      | )                                        |       |                                 | (1.7       | )                               |       |         | (0.4       | ) |   |   | (11.8 | ) |   |   | (74.7 | ) |   |
| 2005 payments for  2005 initiatives                                           |       |                         | (1.0       | )                                        |       |                                 | —     |                            |       |         | —     |   |   |   | (0.9 | ) |   |   | (1.9 | ) |   |
| Net activity of  discontinued operations                                      |       |                         | (8.2       | )                                        |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | (8.2 | ) |   |
| Foreign currency  effect on reserve balance                                   |       |                         | (11.9      | )                                        |       |                                 | (0.3       | )                               |       |         | (0.3       | ) |   |   | (3.8 | ) |   |   | (16.3 | ) |   |
| Accrued  liabilities as of December 31, 2005                             |       |                         | 54.2       |                                     |       |                                 | 5.8        |                            |       |         | 6.5        |   |   |   | 11.8 |   |   |   | 78.3 |   |   |
| Textile Effects  opening balance sheet liabilities at June 30, 2006 |       |                         | 65.4       |                                     |       |                                 | 1.5        |                            |       |         | 3.4        |   |   |   | 4.8 |   |   |   | 75.1 |   |   |
| 2006 charges for  2003 initiatives                                            |       |                         | 3.0        |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | 0.1 |   |   |   | 3.1 |   |   |
| 2006 charges for  2004 initiatives                                            |       |                         | 4.1        |                                     |       |                                 | 0.2        |                            |       |         | —     |   |   |   | 0.2 |   |   |   | 4.5 |   |   |
| 2006 charges for  2005 initiatives                                            |       |                         | 1.4        |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | 0.2 |   |   |   | 1.6 |   |   |
| 2006 charges for  2006 initiatives                                            |       |                         | 2.1        |                                     |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | 2.1 |   |   |
| Reversal of  reserves no longer required and liability reclassifications      |       |                         | (10.0      | )                                        |       |                                 | (4.7       | )                               |       |         | (0.6       | ) |   |   | — |   |   |   | (15.3 | ) |   |
| Partial reversal  of Advanced Materials opening balance sheet liabilities     |       |                         | (2.9       | )                                        |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | (2.9 | ) |   |
| 2006 payments for  2003 initiatives                                           |       |                         | (8.6       | )                                        |       |                                 | —     |                            |       |         | (0.2       | ) |   |   | (0.3 | ) |   |   | (9.1 | ) |   |
| 2006 payments for  2004 initiatives                                           |       |                         | (17.5      | )                                        |       |                                 | (2.8       | )                               |       |         | (0.7       | ) |   |   | (0.4 | ) |   |   | (21.4 | ) |   |
| 2006 payments for  2005 initiatives                                           |       |                         | (9.8       | )                                        |       |                                 | —     |                            |       |         | —     |   |   |   | (0.9 | ) |   |   | (10.7 | ) |   |
| 2006 payments for  2006 initiatives                                           |       |                         | (1.4       | )                                        |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | (1.4 | ) |   |
| Net activity of  discontinued operations                                      |       |                         | (7.1       | )                                        |       |                                 | —     |                            |       |         | —     |   |   |   | — |   |   |   | (7.1 | ) |   |
| Foreign currency  effect on reserve balance                                   |       |                         | 3.5        |                                     |       |                                 | 0.3        |                            |       |         | 0.3        |   |   |   | 1.2 |   |   |   | 5.3 |   |   |
| Accrued  liabilities as of December 31, 2006                             |       |                         | $          | 76.4                                     |       |                                 |       | $                               | 0.3        |         |       |   | $ | 8.7 |   |   |   | $ | 16.7 |   |   |   | $ | 102.1 |   |   |

----

(1)             With theexception of liabilities recorded in connection with business combinations, accrued liabilities classified asworkforce reductions consist primarily of restructuring programs involvingongoing termination benefit arrangements and restructuring programs involvingspecial termination benefits. Accordingly, the relatedliabilities were accrued as a one-time charge to earnings in accordance withSFAS No. 112, *Employers’ Accountingfor Postemployment Benefits* and with SFAS No. 88, *Employers’Accounting for Settlements and Curtailments of Defined Benefit Pension Plansand for Termination Benefits*, respectively. The remaining accruedliabilities related to these charges of $11.4 million representworkforce reductions to be paid by the end of 2011. Liabilities for workforcereductions recorded in connection with business combinations were accrued inaccordance with EITF 95-3, *Recognitionof Liabilities in Connection with a Purchase Business Combination*,and are expected to be paid through 2009. Of the total workforce reductionreserves of $76.4 million, $64.3 million relates to 654 positions that have notbeen terminated as of December 31, 2006.

F-33

----

(2)             Accrued liabilities by initiatives were asfollows (dollars in millions):

| ** **                                  | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| 2001 initiatives                            |       |                        | $          | 1.4                         |       |   |   | $ | 1.4 |   |   |
| 2003 initiatives                            |       |                        | 15.8       |                        |       |   | 28.4 |   |   |
| 2004 initiatives                            |       |                        | 12.2       |                        |       |   | 47.7 |   |   |
| 2005 initiatives                            |       |                        | 1.4        |                        |       |   | 11.6 |   |   |
| 2006 initiatives                            |       |                        | 76.2       |                        |       |   | — |   |   |
| Foreign currency  effect on reserve balance |       |                        | (4.9       | )                           |       |   | (10.8 | ) |   |
| Total                                       |       |                        | $          | 102.1                       |       |   |   | $ | 78.3 |   |   |

 

Detailswith respect to our reserves for restructuring, impairment and plant closingcosts are provided below by segment and initiative (dollars in millions):

| ** **                                                                     | ** ** | ** **        | ** ** | **Materials  and** | ** ** | **Performance** | ** ** | ** **   | ** ** | ** **   | ** ** | **Base**      | ** ** | **Corporate**        | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------|------------|--------------------|------------|-----------------|------------|--------------|------------|--------------|------------|---------------|------------|----------------------|------------|------------|------------|
| ** **                                                                     | ** ** | **Polyurethanes** | ** ** | **Effects**        | ** ** | **Products**    | ** ** | **Pigments** | ** ** | **Polymers** | ** ** | **Chemicals** | ** ** | **& Other** | ** ** | **Total**  | ** ** |
| Accrued liabilities as of January 1, 2004                                 |       |              | $          | 15.8               |       |            |       | $            | 51.5       |         |       |          | $          | 2.4                  |       |       |       | $ | 4.3 |   |   |   | $ | 2.8 |   |   |   | $ | — |   |   |   | — |   |   | $ | 76.8 |   |
| Partial reversal of Advanced Materials opening balance  sheet liabilities |       |              | —     |               |       |            | (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 |   |   |   | 0.3 |   |   |   | 0.4 |   |   | 119.4 |   |
| 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 | ) |   |   | — |   |   |   | (0.4 | ) |   | (34.4 | ) |
| Non-cash settlements                                                           |       |              | —     |               |       |            | (0.5       | )            |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | (0.5 | ) |
| Net activity of discontinued operations                                        |       |              | —     |               |       |            | —     |         |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | 14.8 |   |   |   | — |   |   | 14.8 |   |
| Foreign currency effect on reserve balance                                     |       |              | 0.1        |               |       |            | 1.9        |         |       |         | 2.6        |          |       |                 | 1.1        |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 5.7 |   |
| 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 |   |   |   | 0.7 |   |   |   | 1.2 |   |   | 35.7 |   |
| 2005 charges for 2005 initiatives                                              |       |              | —     |               |       |            | 0.4        |         |       |         | 4.0        |          |       |                 | 2.6        |       |       |   | — |   |   |   | 6.8 |   |   |   | — |   |   | 13.8 |   |
| Reversal of reserves no longer required                                        |       |              | (2.1       | )                  |       |            | (2.9       | )            |       |         | (0.4       | )             |       |                 | (2.8       | )          |       |   | (0.1 | ) |   |   | (0.1 | ) |   |   | — |   |   | (8.4 | ) |
| Partial reversal of Advanced Materials opening balance  sheet liabilities |       |              | —     |               |       |            | (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                                             |       |              | (6.3       | )                  |       |            | (7.7       | )            |       |         | (33.6      | )             |       |                 | (20.7      | )          |       |   | (5.2 | ) |   |   | — |   |   |   | (1.2 | ) |   | (74.7 | ) |
| 2005 payments for 2005 initiatives                                             |       |              | —     |               |       |            | (0.6       | )            |       |         | (0.1       | )             |       |                 | (0.9       | )          |       |   | — |   |   |   | (0.3 | ) |   |   | — |   |   | (1.9 | ) |
| Net activity of discontinued operations                                        |       |              | —     |               |       |            | —     |         |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | (8.2 | ) |   |   | — |   |   | (8.2 | ) |
| Foreign currency effect on reserve balance                                     |       |              | (3.3       | )                  |       |            | (1.5       | )            |       |         | (8.6       | )             |       |                 | (2.4       | )          |       |   | (0.5 | ) |   |   | — |   |   |   | — |   |   | (16.3 | ) |
| Accrued liabilities as of December 31, 2005                               |       |              | 10.9       |               |       |            | 7.8        |         |       |         | 25.6       |          |       |                 | 16.6       |       |       |   | 3.4 |   |   |   | 14.0 |   |   |   | — |   |   | 78.3 |   |
| Textile Effects opening balance sheet liabilities at June 30,  2006  |       |              | —     |               |       |            | 75.1       |         |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 75.1 |   |
| 2006 charges for 2003 initiatives                                              |       |              | —     |               |       |            | 0.3        |         |       |         | —     |          |       |                 | 2.8        |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 3.1 |   |
| 2006 charges for 2004 initiatives                                              |       |              | 0.2        |               |       |            | 0.2        |         |       |         | 0.8        |          |       |                 | 3.3        |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 4.5 |   |
| 2006 charges for 2005 initiatives                                              |       |              | —     |               |       |            | —     |         |       |         | 1.3        |          |       |                 | 0.3        |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 1.6 |   |
| 2006 charges for 2006 initiatives                                              |       |              | —     |               |       |            | 2.1        |         |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 2.1 |   |
| Reversal of reserves no longer required and liability  reclassifications       |       |              | (0.9       | )                  |       |            | (0.7       | )            |       |         | (6.9       | )             |       |                 | (2.6       | )          |       |   | (3.1 | ) |   |   | (1.1 | ) |   |   | — |   |   | (15.3 | ) |
| Partial reversal of Advanced Materials opening  balance sheet liabilities      |       |              | —     |               |       |            | (2.9       | )            |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | (2.9 | ) |
| 2006 payments for 2003 initiatives                                             |       |              | (2.8       | )                  |       |            | (1.9       | )            |       |         | —     |          |       |                 | (4.4       | )          |       |   | — |   |   |   | — |   |   |   | — |   |   | (9.1 | ) |
| 2006 payments for 2004 initiatives                                             |       |              | (1.2       | )                  |       |            | (0.5       | )            |       |         | (11.0      | )             |       |                 | (8.4       | )          |       |   | (0.3 | ) |   |   | — |   |   |   | — |   |   | (21.4 | ) |
| 2006 payments for 2005 initiatives                                             |       |              | (0.4       | )                  |       |            | (1.1       | )            |       |         | (4.3       | )             |       |                 | (0.8       | )          |       |   | — |   |   |   | (4.1 | ) |   |   | — |   |   | (10.7 | ) |
| 2006 payments for 2006 initiatives                                             |       |              | —     |               |       |            | (1.4       | )            |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | (1.4 | ) |
| Net activity of discontinued operations                                        |       |              | —     |               |       |            | —     |         |       |         | —     |          |       |                 | —     |       |       |   | — |   |   |   | (7.1 | ) |   |   | — |   |   | (7.1 | ) |
| Foreign currency effect on reserve balance                                     |       |              | 0.8        |               |       |            | 1.5        |         |       |         | 1.9        |          |       |                 | 1.1        |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 5.3 |   |
| Accrued liabilities as of December 31, 2006                               |       |              | $          | 6.6                |       |            |       | $            | 78.5       |         |       |          | $          | 7.4                  |       |       |       | $ | 7.9 |   |   |   | $ | — |   |   |   | $ | 1.7 |   |   |   | $ | — |   |   | $ | 102.1 |   |
| Current portion of restructuring reserve                                       |       |              | $          | 2.7                |       |            |       | $            | 32.2       |         |       |          | $          | 6.2                  |       |       |       | $ | 4.2 |   |   |   | $ | — |   |   |   | $ | 1.7 |   |   |   | $ | — |   |   | $ | 47.0 |   |
| Long-term portion of restructuring reserve                                     |       |              | 3.9        |               |       |            | 46.3       |         |       |         | 1.2        |          |       |                 | 3.7        |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 55.1 |   |
| Estimated additional future charges for current restructuring  projects:  |       |              |       |               |       |            |       |         |       |         |       |          |       |                 |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated additional charges within one year                                   |       |              | $          | —             |       |            |       | $            | 0.3        |         |       |          | $          | —               |       |       |       | $ | 4.1 |   |   |   | $ | 17.3 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 21.7 |   |
| Estimated  additional charges beyond one year                             |       |              | —     |               |       |            | —     |         |       |         | —     |          |       |                 | 4.0        |       |       |   | 8.0 |   |   |   | — |   |   |   | — |   |   | 12.0 |   |

 

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Detailswith respect to cash and non-cash restructuring charges for the years ended December 31,2004, 2005 and 2006 by initiative are provided below (dollars in millions):

| Cash charges:                                                 |       |   |      |
|---------------------------------------------------------------|------------|--------|-----------|
| 2004 charges for 2003 initiatives                             |       | $      | 25.5      |   |
| 2004 charges for 2004 initiatives                             |       | 119.4  |      |
| Non-cash charges                                              |       | 138.0  |      |
| Total 2004  Restructuring, Impairment and Plant Closing Costs | ** ** | **$**  | **282.9** | ** ** |
| Cash charges:                                                 |       |   |      |
| 2005 charges for 2003 initiatives                             |       | $      | 14.4      |   |
| 2005 charges for 2004 initiatives                             |       | 35.7   |      |
| 2005 charges for 2005 initiatives                             |       | 13.8   |      |
| Reversals of  reserves no longer required                     |       | (8.4   | )         |
| Non-cash charges                                              |       | 58.6   |      |
| Total 2005  Restructuring, Impairment and Plant Closing Costs | ** ** | **$**  | **114.1** | ** ** |
| Cash charges:                                                 |       |   |      |
| 2006 charges for 2003 initiatives                             |       | $      | 3.1       |   |
| 2006 charges for 2004 initiatives                             |       | 4.5    |      |
| 2006 charges for 2005 initiatives                             |       | 1.6    |      |
| 2006 charges for 2006 initiatives                             |       | 2.1    |      |
| Reversal of reserves no longer required                       |       | (9.4   | )         |
| Non-cash charges                                              |       | 18.1   |      |
| Total 2006  Restructuring, Impairment and Plant Closing Costs | ** ** | **$**  | **20.0**  | ** ** |

 

**2006 RESTRUCTURING ACTIVITIES**

As of December 31, 2006, our Polyurethanessegment restructuring reserve consisted of $6.6 million related torestructuring initiatives at the Rozenburg, Netherlands site (as announced in2003).

As of December 31, 2006, our Materials andEffects segment restructuring reserve consisted of $78.5 million relatedto opening balance sheet liabilities from the Textile Effects Acquisition, therestructuring programs implemented in association with the Huntsman AdvancedMaterials Transaction and the realignment and simplification of the commercialand technical organization. During 2006, we recorded $75.1 million ofliabilities for workforce reduction, non-cancelable lease termination costs anddemolition and decommissioning costs related to the Textile EffectsAcquisition. For more information, see “Note 4. Business Dispositions andCombinations—Textile Effects Acquisition.” In addition, our Materials andEffects segment reversed $2.9 million of reserves established inconnection with the acquisition of our advanced materials business. Thisreserve reversal was recorded as a reduction to property, plant and equipmentin accordance with EITF 95-3, *Recognition of Liabilities in Connection with aPurchase Business Combination*,

As of December 31, 2006, our Performance Productssegment reserve consisted of $7.4 million related to various restructuringprograms across our European surfactants business and the realignment of ourJefferson County, Texas operations. During 2006, $5.9 million was reclassifiedto pension liabilities.

As of December 31, 2006, our Pigments segmentreserve consisted of $7.9 million related to the global workforce reductionsannounced in 2003, and the reduction of our TiO2 production capacity announcedin 2004. The reversal of workforce reduction reserves recorded by our Pigmentssegment during 2006 relates primarily to the project announced in July 2005that our Pigments and Base Chemicals segments would establish a single U.K.headquarters in Teesside, U.K., which was abandoned in connection with the saleof 

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our European basechemicals and polymers business. These restructuring initiatives are expectedto result in additional restructuring charges of $8.1 million through 2008.

During 2006, our Polymers segment reversed $2.4 millionof reserves related to demolition and decommissioning that were no longerrequired. In addition, we reversed $0.7 million of workforce reductionsreserves in 2006 due primarily to differences between the estimated and actualtermination payments. Also during 2006, our Polymers segment recorded anon-cash impairment charge of $7.5 million related to capital expenditures andturnaround costs associated with our Australian styrenics business that waspreviously impaired. The long-lived assets in this business were determined tobe impaired in accordance with SFAS No. 144 and an impairment charge wasrecorded in 2005. Capital expenditures and turnaround costs in this business,which are necessary to maintain operations, are also considered to be impairedimmediately after they are incurred. Management has evaluated the strategic andoperational initiatives related to this business, and based upon therenegotiation of certain raw material supply agreements, has concluded tocontinue the operations of this business. Capital expenditures and turnaroundcosts related to this business are expected to result in additional charges of$25.3 million through 2009.

As of December 31,2006, our Base Chemicals segment reserve consisted of $1.7 million relatedprimarily to the restructuring of our Jefferson County, Texas operations, whichwas announced in August 2005. During 2006, a $9.4 million non-cash chargewas recorded to write off fixed assets that were destroyed and unamortizedturnaround costs that will no longer be utilized as a result of the fire at ourPort Arthur, Texas facility. For more information, see “Note 22. CasualtyLosses and Insurance Recoveries—Port Arthur, Texas Plant Fire.”

**2005 RESTRUCTURING ACTIVITIES**

As of December 31, 2005, our Polyurethanessegment restructuring reserve consisted of $10.9 million related to variousrestructuring programs, including the closure of our West Deptford, New Jerseysite (as announced in 2004), restructuring initiatives at the Rozenburg,Netherlands site (as announced in 2003), workforce reductions throughout ourPolyurethanes segment (as announced in 2003), and the closure of our SheptonMallet, U.K. site (as announced in 2001).

As of December 31, 2005, our Materials andEffects segment restructuring reserve consisted of $7.8 million related tothe restructuring programs implemented in association with the HuntsmanAdvanced Materials Transaction, the realignment and simplification of thecommercial and technical organization and the closure of our Kaohsiung, Taiwanproduction facility. During 2005, we assessed the remaining restructuringreserves established in association with the Huntsman Advanced MaterialsTransaction and other 2004 initiatives and concluded that $5.3 million and $2.9million, respectively, were no longer necessary. Accordingly, we reversed theserestructuring reserves during 2005. The Huntsman Advanced Materials Transactionreserve reversal was recorded as a reduction to property, plant and equipmentin accordance with EITF 95-3, “Recognition of Liabilities in Connectionwith a Purchase Business Combination.” The reversal of the workforce reductionreserves for the other 2004 initiatives was recorded as a credit to earnings,and was primarily a result of the redeployment of employees whose positionswere originally expected to be terminated in connection with the realignment ofthe commercial and technical organization.

As of December 31, 2005, our Performance Productssegment reserve consisted of $25.6 million related to various restructuringprograms across our European surfactants business, including the closure ofsubstantially all of our Whitehaven, U.K. surfactants facility, and therealignment of our Jefferson County, Texas operations.

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As of December 31, 2005, our Pigments segmentreserve consisted of $16.6 million related to the global workforce reductionsannounced in 2003, the reduction of our TiO2 production capacity announced in2004, and the announcement in July 2005 that our Pigments and BaseChemicals segments would establish a single U.K. headquarters in Teesside, U.K.The reversal of workforce reduction reserves recorded by our Pigments segmentduring 2005 was the result of revisions to original estimates based on newlyavailable information and revisions to the scope and costs of two differentongoing restructuring projects following the combination of the two projects.

As of December 31, 2005, our Polymers segmentreserve consisted of $3.4 million related primarily to the closure of ourphenol manufacturing unit in Australia and restructuring initiatives at Odessa,Texas. During the third quarter of 2005, we concluded that the long-livedassets of our Australian styrenics business were impaired as a result ofdisappointing performance and the lack of anticipated strengthening of thestyrenics market. Accordingly, our Polymers segment recorded an impairmentcharge of $48.2 million during 2005 related to the Australian styrenics assets.The fair value of the Australian styrenics assets was determined based onestimated market prices.

As of December 31,2005, our Base Chemicals segment reserve consisted of $14.0 million relatedprimarily to the restructuring of our Jefferson County, Texas operations, whichwas announced in August 2005, and workforce reductions arising from theannounced changes in work shift schedules and in the engineering and supportfunctions at our Wilton and North Tees, U.K. facilities. Also included in thereserve are amounts related to an announcement in July 2005 that ourPigments and Base Chemicals segments would establish a single U.K. headquartersin Teesside, U.K.

**2004 RESTRUCTURING ACTIVITIES**

As of December 31, 2004, our Polyurethanessegment reserve consisted of $19.0 million related to various restructuringprograms, including the closure of our West Deptford, New Jersey site (asannounced in 2004), 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 2002). During 2004, we recorded asset impairment chargesof $10.5 million related to the closure of our West Deptford site.

As of December 31, 2004, the Materials andEffects segment reserve consisted of $33.0 million related to the restructuringprogram implemented in association with the Huntsman Advanced MaterialsTransaction, the realignment and simplification of our commercial and technicalorganization and the closure of our Kaohsiung, Taiwan production facility. Therestructuring program initiated with the Huntsman Advanced MaterialsTransaction included reductions in costs of the global supply chain, reductionsin general and administrative costs across the business and the centralizationof operations where efficiencies could be achieved. During 2004, the Materialsand Effects segment reversed $2.8 million of restructuring reserves recorded inthe Huntsman Advanced Materials Transaction that were no longer required andrecorded a corresponding reduction to intangible assets.

As of December 31, 2004, the Performance Productssegment reserve consisted of $58.2 million primarily related to variousrestructuring programs primarily across our European surfactants business andNorth American operations. During 2004, we adopted a plan to reduce theworkforce across all locations in our European surfactants business byapproximately 320 positions over a period of 15 months, including the closureof substantially all of our Whitehaven, U.K. surfactants facility. We alsoannounced a plan to close our Guelph, Ontario manufacturing facility, maleicanhydride briquette facility in St. Louis, Missouri, and technical facility inAustin, Texas. During 2004, we recorded asset impairment charges totaling$40.5 million related to the closure of the Whitehaven, U.K. facility, theGuelph, Ontario facility and the maleic anhydride briquette facility in St.Louis, Missouri.

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As of December 31, 2004, the Pigments segmentreserve consisted of $22.0 million related to its global workforce reductionsannounced in 2003 and the reduction of our TiO2 production capacity announcedin 2004. During 2004, the Pigments segment announced that, following a reviewof the Pigments business, we would idle approximately 55,000 tonnes, or about10%, of our total TiO2 production capacity in the third and fourth quarter of2004. In connection with this reduction of our TiO2 production capacity, we recorded a$77.2 million asset impairment charge and a $4.3 million charge for thewrite-off of spare parts inventory and other assets.

As of December 31, 2004, the Polymers segmentreserve consisted of $5.8 million related primarily to the closure of ourphenol manufacturing unit in Australia and to the demolition anddecommissioning of the Odessa, Texas styrene manufacturing facility. During2004, we recorded asset impairment charges of $3.6 million in connectionwith the closure of our phenol manufacturing unit in Australia.

As of December 31, 2004, the Base Chemicalssegment reserve consisted of $15.1 million related to workforce reductionsarising from the announced change in work shift schedules and in theengineering and support functions at the Wilton and North Tees, U.K.facilities.

During 2004, we recorded a restructuring charge incorporate and other of $2.3 million, of which $1.9 million related tonon-cash charges and $0.4 million related to relocation costs.

For purposes of measuringimpairment charges in 2004, the fair value of the assets has been determined byusing the present value of expected cash flows.

**12.**          ASSETRETIREMENT OBLIGATIONS

Upon initial adoption of SFAS No. 143, *Accounting for Asset Retirement Obligations*, we identified certain legalobligations with indeterminate settlement dates; therefore, the fair value ofthese obligations 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 retirement obligations consist primarily oflandfill capping and closure and post-closure costs and asbestos abatementcosts. We are legally required to perform capping and closure and post-closurecare on the landfills and asbestos abatement on certain of our premises. Inaccordance with SFAS No. 143 and FIN 47, for each asset retirementobligation we recognized the estimated fair value of a liability andcapitalized the cost as part of the cost basis of the related asset.

Thefollowing table describes changes to our asset retirement obligation liability(dollars in millions):

| ** **                                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|
| Asset retirement  obligation at beginning of year            |       | $        | 46.6       |     | $          | 7.2 |   |
| FIN 47 net  transition adjustment                            |       | —   |       | 38.9     |       |
| Liabilities  incurred related to Textile Effects Acquisition |       | 0.3      |       | —   |       |
| Accretion expense                                            |       | 1.4      |       | 0.5      |       |
| Revisions in  timing and estimated cash flows                |       | (1.4     | )          | —   |       |
| Payments                                                     |       | (0.1     | )          | —   |       |
| Liabilities  transferred in business dispositions            |       | (29.9    | )          | —   |       |
| Foreign currency  effect on reserve balance                  |       | 1.2      |       | —   |       |
| Asset retirement  obligation at end of year                  |       | $        | 18.1       |     | $          | 46.6 |   |

 

Thecumulative effect of adopting FIN 47 resulted in an after-tax charge toearnings of $31.7 million (net of income taxes of $4.8 million), or $0.14diluted loss per share for the year ended December 31, 2005. 

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The pro forma effects of the application of FIN 47 asif the statement had been adopted on January 1, 2004 (instead of on December 31,2005) are presented below (pro forma amounts assuming the accounting change isapplied retroactively, net of tax) (dollars in millions):

**Huntsman Corporation**

| ** **                                                   | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | **(actual)**                               | ** ** | **(pro forma)** | ** ** | **(pro forma)** | ** ** |
| Income (loss) from  continuing operations, as reported       |       | $                                          | 393.6      |   |   | $ | (30.6 | ) |   |   | $ | (320.0 | ) |   |
| Pro forma  adjustments:                                      |       |                                       |       |   |   |   |   |   |   |   |   |
| Depreciation expense                                         |       | —                                     |       |   | (0.1 | ) |   |   | (0.1 | ) |   |
| Accretion expense                                            |       | —                                     |       |   | (0.8 | ) |   |   | (0.8 | ) |   |
| Income (loss)  from continuing operations                    |       | $                                          | 393.6      |   |   | $ | (31.5 | ) |   |   | $ | (320.9 | ) |   |
| Basic income  (loss) from continuing operations, per share   |       | $                                          | 1.78       |   |   | $ | (0.34 | ) |   |   | $ | (1.85 | ) |   |
| Diluted income (loss)  from continuing operations, per share |       | $                                          | 1.69       |   |   | $ | (0.34 | ) |   |   | $ | (1.85 | ) |   |

 

**Huntsman International**

| ** **                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | **(actual)**                               | ** ** | **(pro forma)** | ** ** | **(pro forma)** | ** ** |
| Income (loss)  from continuing operations, as reported |       | $                                          | 375.7      |   |   | $ | 123.0 |   |   |   | $ | (281.0 | ) |   |
| Pro forma  adjustments:                                |       |                                       |       |   |   |   |   |   |   |   |   |
| Depreciation expense                                   |       | —                                     |       |   | (0.1 | ) |   |   | (0.1 | ) |   |
| Accretion expense                                      |       | —                                     |       |   | (0.8 | ) |   |   | (0.8 | ) |   |
| Income (loss) from  continuing operations              |       | $                                          | 375.7      |   |   | $ | 122.1 |   |   |   | $ | (281.9 | ) |   |

 

Theactual and pro forma asset retirement obligation liability balances as if FIN47 had been adopted on January 1, 2004 (instead of on December 31,2005) are presented below (dollars in millions).

| ** **                                                         | ** ** | **2006**     | ** ** | **2005**             | ** ** |
|--------------------------------------------------------------------|------------|--------------|------------|----------------------|------------|
| ** **                                                         | ** ** | **(actual)** | ** ** | **(pro forma)** | ** ** |
| Liability for  asset retirement obligations at beginning of period |       |         | $          | 46.6                 |       |   |   | $ | 43.1 |   |   |
| Liability for asset  retirement obligations at end of period       |       |         | 18.1       |                 |       |   | 46.6 |   |   |

 

**13.**          OTHERNONCURRENT LIABILITIES

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

**Huntsman Corporation**

| ** **                             | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Pension  liabilities                   |       | $                     | 536.7      |   | $ | 380.8 |   |
| Other  postretirement benefits         |       | 162.2                 |       | 129.9 |   |
| Environmental  accruals                |       | 7.6                   |       | 18.1 |   |
| Restructuring and  plant closing costs |       | 55.1                  |       | 23.1 |   |
| Asset retirement  obligation           |       | 17.9                  |       | 46.6 |   |
| Other noncurrent  liabilities          |       | 176.3                 |       | 171.7 |   |
| **Total**                              |       | $                     | 955.8      |   | $ | 770.2 |   |

 

F-39

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**Huntsman International**

| ** **                             | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Pension  liabilities                   |       | $                     | 536.7      |   | $ | 404.0 |   |
| Other  postretirement benefits         |       | 162.2                 |       | 129.9 |   |
| Environmental  accruals                |       | 7.6                   |       | 18.1 |   |
| Restructuring and  plant closing costs |       | 55.1                  |       | 23.1 |   |
| Asset retirement  obligation           |       | 17.9                  |       | 46.6 |   |
| Other noncurrent  liabilities          |       | 172.6                 |       | 148.3 |   |
| **Total**                              |       | $                     | 952.1      |   | $ | 770.0 |   |

 

**14.**          DEBT

Outstandingdebt consisted of the following (dollars in millions):

| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Senior Credit  Facilities:    |       |                  |       |   |   |
| Revolving Facility            |       | $                     | —     |   | $ | — |   |
| Term Loans                    |       | 1,711.2               |       | 2,099.3 |   |
| Secured Notes                 |       | 294.0                 |       | 293.6 |   |
| Senior Notes                  |       | 198.0                 |       | 752.7 |   |
| Subordinated  Notes           |       | 1,228.3               |       | 1,145.2 |   |
| Australian Credit  Facilities |       | 61.4                  |       | 63.8 |   |
| HPS (China) debt              |       | 90.3                  |       | 42.6 |   |
| Other                         |       | 62.1                  |       | 60.7 |   |
| Total debt                    |       | $                     | 3,645.3    |   | $ | 4,457.9 |   |
| Current portion               |       | $                     | 187.9      |   | $ | 44.6 |   |
| Long-term portion             |       | 3,457.4               |       | 4,413.3 |   |
| Total debt                    |       | $                     | 3,645.3    |   | $ | 4,457.9 |   |

 

**SUBSIDIARYDEBT**

With the exception of ourguarantees of certain debt of HPS and SLIC, our Chinese MDI joint ventures, andcertain indebtedness incurred from time to time to finance certain insurancepremiums, we have no direct debt or guarantee obligations. Substantially all ofour debt has been incurred by our subsidiaries (primarily HuntsmanInternational); such debt is non-recourse to us and we have no contractualobligation to fund our subsidiaries’ respective operations.

**Senior CreditFacilities**

As of December 31, 2006, our Senior CreditFacilities consisted of our (i) $650 million Revolving Facility,(ii) $1,614.2 million Dollar Term Loan, and (iii) €73.9 million($97.0 million) Euro Term Loan. As of December 31, 2006, there wereno borrowings outstanding under the Revolving Facility, and we had$43.5 million in U.S. dollar equivalents of letters of credit and bankguarantees issued and outstanding under the Revolving Facility. The RevolvingFacility matures in 2010 and the Term Loans mature in 2012; provided, however,that the maturities of the Revolving Facility and the Term Loans willaccelerate if we do not repay all but $100 million of our outstanding debtsecurities on or before three months prior to the maturity dates of such debtsecurities.

 

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At the present time, borrowings under the RevolvingFacility and the Dollar Term Loan bear interest at LIBOR plus 1.75% andborrowings under the Euro Term Loan currently bear interest at EURIBOR plus2.00%. At our option, the Revolving Facility may bear interest at a rate equalto: (i) a LIBOR-based eurocurrency rate plus an applicable margin rangingbetween 1.25% and 1.75%, depending on our applicable leverage ratio; and (ii) aprime-based rate plus an applicable margin ranging between 0.25% and 0.75%, dependingon our applicable leverage ratio. At our option, the Term Loans may bearinterest at a rate equal to: (i) LIBOR plus an applicable margin rangingbetween 1.50% and 1.75%, depending on our applicable leverage ratio or, withrespect to the Euro Term Loan only, at EURIBOR plus an applicable marginranging between 1.75% and 2.00%; and (ii) a prime-based rate plus anapplicable margin ranging between 0.50% and 0.75%, depending on our applicableleverage ratio.

As of December 31, 2006, the weighted averageinterest rate on the Senior Credit Facilities was approximately 7.0%. Ourobligations under the Senior Credit Facilities are guaranteed by ourGuarantors, which consist of substantially all of our domestic subsidiaries andcertain of our foreign subsidiaries, and are secured by a first priority lien(generally shared with the holders of the 2010 Secured Notes) on substantiallyall of our domestic property, plant and equipment, the stock of all of or ourmaterial domestic subsidiaries and certain foreign subsidiaries and pledges ofintercompany notes between various of our subsidiaries. The agreementsgoverning the Senior Credit Facilities contain financial covenants typical forthese types of agreements, including a minimum interest rate coverage ratio, amaximum debt-to-EBITDA ratio and a limit on capital expenditures. The creditagreements also contain customary restrictions or limitations on our ability toincur liens, incur additional debt, merge or sell assets, make certainrestricted payments, prepay other indebtedness, make investments or engage intransactions with affiliates and other customary default provisions.

We entered into an amendment to our Senior CreditFacilities on June 30, 2006 to provide for an additional $100 million ofborrowings under the Dollar Term Loan. We borrowed the additional amounts underthe Dollar Term Loan in July and used the proceeds to redeem all of our $100million outstanding senior floating rate notes due 2011 at a call price of104.0% of the aggregate principal amount thereof. The June 30, 2006 amendmentalso modified certain other provisions in our Senior Credit Facilities,including certain financial covenants. During 2006 we made several voluntaryrepayments under our Senior Credit Facilities from available liquidity,including payments of $50 million in April 2006 and $50 million in August 2006.

On January 16, 2007,we made a voluntary repayment of $75.0 million U.S. dollar equivalents on ourTerm Loans ($70.8 million on the Dollar Term Loan and €3.25million on the Euro Term Loan) with available liquidity. In addition, on December 29,2006 we used a portion of the net proceeds from the U.K. PetrochemicalsDisposition to repay $400 million U.S. dollar equivalents on our Term Loans($377.3 million on the Dollar Term Loan and €17.3 million on the EuroTerm Loan).

**Secured Notes**

As of December 31, 2006, Huntsman Internationalhad outstanding $296.0 million aggregate principal amount ($294.0 million bookvalue and $455.4 million original aggregate principal amount) under its11.625% 2010 Secured Notes. The 2010 Secured Notes are redeemable after October 15,2007 at 105.813% of the principal amount plus accrued interest, decliningratably to par on and after October 15, 2009. Interest on the 2010 SecuredNotes is payable semiannually in April and October of each year. The2010 Secured Notes are secured by a first priority lien on all collateralsecuring the Senior Credit Facilities as described above (other than capitalstock of Huntsman International’s subsidiaries), shared equally with thelenders on the Senior Credit Facilities, subject to certain intercreditorarrangements.

The 2010 Secured Notescontain covenants relating to the incurrence of debt and limitations ondistributions, certain restricted payments, asset sales and affiliatetransactions and are guaranteed by the 

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Guarantors.The indentures governing the 2010 Secured Notes also contain provisionsrequiring us to offer to repurchase the notes upon a change of control.

**Senior Notes**

As of December 31,2006, Huntsman International had outstanding $198.0 million($300 million original aggregate principal amount) of 11.5% 2012 SeniorNotes. Interest on the 2012 Senior Notes is payable semiannually in January andJuly of each year. The 2012 Senior Notes are redeemable after July 15,2008 at 105.75% of the principal amount plus accrued interest, decliningratably to par on and after July 15, 2010.

The 2012 Senior Notes areunsecured obligations. The indentures governing the 2012 Senior Notes containcovenants, among other things, relating to the incurrence of debt andlimitations on distributions and certain restricted payments, asset sales andaffiliate transactions and are guaranteed by the Guarantors. The indenturesgoverning the 2012 Senior Notes contain provisions requiring us to offer torepurchase the notes upon a change of control.

On December 29, 2006,we used a portion of the net proceeds from the U.K. Petrochemicals Dispositionto legally defease the outstanding $250 million of our 9.875% 2009 SeniorNotes. We deposited sufficient funds with the trustee for redemption andirrevocably assigned all rights and title to these funds to the trustee for thebenefit of the note holders. The notes are scheduled for redemption by thetrustee on March 1, 2007 at a price of 102.468% of the aggregate principalamount plus accrued interest. On July 13, 2006, we entered into atransaction to repurchase $37.5 million of the 2009 Senior Notes at aprice of approximately 105% of the aggregate principal amount plus accruedinterest. In addition, on August 14, 2006 and on September 20, 2006,we completed redemptions of $62.5 million and $100.0 million, respectively, ofthe 2009 Senior Notes at a call price of 104.937% of the aggregate principalamount plus accrued interest.

In accordance with anamendment to our Senior Credit Facilities, on July 14, 2006, we borrowedan additional $100 million under the Dollar Term Loan and, on July 24,2006, redeemed in full our senior floating rate notes due 2011 at 104.0% of theprincipal amount plus accrued interest.

**Subordinated Notes**

As of December 31,2006, we had outstanding $175.0 million 7.375% 2015 Subordinated Notes and€135.0 million($177.2 million) 7.5% 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 plus accrued interest, declining ratablyto par on and after January 1, 2013. Under the terms of a registrationrights agreement among Huntsman International, the Guarantors and the initialpurchasers of the 2015 Subordinated Notes, we were required to complete anexchange offer for the 2015 Subordinated Notes on or before September 11,2005. Because we did not complete the exchange offer by this date, we wererequired to pay additional interest on the 2015 Subordinated Notes. As of December 31,2006, we had paid a total of $1.6 million and €1.2 million inadditional interest. Additional interest ceased to accrue on December 17,2006. Since we were not able to complete the exchange offer before this date,we withdrew the registration statement relating to the exchange offer.

As of December 31,2006, we had outstanding €114.0 million ($149.6million) (€450 millionoriginal aggregate principal amount) 10.125% 2009 Subordinated Notes. As of December 31,2006, the 2009 Subordinated Notes have an unamortized premium of $1.4 millionand are currently redeemable at 101.688% of the principal amount plus accruedinterest, declining to par on or after July 1, 2007.

On November 13, 2006, we completed an offering ofnew subordinated notes consisting of €400 million (approximately$508 million on or about the offering date; $525.1 million as of December 31,2006) 6.875% 2013 Subordinated Notes and $200 million 7.875% 2014 SubordinatedNotes. We used the net 

F-42

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proceeds of approximately$699 million to redeem all ($366.1 million) of our outstanding U.S.dollar-denominated 10.125% Subordinated Notes and a portion (€258.0million) of our outstanding euro-denominated 10.125% 2009 Subordinated Notes.The call price of the 2009 Subordinated Notes was 101.688% of the principalamount plus accrued interest. The 2013 Subordinated Notes are redeemable on orafter November 15, 2009 at 105.156% of the principal amount plus accruedinterest, declining ratably to par on or after November 15, 2012. The 2014Subordinated Notes are redeemable on or after November 15, 2010 at103.938% of the principal amount plus accrued interest, declining ratably topar on or after November 15, 2012.

Interest on the 2015 Subordinated Notes and the 2009Subordinated Notes is payable semiannually in January and July ofeach year. Interest on the 2013 Subordinated Notes and the 2014 SubordinatedNotes is payable semiannually in November and May of each year. Allof our subordinated notes are unsecured. The indentures governing oursubordinated notes contain covenants relating, among other things, to theincurrence of debt and limitations on distributions, certain restrictedpayments, asset sales and affiliate transactions. Our subordinated notes areguaranteed by the Guarantors. The indentures also contain provisions requiringus to offer to repurchase the notes upon a change of control.

At the end of February 2007,we closed on substantially all of a direct private placement of $147.0 millionin aggregate principal amount of U.S. dollar denominated 7.875% seniorsubordinated notes due November 15, 2014. These notes were issued at a premiumof 104% of principal amount for a yield of 7.01% and were issued under the sameindenture and are of the same series as an original placement of dollar denominatednotes issued by us in November 2006. We intend to use the expected net proceedsof approximately $151.7 million to redeem all (approximately €114million) of our remaining outstanding 2009 Subordinated Notes, which are beingcalled for redemption on March 27, 2007, at a call price of 101.688% plusaccrued interest.

**Other Debt**

We maintain a $25.0 million multicurrencyEuropean Overdraft Facility used for the working capital needs for our Europeansubsidiaries. As of December 31, 2006, we had no borrowings outstandingunder the European Overdraft Facility.

In January 2003, Huntsman International enteredinto two related joint venture agreements to build MDI production facilitiesnear Shanghai, China. SLIC, our manufacturing joint venture with BASF AG andthree Chinese chemical companies, operates three plants that manufacture MNB,aniline and crude MDI. We effectively own 35% of SLIC and it is anunconsolidated affiliate. HPS, our splitting joint venture with ShanghaiChlor-Alkali Chemical Company, Ltd, operates a plant that manufacturespure MDI, polymeric MDI and MDI variants. We own 70% of HPS and it is aconsolidated affiliate.

HPS obtained secured loans for the construction of itsMDI production facility. This debt consists of various committed loans in theaggregate amount of approximately $121 million. As of December 31,2006, HPS had $28.9 million outstanding in U.S. dollar borrowings and 480million in RMB borrowings ($61.4 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 31,2006, the interest rate was approximately 5.8% for U.S. dollar borrowings and6.2% for RMB borrowings. The loans are secured by substantially all the assetsof HPS and will be repaid in 16 semiannual installments beginning on June 30,2007. We have guaranteed 70% of any amount due and unpaid by HPS under theloans described above (except for the VAT facility, which is not guaranteed).Our guarantees remain in effect until HPS has commenced production of at least70% of capacity for at least 30 days and achieved a debt service costratio of at least 1.5:1. Our Chinese MDI joint ventures are unrestrictedsubsidiaries under the Senior Credit Facilities and under the indenturesgoverning our outstanding notes. HPS commenced operations during 2006.

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Our Australian subsidiaries maintain credit facilitiesthat had an aggregate outstanding balance of A$78.0 million ($61.4 million)as of December 31, 2006. These facilities are non-recourse to HuntsmanInternational and bear interest at the Australian index rate plus a margin of2.9%. As of December 31, 2006, the interest rate for these facilities was9.3%. The Australian credit facilities mature in August 2007 and allborrowings under such facilities have been classified as current portion ofdebt.

In July 2006, inconjunction with our annual renewal of property and liability insuranceprograms, we financed substantially all of our premiums for the 2006/2007renewal period and, at that time, Huntsman International entered into notespayable in the amount of $65.6 million due in the next twelve months. Asof December 31, 2006, the outstanding amount due under these notes is$36.8 million. Insurance premium financings are generally secured by theunearned premiums under such policies.

**COMPLIANCEWITH 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**

Thescheduled maturities of our debt by year as of December 31, 2006 are asfollows (dollars in millions):
| Year ending December 31: | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                    |       | $          | 187.9      |       |
| 2008                                    |       | 26.8       |       |
| 2009                                    |       | 184.4      |       |
| 2010                                    |       | 327.3      |       |
| 2011                                    |       | 31.5       |       |
| Thereafter                              |       | 2,887.4    |       |
| ** **                              |       | $          | 3,645.3    |       |

 

Wealso have lease obligations accounted for as capital leases which are includedin other long-term debt. The scheduled maturities of our commitments undercapital leases are as follows (dollars in millions):
| Year ending December 31: | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                    |       | $          | 3.3        |       |
| 2008                                    |       | 3.3        |       |
| 2009                                    |       | 3.2        |       |
| 2010                                    |       | 2.6        |       |
| 2011                                    |       | 0.8        |       |
| Total minimum payments                  |       | 13.2       |       |
| Less: Amounts representing interest     |       | (2.7       | )          |
| Present value of minimum lease payments |       | 10.5       |       |
| Less: Current portion of capital leases |       | (2.2       | )          |
| Long-term portion  of capital leases    |       | $          | 8.3        |       |

 

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**15.**          DERIVATIVE INSTRUMENTSAND HEDGING ACTIVITIES

We are exposed to marketrisks, such as changes in interest rates, foreign exchange rates and commoditypricing risks. From time to time, we enter into transactions, includingtransactions involving derivative instruments, to manage certain of theseexposures.

**INTERESTRATE 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 andfloating 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 derivative instruments.

Interest ratecontracts were recorded as a component of other non-current liabilities as ofDecember 31, 2006 and 2005. The effective portion of the changes in thefair value of the swaps are recorded in accumulated other comprehensive loss,with any ineffectiveness recorded in interest expense.

As ofDecember 31, 2006 and 2005, we had entered into various types of interestrate contracts to manage our interest rate risk on our long-term debt asindicated below (dollars in millions):
|                            | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|----------------------------|------------|-----------|------------|-----------|------------|
| Notional amount            |       | $         | 75.0       |      | $          | 83.3 |   |
| Fair value                 |       |      |       |      |       |
| Cash flow hedges           |       | 0.4       |       | —    |       |
| Non-designated derivatives |       | 0.3       |       | 0.4       |       |
| Maturity                   |       | 2007-2010 |       | 2006-2010 |       |
|                            |            |           |            |           |            |  |  |

 

Forthe years ended December 31, 2006 and 2005, the changes in accumulatedother comprehensive (loss) income associated with cash flow hedging activitiesis indicated below:

| ** **                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Balance at  January 1           |       | $        | 2.1        |     | $          | 5.2 |   |
| Current period  change in fair value |       | (0.4     | )          | (1.9     | )          |
| Reclassifications  to earnings       |       | (1.6     | )          | (1.2     | )          |
| Balance at  December 31         |       | $        | 0.1        |     | $          | 2.1 |   |

 

During the twelve monthsending December 31, 2007, accumulated comprehensive income ofapproximately $0.1 million is expected to be reclassified to interest expense.The actual amount that will be reclassified to earnings over the next twelvemonths may vary from this amount due to changing market conditions. We areexposed to credit losses in the event of nonperformance by a counterparty tothe derivative financial instruments. We anticipate, however, that thecounterparties will be able to fully satisfy obligations under the contracts.Market risk arises from changes in interest rates.

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**FOREIGNEXCHANGE RATES**

Our cash flows and earnings are subject tofluctuations due to exchange rate variation. Our sales prices are typicallydenominated in U.S. dollars, euros, francs, British pounds and certain Asiancurrencies. 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 one year or less). Wedo not hedge our currency exposures in a manner that would eliminate the effectof changes in exchange rates on our cash flows and earnings. Our A/RSecuritization Program in certain circumstances requires that we enter intoforward foreign currency hedges intended to hedge currency exposures.

During the year ended December 31, 2006, weentered into foreign currency instruments to minimize the foreign currencyimpact on forecasted capital expenditures payable in Singapore Dollarsassociated with the construction of our polyetheramine manufacturing facilityin Singapore. As of December 31, 2006, the notional amount of thesederivative instruments is approximately 13 million Singapore dollars, andthese instruments extend through April of 2007. These contracts are notdesignated as hedges for financial reporting purposes and are recorded atmarket value. Subsequent to December 31, 2006, we have entered intoadditional foreign currency derivatives with a notional amount of approximately9 million Singapore dollars extending through July, 2007.

A significant portion of our debt is denominated ineuros. We also finance certain of our non-U.S. subsidiaries with intercompanyloans that are, in some cases, denominated in currencies other than theentities’ functional currency. We manage the net foreign currency exposurecreated by this debt through various means, including cross-currency swaps, thedesignation of certain intercompany loans as permanent loans because they arenot expected to be repaid in the foreseeable future (“Permanent Loans”) and thedesignation of certain debt and swaps as net investment hedges.

Currency effects of net investment hedges resulted ina loss of $43.1 million, a gain of $55.0 million and a loss of$51.5 million in other comprehensive income (loss) (foreign currencytranslation adjustments) for the years ended December 31, 2006, 2005 and2004, respectively.

Foreign currency transaction gains and losses onintercompany loans that are not designated as Permanent Loans are recorded inearnings. Foreign currency transaction gains and losses on intercompany loansthat are designated as Permanent Loans are recorded in other comprehensiveincome. From time to time, we review such designation of intercompany loans.

From time to time, we review our non-U.S. dollardenominated debt and swaps to determine the appropriate amounts designated ashedges. As of December 31, 2006, we have designated approximately €525million of euro-denominated debt as a hedge of our net investments. As of December 31,2006 we had approximately $1,061.1 million in net euro assets.

In conjunction with the November 13,2006 offering of the 2013 Subordinated Notes and the 2014 Subordinated Notes,we redeemed a substantial portion of our U.S. dollar-denominated subordinated debtwith newly issued euro-denominated subordinated debt and unwound certainexisting cross-currency interest rate swaps. As of December 31, 2006, wehave outstanding one cross-currency interest rate swap pursuant to which wehave agreed to swap $31.1 million of 11.0% fixed rate debt for €25.0million of 9.4% fixed rate debt. At maturity, July 15, 2007, we arerequired to pay principal of €25.0 million and willreceive principal of $31.1 million. This swap is not designated as a hedge forfinancial reporting purposes. As of December 31, 2006, the fair value ofthis swap was $1.5 million and was recorded in other noncurrent assets in ourbalance sheet.

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**COMMODITYPRICES**

Our exposure to changingcommodity prices is somewhat limited since the majority of our raw materialsare acquired at posted or market related prices, and sales prices for many ofour finished products are at market related prices which are largely set on amonthly or quarterly basis in line with industry practice. In order to reduceoverall raw material cost volatility, from time to time we may enter intovarious commodity contracts to hedge our purchase of commodity products. We donot attempt to hedge our commodity exposure in a manner that would eliminatethe effects of changes in commodity prices on our cash flows and earnings.

**16.**          SECURITIZATIONOF ACCOUNTS RECEIVABLE

Under our A/R Securitization Program, we grant anundivided interest in certain of our trade receivables to the ReceivablesTrust, a qualified off-balance sheet entity, at a discount. This undividedinterest serves as security for the issuance by the Receivables Trust ofcommercial paper. The A/R Securitization Program currently provides forfinancing through a commercial paper conduit program (in both U.S. dollars andeuros). On April 18, 2006, we completed an amendment and expansion of ourA/R Securitization Program and added certain additional U.S. subsidiaries asadditional receivables originators under the A/R Securitization Program. Inconnection with this amendment and expansion, the Receivables Trust redeemed infull all of the €90.5 million($109.8 million) and $85.0 million in principal amount of the medium-termnotes outstanding under the A/R Securitization Program. The amended A/RSecuritization Program currently provides for financing through a commercialpaper conduit program (in both U.S. dollars and euros). We expanded the size ofthe commercial paper conduit program to a committed amount of approximately$500 million U.S. dollar equivalents for three years. Interest costs to theReceivables Trust on amounts drawn under the commercial paper conduit are LIBORand/or EURIBOR, as applicable, plus 60 basis points per annum based upon apricing grid (which is dependent upon our credit rating). Transfers of accountsreceivable to the Receivables Trust continue to be accounted for as sales underthe amended A/R Securitization Program. At December 31, 2006, our capacityunder the A/R Securitization Program was approximately $446 million.

As of December 31, 2006, the Receivables Trusthad approximately $220 million and approximately €170 million($223.2 million) in commercial paper outstanding. As of December 31,2005, the Receivables Trust had approximately $192 million in U.S. dollarequivalents in medium-term notes outstanding and approximately$110.1 million in U.S. dollar equivalents in commercial paper outstanding.As of December 31, 2006 and 2005, the weighted average interest rate forthe commercial paper was approximately 4.4% and 3.5%, respectively.

As of December 31, 2006 and 2005, our retainedinterest in receivables (including servicing assets) subject to the program wasapproximately $157.9 million and $164 million, respectively. The value ofthe retained interest is subject to credit and interest rate risk. For theyears ended December 31, 2006, 2005 and 2004, new sales of accountsreceivable sold into the program totaled approximately $7,492 million,$5,585 million and $5,071 million, respectively, and cash collectionsfrom receivables sold into the program that were reinvested totaledapproximately $7,395 million, $5,589 million and $5,017 million,respectively. Servicing fees received during the years ended December 31,2006, 2005 and 2004 were approximately $8 million, $6 million and$6 million, 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, 2006, 2005 and2004, losses on the A/R Securitization Program were $16.1 million,$9.0 million and $13.3 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 forward contractsincluded as a 

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component of the loss onthe A/R Securitization Program were nil, nil and a loss of $2.4 millionfor the years ended December 31, 2006, 2005 and 2004, respectively.As of each of December 31, 2006 and 2005, the fair value of the open forwardcurrency contracts was nil.

Thekey economic assumptions used in valuing the residual interest are presentedbelow:

| ** **                             | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Weighted average  life (in days)       |       | 35-40                 |       | 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 31,2006 and 2005 were $24.7 million and $22.5 million, respectively.

**17.**          FAIRVALUE OF FINANCIAL INSTRUMENTS

| ** **                                      | ** ** | **December 31,**               | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                      | ** ** | **2006**                            | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **Carrying  Amount**                | ** ** | **Estimated  Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair Value** | ** ** |
| ** **                                      | ** ** | **(Dollars in millions)** | ** ** |
| Non-qualifed  employee benefit plan investments |       | $                                   | 7.6        |   |   | $ | 7.6 |   |   | $ | 5.4 |   |   | $ | 5.4 |   |   |
| Government  securities                          |       | 17.6                                |       |   | 17.6 |   |   | 31.2 |   |   | 31.2 |   |   |
| Long-term debt  (including current poriton)     |       | 3,645.3                             |       |   | 3,714.9 |   |   | 4,457.9 |   |   | 4,593.2 |   |   |
| Notes receivable from  affiliates               |       | —                              |       |   | — |   |   | 3.0 |   |   | 3.0 |   |   |
|                                                 |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The carrying amount reported in the balance sheets forcash and cash equivalents, accounts receivable, and accounts payableapproximates fair value because of the immediate or short-term maturity ofthese financial instruments. The fair value of government securities andnon-qualified employee benefit plan investments are estimated using prevailingmarket prices. Interest rates that are currently available to us for issuanceof debt with similar terms and remaining maturities are used to estimate fairvalue for debt issues that are not quoted on an exchange.

The fair value estimatespresented herein are based on pertinent information available to management asof December 31, 2006 and 2005. 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, 2006, and current estimates of fair valuemay differ significantly from the amounts presented herein.

**18.**          EMPLOYEEBENEFIT PLANS

**DEFINEDBENEFIT AND OTHER POSTRETIREMENT BENEFIT PLANS**

Our employees participate in a trusteed,non-contributory defined benefit pension plan (the “Plan”) that coverssubstantially all of our full-time U.S. employees. Effective July 1, 2004,the Plan formula for employees not covered by a collective bargaining agreementwas converted to a cash balance design. For represented employees,participation in the cash balance design is subject to the terms of negotiatedcontracts. Between July 1, 2004 and September 1, 2005, thirteencollectively bargained units had negotiated to participate. For participatingemployees, benefits accrued under the prior formula were converted to openingcash balance accounts. The new cash balance benefit formula provides annual paycredits from 4% to 12% of eligible pay, depending on age and service, plusaccrued interest. Participants in the plan on July 1, 2004 may be eligiblefor additional annual pay credits from 1% to 8%, depending on their age and 

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service as of that date,for up to five years. The conversion to the cash balance plan did not have asignificant impact on the accrued benefit liability, the funded status orongoing pension expense.

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

We also sponsor two unfunded postretirement benefitplans other than pensions, which provide medical and life insurance benefits.

In May 2004, the FASB issued FSP No. 106-2,*Accounting and Disclosure RequirementsRelated to the Medicare Prescription Drug, Improvement and Modernization Act of2003.*The FSP provides accounting guidance for the effects of theMedicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”)to a sponsor of a postretirement health care plan. On July 1, 2004 weadopted the provisions of FSP No. 106-2. The adoption of FSP No. 106-2reduced our non-pension postretirement accumulated benefit obligation byapproximately $4.7 million, which has been recognized as a change in ourunrecognized actuarial gain/loss. The adoption of FSP No. 106-2reduced the net periodic postretirement benefit cost recognized during the yearended December 31, 2005 by approximately $0.5 million.

In 2005, we changed themeasurement date of our pension and postretirement benefit plans from December 31to November 30. We believe the one-month change of the measurement date ispreferable because it provides us more time to review the completeness andaccuracy of the actuarial benefit information which results in an improvementin our internal control procedures. The effect of the change in measurementdate on the respective obligations and assets of the plan resulted in acumulative effect of a change in accounting principle credit, net of tax of$1.9 million, of $4.0 million ($0.02 decrease in loss per share) forus and a cumulative effect of a change in accounting principle credit, net oftax of $1.5 million, of $4.2 million for Huntsman Internationalrecorded in the year ended December 31, 2005. The pro forma impact ofchanging this accounting policy is to reduce net loss by approximately$0.2 million ($0.00 per share) for the year ended December 31, 2004.

The following tablesummarizes the impact of the initial adoption of SFAS No. 158 (dollars inmillions):

**Huntsman Corporation**

| ** **                                   | ** ** | **December 31,  2006 Prior to  SFAS  No. 158  Adjustments** | ** ** | ** ** | **SFAS No. 158  Adjustment** | ** ** | **December 31, 2006  Post  SFAS No. 158  Adjustments** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|------------|----------------------------------------|------------|----------------------------------------------------------------------------|------------|
| Prepaid pension  costs                       |       |                                                                            | $          | 143.1      |                                   |       |                                                                       |       | $ | (73.7 | ) |   |   | $ | 69.4 |   |   |
| Intangible assets                            |       |                                                                            | 6.8        |       |                                   |       |                                                                       | (6.8       | ) |   |   | — |   |   |
| Pension liabilities                          |       |                                                                            | (460.3     | )          |                                   |       |                                                                       | (86.2      | ) |   |   | (546.5 | ) |   |
| Postretirement  benefit liabilities          |       |                                                                            | (135.4     | )          |                                   |       |                                                                       | (39.2      | ) |   |   | (174.6 | ) |   |
| Accumulated other  comprehensive income |       |                                                                            | (162.0     | )          |                                   |       |                                                                       | (205.9     | ) |   |   | (367.9 | ) |   |

 

F-49

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**Huntsman International**

| ** **                              | ** ** | **December 31,  2006 Prior to  SFAS  No. 158  Adjustments** | ** ** | ** ** | **SFAS No. 158  Adjustment** | ** ** | **December 31, 2006  Post  SFAS No. 158  Adjustments** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------------------------------|------------|------------|----------------------------------------|------------|----------------------------------------------------------------------------|------------|
| Prepaid pension  costs                  |       |                                                                            | $          | 181.4      |                                   |       |                                                                       |       | $ | (112.0 | ) |   |   | $ | 69.4 |   |   |
| Intangible assets                       |       |                                                                            | 6.8        |       |                                   |       |                                                                       | (6.8       | ) |   |   | — |   |   |
| Pension  liabilities                    |       |                                                                            | (419.7     | )          |                                   |       |                                                                       | (126.8     | ) |   |   | (546.5 | ) |   |
| Postretirement  benefit liabilities     |       |                                                                            | (135.4     | )          |                                   |       |                                                                       | (39.2      | ) |   |   | (174.6 | ) |   |
| Accumulated other  comprehensive income |       |                                                                            | (221.0     | )          |                                   |       |                                                                       | (284.7     | ) |   |   | (505.7 | ) |   |

 

The amounts in accumulatedother comprehensive income that are expected to be recognized as components ofnet periodic benefit cost (credit) during the next fiscal year are as follows(dollars in millions):

**Huntsman Corporation**

| ** **                   | ** ** | **U.S.**              | ** ** | **Non-U.S.**                        | ** ** |
|------------------------------|------------|-----------------------|------------|-------------------------------------|------------|
| ** **                   | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** |
| Actuarial loss               |       |                  | $          | 5.4                                 |       |   |   | $ | 3.5 |   |   |   | $ | 7.3 |   |   |   | $ | 0.1 |   |   |
| Prior service  (credit) cost |       |                  | (5.5       | )                                   |       |   | (2.5 | ) |   |   | (1.2 | ) |   |   | — |   |   |
| Transition  obligation       |       |                  | 1.1        |                                |       |   | — |   |   |   | 0.7 |   |   |   | — |   |   |
| Total                        |       |                  | $          | 1.0                                 |       |   |   | $ | 1.0 |   |   |   | $ | 6.8 |   |   |   | $ | 0.1 |   |   |

 

**Huntsman International**

| ** **                   | ** ** | **U.S.**              | ** ** | **Non-U.S.**                        | ** ** |
|------------------------------|------------|-----------------------|------------|-------------------------------------|------------|
| ** **                   | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** |
| Actuarial loss               |       |                  | $          | 5.7                                 |       |   |   | $ | 3.5 |   |   |   | $ | 13.7 |   |   |   | $ | 0.1 |   |   |
| Prior service (credit)  cost |       |                  | (5.5       | )                                   |       |   | (2.5 | ) |   |   | (1.2 | ) |   |   | — |   |   |
| Transition obligation        |       |                  | 1.1        |                                |       |   | — |   |   |   | 0.7 |   |   |   | — |   |   |
| Total                        |       |                  | $          | 1.3                                 |       |   |   | $ | 1.0 |   |   |   | $ | 13.2 |   |   |   | $ | 0.1 |   |   |

 

F-50

----

Thefollowing table sets forth the funded status of the plans and the amountsrecognized in the consolidated balance sheets at December 31, 2006 and2005 (dollars in millions):

| ** **                                                   | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|--------------------------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                  | ** ** | **2005**                               | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Huntsman Corporation**                                | ** ** | ** **                | ** ** | **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                     |       | $                         | 625.5      |                                   |       | $ | 1,941.2 |   |   | $ | 489.6 |   |   | $ | 2,020.7 |   |   | $ | 155.9 |   |   | $ | 4.8 |   |   | $ | 126.9 |   |   | $ | 4.3 |   |   |
| Adjustment due to  change in measurement date                |       | —                    |       |                                   | —     |   |   | (2.1 | ) |   | (11.5 | ) |   | — |   |   | — |   |   | (0.1 | ) |   | — |   |   |
| Service cost                                                 |       | 34.1                      |       |                                   | 53.2       |   |   | 30.6 |   |   | 48.3 |   |   | 4.3 |   |   | — |   |   | 4.1 |   |   | — |   |   |
| Interest cost                                                |       | 37.5                      |       |                                   | 98.0       |   |   | 35.9 |   |   | 90.3 |   |   | 8.7 |   |   | 0.2 |   |   | 9.3 |   |   | 0.2 |   |   |
| Participant  contributions                                   |       | —                    |       |                                   | 8.7        |   |   | — |   |   | 5.8 |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Plan amendments                                              |       | 1.0                       |       |                                   | 2.6        |   |   | (21.4 | ) |   | (15.4 | ) |   | 0.1 |   |   | — |   |   | (8.4 | ) |   | — |   |   |
| Exchange rate  changes                                       |       | —                    |       |                                   | 247.3      |   |   | — |   |   | (242.3 | ) |   | — |   |   | — |   |   | — |   |   | 0.2 |   |   |
| Divestitures/acquisitions                                    |       | (15.9                     | )          |                                   | 313.1      |   |   | — |   |   | 0.3 |   |   | 4.0 |   |   | — |   |   | — |   |   | — |   |   |
| Settlements/transfers                                        |       | —                    |       |                                   | (1.4       | ) |   | — |   |   | (2.7 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Other                                                        |       | 2.0                       |       |                                   | (1.5       | ) |   | — |   |   | (0.3 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Curtailments                                                 |       | —                    |       |                                   | (123.0     | ) |   | — |   |   | (2.6 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Special termination  benefits                                |       | —                    |       |                                   | 2.6        |   |   | — |   |   | 11.4 |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Actuarial loss  (gain)                                       |       | 24.7                      |       |                                   | 120.2      |   |   | 13.2 |   |   | 108.5 |   |   | 9.5 |   |   | (0.1 | ) |   | (0.4 | ) |   | 0.4 |   |   |
| Consolidation of  Rubicon                                    |       | —                    |       |                                   | —     |   |   | 116.5 |   |   | — |   |   | — |   |   | — |   |   | 34.2 |   |   | — |   |   |
| Benefits paid                                                |       | (45.7                     | )          |                                   | (75.9      | ) |   | (36.8 | ) |   | (69.3 | ) |   | (11.4 | ) |   | (0.4 | ) |   | (9.7 | ) |   | (0.3 | ) |   |
| Benefit obligation at end  of year                           |       | $                         | 663.2      |                                   |       | $ | 2,585.1 |   |   | $ | 625.5 |   |   | $ | 1,941.2 |   |   | $ | 171.1 |   |   | $ | 4.5 |   |   | $ | 155.9 |   |   | $ | 4.8 |   |   |
| **Change in plan assets**                                    |       |                      |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair value of plan  assets at beginning of year         |       | $                         | 416.9      |                                   |       | $ | 1,626.3 |   |   | $ | 297.8 |   |   | $ | 1,607.4 |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   |
| Adjustment due to  change in measurement date                |       | —                    |       |                                   | —     |   |   | (8.8 | ) |   | (8.8 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Actual return on  plan assets                                |       | 60.5                      |       |                                   | 202.2      |   |   | 36.5 |   |   | 236.1 |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Exchange rate  changes                                       |       | —                    |       |                                   | 211.5      |   |   | — |   |   | (200.0 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Divestitures/acquisitions                                    |       | —                    |       |                                   | 245.2      |   |   | — |   |   | 0.2 |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Participant  contributions                                   |       | —                    |       |                                   | 8.7        |   |   | — |   |   | 5.8 |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Other                                                        |       | —                    |       |                                   | (0.9       | ) |   | — |   |   | 4.3 |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Administrative  expenses                                     |       | —                    |       |                                   | (1.1       | ) |   | — |   |   | (1.3 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Company  contributions                                       |       | 58.1                      |       |                                   | 57.5       |   |   | 50.8 |   |   | 55.8 |   |   | 11.4 |   |   | 0.4 |   |   | 9.7 |   |   | 0.3 |   |   |
| Settlements/transfers                                        |       | —                    |       |                                   | (2.3       | ) |   | — |   |   | (3.9 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Consolidation of  Rubicon                                    |       | —                    |       |                                   | —     |   |   | 77.4 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Benefits paid                                                |       | (45.7                     | )          |                                   | (75.9      | ) |   | (36.8 | ) |   | (69.3 | ) |   | (11.4 | ) |   | (0.4 | ) |   | (9.7 | ) |   | (0.3 | ) |   |
| Fair value of plan assets  at end of year                    |       | $                         | 489.8      |                                   |       | $ | 2,271.2 |   |   | $ | 416.9 |   |   | $ | 1,626.3 |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   |
| **Funded status**                                            |       |                      |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair value of plan  assets                                   |       | $                         | 489.8      |                                   |       | $ | 2,271.2 |   |   | $ | 416.9 |   |   | $ | 1,626.3 |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   |
| Benefit  obligations                                         |       | 663.2                     |       |                                   | 2,585.1    |   |   | 625.5 |   |   | 1,941.2 |   |   | 171.1 |   |   | 4.5 |   |   | 155.9 |   |   | 4.8 |   |   |
| Funded status                                                |       | (173.4                    | )          |                                   | (313.9     | ) |   | (208.6 | ) |   | (314.9 | ) |   | (171.1 | ) |   | (4.5 | ) |   | (155.9 | ) |   | (4.8 | ) |   |
| Unrecognized net  actuarial loss                             |       | —                    |       |                                   | —     |   |   | 153.5 |   |   | 318.4 |   |   | — |   |   | — |   |   | 55.4 |   |   | 1.4 |   |   |
| Unrecognized prior  service credit                           |       | —                    |       |                                   | —     |   |   | (68.3 | ) |   | (6.5 | ) |   | — |   |   | — |   |   | (26.9 | ) |   | — |   |   |
| Unrecognized  transition obligation                          |       | —                    |       |                                   | —     |   |   | 2.8 |   |   | 2.5 |   |   | — |   |   | — |   |   | — |   |   | 0.2 |   |   |
| Contributions paid  December 1 through December 31 |       | 3.9                       |       |                                   | 6.3        |   |   | 3.3 |   |   | 3.7 |   |   | 0.9 |   |   | 0.1 |   |   | 0.7 |   |   | — |   |   |
| Accrued benefit cost                                         |       | $                         | (169.5     | )                                      |       | $ | (307.6 | ) |   | $ | (117.3 | ) |   | $ | 3.2 |   |   | $ | (170.2 | ) |   | $ | (4.4 | ) |   | $ | (126.7 | ) |   | $ | (3.2 | ) |   |
|                                                              |            |                           |            |                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-51

----

 

| ** **                                | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|-------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|
| ** **                                | ** ** | **2006**                  | ** ** | **2005**                               | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                | ** ** | **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** | ** ** |
| **Amounts recognized in balance  sheet:** |       |                      |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |            |                           |            |                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Noncurrent asset                                                   |   |   | $      | 1.7    |   |   |   | $      | 67.7   |   |   |   | $      | — |   |   |   | $      | — |   |   |   | $      | — |   |   |   | $      | — |   |   |   | $      | — |   |   |   | $ | — |   |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---|--------|--------|--------|
| Current liability                                                  |   |   | (4.7   | )      |   |   | (5.1   | )      |   |   | — |   |   |   | — |   |   |   | (12.0  | )      |   |   | (0.4   | )      |   |   | — |   |   |   | — |   |   |
| Noncurrent  liability                                              |   |   | (166.5 | )      |   |   | (370.2 | )      |   |   | — |   |   |   | — |   |   |   | (158.2 | )      |   |   | (4.0   | )      |   |   | — |   |   |   | — |   |   |
| Prepaid benefit  cost                                              |   |   | — |   |   |   | — |   |   |   | 1.0    |   |   |   | 148.1  |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Accrued benefit  cost                                              |   |   | — |   |   |   | — |   |   |   | (185.7 | )      |   |   | (216.9 | )      |   |   | — |   |   |   | — |   |   |   | (126.7 | )      |   |   | (3.2   | )      |   |
| Intangible asset                                                   |   |   | — |   |   |   | — |   |   |   | 3.6    |   |   |   | 3.7    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Accumulated other  comprehensive income                            |   |   | — |   |   |   | — |   |   |   | 63.8   |   |   |   | 68.3   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                               |   |   | $      | (169.5 | )      |   |   | $      | (307.6 | )      |   |   | $      | (117.3 | )      |   |   | $      | 3.2    |   |   |   | $      | (170.2 | )      |   |   | $      | (4.4   | )      |   |   | $      | (126.7 | )      |   |   | $ | (3.2   | )      |   |
| **Amounts  recognized in accumulated other comprehensive income:** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net actuarial loss                                                 |   |   | $      | 128.0  |   |   |   | $      | 261.6  |   |   |   | $      | — |   |   |   | $      | — |   |   |   | $      | 61.4   |   |   |   | $      | 1.1    |   |   |   | $      | — |   |   |   | $ | — |   |   |
| Prior service  credit                                              |   |   | (62.7  | )      |   |   | (2.9   | )      |   |   | — |   |   |   | — |   |   |   | (23.5  | )      |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Transition  obligation                                             |   |   | 2.6    |   |   |   | 2.1    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 0.2    |   |   |   | — |   |   |   | — |   |   |
|                                                               |   |   | $      | 67.9   |   |   |   | $      | 260.8  |   |   |   | $      | — |   |   |   | $      | — |   |   |   | $      | 37.9   |   |   |   | $      | 1.3    |   |   |   | $      | — |   |   |   | $ | — |   |   |

 

Componentsof the net periodic benefit costs for the years ended December 31, 2006,2005 and 2004 were as follows (dollars in millions):

| ** **                                            | ** ** | **Defined  Benefit Plans** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **U.S.  plans**            | ** ** | **Non U.S.  plans** | ** ** |
| ** **                                            | ** ** | **2006**                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                                          |       | $                          | 34.1       |   | $ | 30.6 |   | $ | 19.0 |   | $ | 53.2 |   | $ | 48.3 |   | $ | 45.1 |   |
| Interest cost                                         |       | 37.5                       |       | 35.9 |   | 30.7 |   | 98.0 |   | 90.3 |   | 86.9 |   |
| Expected return  on assets                            |       | (34.4                      | )          | (31.0 | ) | (22.1 | ) | (125.3 | ) | (105.8 | ) | (96.4 | ) |
| Amortization of  transition obligation                |       | 1.2                        |       | 1.1 |   | 1.1 |   | 0.7 |   | 0.7 |   | 0.7 |   |
| Amortization of  prior service cost                   |       | (5.6                       | )          | (4.0 | ) | 1.0 |   | (1.0 | ) | (1.2 | ) | 0.5 |   |
| Amortization of  actuarial loss                       |       | 8.7                        |       | 7.4 |   | 4.8 |   | 10.8 |   | 15.4 |   | 5.8 |   |
| Curtailment gain                                      |       | —                     |       | — |   | — |   | (18.2 | ) | (1.2 | ) | — |   |
| Settlement loss                                       |       | —                     |       | — |   | — |   | 0.8 |   | 1.3 |   | — |   |
| Special  termination benefits                         |       | —                     |       | — |   | — |   | 2.1 |   | 11.4 |   | 4.7 |   |
| Net periodic  benefit cost                            |       | 41.5                       |       | 40.0 |   | 34.5 |   | 21.1 |   | 59.2 |   | 47.3 |   |
| Less discontinued  operations                         |       | —                     |       | — |   | — |   | (1.9 | ) | (21.0 | ) | (18.7 | ) |
| Net periodic benefit  cost from continuing operations |       | $                          | 41.5       |   | $ | 40.0 |   | $ | 34.5 |   | $ | 19.2 |   | $ | 38.2 |   | $ | 28.6 |   |

 

| ** **                          | ** ** | **Other Postretirement Benefit Plans** | ** ** |                         |
|-------------------------------------|------------|-------------------------------------------------------|------------|------------------------------|
| ** **                          | ** ** | **U.S. plans**                                   | ** ** | **Non U.S. plans** | ** ** |   |
| ** **                          | ** ** | **2006**                                              | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |   |
| Service cost                        |       |                                                  | $          | 4.3                          |   |   |   | $ | 4.1 |   |   |   | $ | 3.3 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Interest cost                       |       |                                                  | 8.7        |                         |   |   | 9.3 |   |   |   | 7.5 |   |   |   | 0.2 |   |   |   | 0.2 |   |   |   | 0.2 |   |   |
| Amortization of  prior service cost |       |                                                  | (3.0       | )                            |   |   | (2.4 | ) |   |   | (1.9 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Amortization of  actuarial loss     |       |                                                  | 3.1        |                         |   |   | 3.3 |   |   |   | 3.5 |   |   |   | 0.1 |   |   |   | 0.1 |   |   |   | 0.1 |   |   |
| Acquisition/divestiture             |       |                                                  | —     |                         |   |   | — |   |   |   | — |   |   |   | 0.1 |   |   |   | — |   |   |   | 0.1 |   |   |
| Net periodic benefit  cost          |       |                                                  | $          | 13.1                         |   |   |   | $ | 14.3 |   |   |   | $ | 12.4 |   |   |   | $ | 0.4 |   |   |   | $ | 0.3 |   |   |   | $ | 0.4 |   |   |

 

F-52

----

| ** **                       | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|----------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                       | ** ** | **2006**                            | ** ** | **2005**                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Huntsman International**  | ** ** | ** **                          | ** ** | **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                 |       |   | $          | 625.5      |   |   |       | $          | 1,941.2 |   |       |       | $      | 489.6  |       |       |   | $      | 2,020.7    |       |   |   | $          | 155.9      |   |   |       | $          | 4.8    |   |       |       | $      | 126.9  |   |   |   | $ | 4.3    |   |   |
|--------------------------------------------------------------|------------|--------|------------|------------|--------|--------|------------|------------|---------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|--------|--------|--------|---|--------|--------|--------|
| Adjustment due to change in measurement date            |       |   | —     |       |   |   | —     |       |    |   | (2.1       | )          |   |   | (11.5      | )          |   |   | —     |       |   |   | —     |       |   |   | (0.1       | )          |   |   | —     |       |   |
| Service cost                                                 |       |   | 34.1       |       |   |   | 53.2       |       |    |   | 30.6       |       |   |   | 48.3       |       |   |   | 4.3        |       |   |   | —     |       |   |   | 4.1        |       |   |   | —     |       |   |
| Interest cost                                                |       |   | 37.5       |       |   |   | 98.0       |       |    |   | 35.9       |       |   |   | 90.3       |       |   |   | 8.7        |       |   |   | 0.2        |       |   |   | 9.3        |       |   |   | 0.2        |       |   |
| Participant contributions                                    |       |   | —     |       |   |   | 8.7        |       |    |   | —     |       |   |   | 5.8        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Plan amendments                                              |       |   | 1.0        |       |   |   | 2.6        |       |    |   | (21.4      | )          |   |   | (15.4      | )          |   |   | 0.1        |       |   |   | —     |       |   |   | (8.4       | )          |   |   | —     |       |   |
| Exchange rate changes                                        |       |   | —     |       |   |   | 247.3      |       |    |   | —     |       |   |   | (242.3     | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | 0.2        |       |   |
| Divestitures/acquisitions                                    |       |   | (15.9      | )          |   |   | 313.1      |       |    |   | —     |       |   |   | 0.3        |       |   |   | 4.0        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Consolidation of Rubicon                                     |       |   | —     |       |   |   | —     |       |    |   | 116.5      |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | 34.2       |       |   |   | —     |       |   |
| Settlements/transfers                                        |       |   | —     |       |   |   | (1.4       | )          |    |   | —     |       |   |   | (2.7       | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Other                                                        |       |   | 2.0        |       |   |   | (1.5       | )          |    |   | —     |       |   |   | (0.3       | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Curtailments                                                 |       |   | —     |       |   |   | (123.0     | )          |    |   | —     |       |   |   | (2.6       | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Special termination benefits                                 |       |   | —     |       |   |   | 2.6        |       |    |   | —     |       |   |   | 11.4       |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Actuarial loss (gain)                                        |       |   | 24.7       |       |   |   | 120.2      |       |    |   | 13.2       |       |   |   | 108.5      |       |   |   | 9.5        |       |   |   | (0.1       | )          |   |   | (0.4       | )          |   |   | 0.4        |       |   |
| Benefits paid                                                |       |   | (45.7      | )          |   |   | (75.9      | )          |    |   | (36.8      | )          |   |   | (69.3      | )          |   |   | (11.4      | )          |   |   | (0.4       | )          |   |   | (9.7       | )          |   |   | (0.3       | )          |   |
| Benefit obligation at end of year                            |       |   | $          | 663.2      |   |   |       | $          | 2,585.1 |   |       |       | $      | 625.5  |       |       |   | $      | 1,941.2    |       |   |   | $          | 171.1      |   |   |       | $          | 4.5    |   |       |       | $      | 155.9  |   |   |   | $ | 4.8    |   |   |
| **Change in plan assets**                                    | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |    |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Fair value of plan assets at beginning of year               |       |   | $          | 416.9      |   |   |       | $          | 1,626.3 |   |       |       | $      | 297.8  |       |       |   | $      | 1,607.4    |       |   |   | $          | —     |   |   |       | $          | — |   |       |       | $      | — |   |   |   | $ | — |   |   |
| Adjustment due to change in measurement date            |       |   | —     |       |   |   | —     |       |    |   | (8.8       | )          |   |   | (8.8       | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Actual return on plan assets                                 |       |   | 60.5       |       |   |   | 202.2      |       |    |   | 36.5       |       |   |   | 236.1      |       |   |   |       |       |   |   |       |       |   |   |       |       |   |   |       |       |   |
| Exchange rate changes                                        |       |   | —     |       |   |   | 211.5      |       |    |   | —     |       |   |   | (200.0     | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Divestitures/acquisitions                                    |       |   | —     |       |   |   | 245.2      |       |    |   | —     |       |   |   | 0.2        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Participant contributions                                    |       |   | —     |       |   |   | 8.7        |       |    |   | —     |       |   |   | 5.8        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Other                                                        |       |   | —     |       |   |   | (0.9       | )          |    |   | —     |       |   |   | 4.3        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Administrative expenses                                      |       |   | —     |       |   |   | (1.1       | )          |    |   | —     |       |   |   | (1.3       | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Company contributions                                        |       |   | 58.1       |       |   |   | 57.5       |       |    |   | 50.8       |       |   |   | 55.8       |       |   |   | 11.4       |       |   |   | 0.4        |       |   |   | 9.7        |       |   |   | 0.3        |       |   |
| Settlements/transfers                                        |       |   | —     |       |   |   | (2.3       | )          |    |   | —     |       |   |   | (3.9       | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Consolidation of Rubicon                                     |       |   | —     |       |   |   | —     |       |    |   | 77.4       |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Benefits paid                                                |       |   | (45.7      | )          |   |   | (75.9      | )          |    |   | (36.8      | )          |   |   | (69.3      | )          |   |   | (11.4      | )          |   |   | (0.4       | )          |   |   | (9.7       | )          |   |   | (0.3       | )          |   |
| Fair value of plan assets at end of year                |       |   | $          | 489.8      |   |   |       | $          | 2,271.2 |   |       |       | $      | 416.9  |       |       |   | $      | 1,626.3    |       |   |   | $          | —     |   |   |       | $          | — |   |       |       | $      | — |   |   |   | $ | — |   |   |
| **Funded status**                        | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |    |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Fair value of plan assets                                    |       |   | $          | 489.8      |   |   |       | $          | 2,271.2 |   |       |       | $      | 416.9  |       |       |   | $      | 1,626.3    |       |   |   | $          | —     |   |   |       | $          | — |   |       |       | $      | — |   |   |   | $ | — |   |   |
| Benefit obligations                                          |       |   | 663.2      |       |   |   | 2,585.1    |       |    |   | 625.5      |       |   |   | 1,941.2    |       |   |   | 171.1      |       |   |   | 4.5        |       |   |   | 155.9      |       |   |   | 4.8        |       |   |
| Funded status                                                |       |   | (173.4     | )          |   |   | (313.9     | )          |    |   | (208.6     | )          |   |   | (314.9     | )          |   |   | (171.1     | )          |   |   | (4.5       | )          |   |   | (155.9     | )          |   |   | (4.8       | )          |   |
| Unrecognized net actuarial loss                              |       |   | —     |       |   |   | —     |       |    |   | 158.0      |       |   |   | 446.4      |       |   |   | —     |       |   |   | —     |       |   |   | 55.4       |       |   |   | 1.4        |       |   |
| Unrecognized prior service credit                            |       |   | —     |       |   |   | —     |       |    |   | (68.3      | )          |   |   | (6.5       | )          |   |   | —     |       |   |   | —     |       |   |   | (26.9      | )          |   |   | —     |       |   |
| Unrecognized transition obligation                           |       |   | —     |       |   |   | —     |       |    |   | 2.8        |       |   |   | 2.5        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | 0.2        |       |   |
| Contributions paid December 1 through  December 31 |       |   | 3.9        |       |   |   | 6.3        |       |    |   | 3.3        |       |   |   | 3.7        |       |   |   | 0.9        |       |   |   | 0.1        |       |   |   | 0.7        |       |   |   | —     |       |   |
| Accrued benefit  cost                                        |       |   | $          | (169.5     | )      |   |       | $          | (307.6  | )      |       |       | $      | (112.8 | )          |       |   | $      | 131.2      |       |   |   | $          | (170.2     | )      |   |       | $          | (4.4   | )      |       |       | $      | (126.7 | )      |   |   | $ | (3.2   | )      |   |

 

F-53

----

 

| ** **                                      | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                            | ** ** | **2005**                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **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** | ** ** |
| **Amounts  recognized in balance  sheet:** | ** ** |                                | ** ** | ** **                                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
|                                                 |            |                                     |            |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Noncurrent asset                                                        |       |   | $          | 1.7        |   |   |       | $          | 67.7   |   |       |       | $      | — |       |       |   | $      | —     |       |   |   | $          | —     |   |   |       | $          | — |   |       |       | $      | — |   |   |   | $ | — |   |   |
|-------------------------------------------------------------------------|------------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|------------|------------|--------|--------|--------|--------|--------|---|--------|--------|--------|
| Current liability                                                       |       |   | (4.7       | )          |   |   | (5.1       | )          |   |   | —     |       |   |   | —     |       |   |   | (12.0      | )          |   |   | (0.4       | )          |   |   | —     |       |   |   | —     |       |   |
| Noncurrent liability                                                    |       |   | (166.5     | )          |   |   | (370.2     | )          |   |   | —     |       |   |   | —     |       |   |   | (158.2     | )          |   |   | (4.0       | )          |   |   | —     |       |   |   | —     |       |   |
| Prepaid benefit cost                                                    |       |   | —     |       |   |   | —     |       |   |   | 1.0        |       |   |   | 243.9      |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Accrued benefit cost                                                    |       |   | —     |       |   |   | —     |       |   |   | (185.7     | )          |   |   | (246.7     | )          |   |   | —     |       |   |   | —     |       |   |   | (126.7     | )          |   |   | (3.2       | )          |   |
| Intangible asset                                                        |       |   | —     |       |   |   | —     |       |   |   | 3.6        |       |   |   | 3.7        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Accumulated other  comprehensive income                                 |       |   | —     |       |   |   | —     |       |   |   | 68.3       |       |   |   | 130.3      |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
|                                                                    |       |   | $          | (169.5     | )      |   |       | $          | (307.6 | )      |       |       | $      | (112.8 | )          |       |   | $      | 131.2      |       |   |   | $          | (170.2     | )      |   |       | $          | (4.4   | )      |       |       | $      | (126.7 | )      |   |   | $ | (3.2   | )      |   |
| **Amounts  recognized in accumulated other comprehensive income:** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net actuarial loss                                                      |       |   | $          | 131.7      |   |   |       | $          | 395.7  |   |       |       | $      | — |       |       |   | $      | —     |       |   |   | $          | 61.4       |   |   |       | $          | 1.1    |   |       |       | $      | — |   |   |   | $ | — |   |   |
| Prior service credit                                                    |       |   | (62.7      | )          |   |   | (2.9       | )          |   |   | —     |       |   |   | —     |       |   |   | (23.5      | )          |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |
| Transition obligation                                                   |       |   | 2.6        |       |   |   | 2.1        |       |   |   | —     |       |   |   | —     |       |   |   | —     |       |   |   | 0.2        |       |   |   | —     |       |   |   | —     |       |   |
|                                                                    |       |   | $          | 71.6       |   |   |       | $          | 394.9  |   |       |       | $      | — |       |       |   | $      | —     |       |   |   | $          | 37.9       |   |   |       | $          | 1.3    |   |       |       | $      | — |   |   |   | $ | — |   |   |

 

Componentsof the net periodic benefit costs for the years ended December 31, 2006,2005 and 2004 were as follows (dollars in millions):

| ** **                                           | ** ** | **Defined Benefit Plans** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                           | ** ** | **U.S. plans**                 | ** ** | **Non U.S. plans** | ** ** |
| ** **                                           | ** ** | **2006**                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                                         |       | $                                   | 34.1       |   | $ | 30.6 |   | $ | 19.0 |   | $ | 53.2 |   | $ | 48.3 |   | $ | 45.1 |   |
| Interest cost                                        |       | 37.5                                |       | 35.9 |   | 30.7 |   | 98.0 |   | 90.3 |   | 86.9 |   |
| Expected return  on assets                           |       | (34.4                               | )          | (31.0 | ) | (22.1 | ) | (125.3 | ) | (105.8 | ) | (96.4 | ) |
| Amortization of  transition obligation               |       | 1.2                                 |       | 1.1 |   | 1.1 |   | 0.7 |   | 0.7 |   | 0.7 |   |
| Amortization of  prior service cost                  |       | (5.6                                | )          | (4.0 | ) | 1.0 |   | (1.0 | ) | (1.2 | ) | 0.5 |   |
| Amortization of  actuarial loss                      |       | 9.5                                 |       | 7.4 |   | 4.8 |   | 20.4 |   | 24.0 |   | 20.2 |   |
| Curtailment gain                                     |       | —                              |       | — |   | — |   | — |   | (1.2 | ) | — |   |
| Settlement loss                                      |       | —                              |       | — |   | — |   | 0.8 |   | 1.3 |   | — |   |
| Special  termination benefits                        |       | —                              |       | — |   | — |   | 2.1 |   | 11.4 |   | 4.7 |   |
| Net periodic  benefit cost                           |       | 42.3                                |       | 40.0 |   | 34.5 |   | 48.9 |   | 67.8 |   | 61.7 |   |
| Less discontinued  operations                        |       | —                              |       | — |   | — |   | (18.8 | ) | (21.0 | ) | (18.7 | ) |
| Net periodic benefit cost from continuing operations |       | $                                   | 42.3       |   | $ | 40.0 |   | $ | 34.5 |   | $ | 30.1 |   | $ | 46.8 |   | $ | 43.0 |   |

 

| ** **                          | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                          | ** ** | **U.S. plans**                                   | ** ** | **Non U.S. plans** | ** ** |
| ** **                          | ** ** | **2006**                                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                        |       | $                                                     | 4.3        |   | $ | 4.1 |   | $ | 3.3 |   | $ | — |   | $ | — |   | $ | — |   |
| Interest cost                       |       | 8.7                                                   |       | 9.3 |   | 7.5 |   | 0.2 |   | 0.2 |   | 0.2 |   |
| Amortization of  prior service cost |       | (3.0                                                  | )          | (2.4 | ) | (1.9 | ) | — |   | — |   | — |   |
| Amortization of  actuarial loss     |       | 3.1                                                   |       | 3.3 |   | 3.5 |   | 0.1 |   | 0.1 |   | 0.1 |   |
| Acquisition/divestiture             |       | —                                                |       | — |   | — |   | 0.1 |   | — |   | 0.1 |   |
| Net periodic  benefit cost          |       | $                                                     | 13.1       |   | $ | 14.3 |   | $ | 12.4 |   | $ | 0.4 |   | $ | 0.3 |   | $ | 0.4 |   |

 

F-54

----

Thefollowing weighted-average assumptions were used to determine the projectedbenefit obligation at the measurement date and the net periodic pension costfor the year:

| ** **                      | ** ** | **Defined Benefit Plans** | ** ** |
|---------------------------------|------------|-------------------------------------|------------|
| ** **                      | ** ** | **U.S. plans**                 | ** ** | **Non U.S. plans** | ** ** |
| ** **                      | ** ** | **2006**                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Projected benefit  obligation:  |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                   |       | 5.67                                | %          | 5.75 | % | 5.75 | % | 4.39 | % | 4.61 | % | 4.85 | % |
| Rate of compensation increase   |       | 3.89                                | %          | 3.90 | % | 4.00 | % | 3.22 | % | 3.33 | % | 3.65 | % |
| Net periodic pension cost:      |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| 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 | % |
| Expected return  on plan assets |       | 8.25                                | %          | 8.25 | % | 8.25 | % | 6.89 | % | 7.06 | % | 7.11 | % |

 

| ** **                     | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S. plans**                                   | ** ** | **Non U.S. plans** | ** ** |
| ** **                     | ** ** | **2006**                                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Projected benefit  obligation: |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                  |       | 5.63                                                  | %          | 5.71 | % | 5.75 | % | 5.00 | % | 5.00 | % | 5.77 | % |
| Net periodic pension cost:     |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                  |       | 5.71                                                  | %          | 5.75 | % | 6.00 | % | 5.00 | % | 5.77 | % | 6.25 | % |

 

Theprojected benefit obligation and fair value of plan assets for the definedbenefit plans with projected benefit obligations in excess of plan assets wereas follows (dollars in millions):

| ** **                                 | ** ** | **U.S. Plans** | ** ** | **Non U.S. Plans** | ** ** |
|--------------------------------------------|------------|---------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **2006**            | ** ** | **2005**                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| Projected benefit  obligation, end of year |       | $                   | 649.6      |                         | $          | 625.5 |   | $ | 2,286.1 |   | $ | 1,430.5 |   |
| Fair value of plan  assets, end of year    |       | 474.5               |       | 416.9                        |       | 1,839.3 |   | 1,089.6 |   |
|                                            |            |                     |            |                              |            |  |  |  |  |  |  |  |  |

 

Theprojected benefit obligation, accumulated benefit obligation and fair value ofplan assets for pension plans with  anaccumulated benefit obligation in excess of plan assets at December 31,2006 and 2005 were as follows (dollars in millions):

| ** **                                                   | ** ** | **U.S. Plans** | ** ** | **Non-U.S. Plans** | ** ** |
|--------------------------------------------------------------|------------|---------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **2006**            | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Accumulated  benefit obligation in excess of plan assets** | ** ** | ** **          | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Projected benefit  obligation, year end                      |       | $                   | 645.8      |                    | $          | 625.5 |   | $ | 2,233.0 |   | $ | 1,430.5 |   |
| Accumulated  benefit obligation, year end                    |       | 621.2               |       | 605.0                   |       | 2,048.3 |   | 1,220.8 |   |
| Fair value of plan  assets, year end                         |       | 470.8               |       | 416.9                   |       | 1,794.0 |   | 1,089.6 |   |
|                                                              |            |                     |            |                         |            |  |  |  |  |  |  |  |  |

x

F-55

----

Expectedfuture contributions and benefit payments are as follows (dollarsin millions):

| ** **                                 | ** ** | **U.S. Plans**    | ** ** | **Non-U.S. Plans**       | ** ** |
|--------------------------------------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | **Defined**            | ** ** | **Other Postretirement** | ** ** | **Defined** | ** ** | **Other Postretirement** | ** ** |
| ** **                                 | ** ** | **Benefit Plans** | ** ** | **Benefit Plans**        | ** ** | **Benefit Plans** | ** ** | **Benefit Plans** | ** ** |
| **2007 expected employer  contributions:** | ** ** |                   | ** ** | ** **                    |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| To plan trusts                             |       |                   | $          | 57.7                          | ** ** |   |   | $ | — | ** ** |   |   | $ | 108.3 | ** ** |   |   | $ | — | ** ** |   |
| **Expected  benefit payments:**            | ** ** |                   | ** ** | ** **                    |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| 2007                                       |       |                   | $          | 48.0                          | ** ** |   |   | $ | 12.0 | ** ** |   |   | $ | 86.2 | ** ** |   |   | $ | 0.4 | ** ** |   |
| 2008                                       |       |                   | 37.6       | ** **                    |       |   | 11.9 | ** ** |   |   | 87.3 | ** ** |   |   | 0.4 | ** ** |   |
| 2009                                       |       |                   | 41.6       | ** **                    |       |   | 11.8 | ** ** |   |   | 89.7 | ** ** |   |   | 0.4 | ** ** |   |
| 2010                                       |       |                   | 42.8       | ** **                    |       |   | 11.6 | ** ** |   |   | 93.5 | ** ** |   |   | 0.4 | ** ** |   |
| 2011                                       |       |                   | 47.0       | ** **                    |       |   | 11.7 | ** ** |   |   | 99.6 | ** ** |   |   | 0.4 | ** ** |   |
| 2012-2016                                  |       |                   | 281.4      | ** **                    |       |   | 55.9 | ** ** |   |   | 497.6 | ** ** |   |   | 1.7 | ** ** |   |

 

In2006 and 2005, the health care trend rate used to measure the expected increasein the cost of benefits was assumed to be 10% and 9%, respectively, decreasingto 5% after 2009. Assumed health care cost trend rates have a significanteffect on the amounts reported for the postretirement benefit plans. Aone-percent-point change in assumed health care cost trend rates wouldhave the following effects (dollars in millions):

| ** **                                    | ** ** | **One-Percentage** | ** ** | **One-Percentage** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **Point**          | ** ** | **Point**          | ** ** |
| **Asset category**                       | ** ** | ** **         | ** ** | **Increase**       | ** ** | **Decrease** | ** ** |
| Effect on total  of service and interest cost |       |               | $          | 2.1                |       |   |   | $ | (2.1 | ) |   |
| Effect on postretirement  benefit obligation  |       |               | 9.6        |               |       |   | (10.3 | ) |   |
|                                               |            |                    |            |                    |            |  |  |  |  |  |  |  |  |

 

Theasset allocation for our pension plans at the end of 2006 and 2005 and thetarget allocation for 2007, by asset category, follows. The fair value of planassets for these plans was $2,761.0 million at the end of 2006. 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 6.9% to 8.25%.

| ** **                    | ** ** | ** ** | ** ** | **Allocation at**               | ** ** | **Allocation at**          | ** ** |
|-------------------------------|------------|------------|------------|--------------------------------------|------------|---------------------------------|------------|
| **Asset category**       | ** ** | ** ** | ** ** | **Target Allocation 2007** | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
| U.S. pension plans:           |       |       |       |                                 |       |                            |       |   |   |   |   |   |   |
| Large Cap Equities            |       |       | 30         | %                                    |       |                            | 29         | % |   |   | 31 | % |   |
| Small/Mid Cap Equities        |       |       | 18         | %                                    |       |                            | 17         | % |   |   | 19 | % |   |
| International Equities        |       |       | 17         | %                                    |       |                            | 18         | % |   |   | 16 | % |   |
| Fixed Income                  |       |       | 20         | %                                    |       |                            | 18         | % |   |   | 17 | % |   |
| Real Estate/Other             |       |       | 15         | %                                    |       |                            | 15         | % |   |   | 14 | % |   |
| Cash                          |       |       | 0          | %                                    |       |                            | 3          | % |   |   | 3 | % |   |
| Total U.S. pension plans      |       |       | 100        | %                                    |       |                            | 100        | % |   |   | 100 | % |   |
| Non-U.S. pension  plans:      |       |       |       |                                 |       |                            |       |   |   |   |   |   |   |
| Equities                      |       |       | 57         | %                                    |       |                            | 58         | % |   |   | 60 | % |   |
| Fixed Income                  |       |       | 38         | %                                    |       |                            | 37         | % |   |   | 35 | % |   |
| Real estate                   |       |       | 4          | %                                    |       |                            | 4          | % |   |   | 4 | % |   |
| Cash                          |       |       | 1          | %                                    |       |                            | 1          | % |   |   | 1 | % |   |
| Total non-U.S.  pension plans |       |       | 100        | %                                    |       |                            | 100        | % |   |   | 100 | % |   |
|                               |            |            |            |                                      |            |                                 |            |  |  |  |  |  |  |  |  |

 

F-56

----

Equity securities in our pension plans did not includeany equity securities of our Company or our affiliates at the end of 2006.

Our pension plan assetsare managed by outside investment managers; assets are rebalanced based uponmarket opportunities and the consideration of transactions costs. Our strategywith respect to pension assets is to pursue an investment plan that, over thelong term is expected to protect the funded status of the plan, enhance thereal purchasing power of plan assets, and not threaten the plan’s ability tomeet currently committed obligations.

**DEFINEDCONTRIBUTION PLANS**

We have a money purchase pension plan coveringsubstantially all of our domestic employees who have completed at least twoyears of service. Employer contributions are made based on a percentage ofemployees’ earnings (ranging up to 8%).

We also have a salary deferral plan coveringsubstantially all domestic employees. Plan participants may elect to makevoluntary contributions to this plan up to a specified amount of theircompensation. We contribute an amount equal to one-half of the participant’scontribution, not to exceed 2% of the participant’s compensation.

Beginning January 1, 2004, the money purchasepension plan was closed to new hires. At the same time, the company match inthe salary 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.

Our total combined expensefor the above defined contribution plans for the years ended December 31,2006, 2005, and 2004 was $15.2 million, $15.9 million and $20.7 million,respectively.

**SUPPLEMENTALSALARY DEFERRAL PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN**

The Huntsman Supplemental Savings Plan (“SSP”) is anon-qualified plan covering key management employees and allows participants todefer amounts that would otherwise be paid as compensation. The participant candefer up to 75% of their salary and bonus each year. This plan also providesbenefits that would be provided under the Huntsman Salary Deferral Plan if thatplan were not subject to legal limits on the amount of contributions that canbe allocated to an individual in a single year. The SSP was amended andrestated effective as of January 1, 2005 to allow eligible executiveemployees to comply with Section 409A of the Internal Revenue Code of 1986(“Section 409A”).

The Huntsman Supplemental Executive Retirement Plan(the “SERP”) is an unfunded nonqualified pension plan established to providecertain executive employees with benefits that could not be provided, due tolegal limitations, under the Huntsman Defined Benefit Pension Plan, a qualifieddefined benefit pension plan, and the Huntsman Money Purchase Pension Plan, aqualified money purchase pension plan. On December 23, 2005, the SERP wasamended and restated for four purposes: (1) to transfer certainliabilities related to benefits for eligible executive employees to thenewly-established Huntsman Supplemental Executive MPP Plan (the “SEMPP”), (2) toreflect a change in the benefit formula in the Huntsman Defined Benefit PensionPlan, (3) to provide for the merger of the Polyurethanes Executive PensionPlan and the Polyurethanes Excess Benefit Plan (each an unfunded nonqualifiedpension plan) into the SERP, and (4) to allow eligible executive employeesto comply with Section 409A. The effective date of the amendment andrestatement of the SERP with respect to items (1) - (3) is July 1,2004 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.

F-57

----

Assets of these plans areincluded in other assets and were $7.6 million and $5.3 million at December 31,2006 and 2005. During the year ended December 31, 2006, 2005 and 2004, weexpensed $0.6 million, $0.5 million and $0.5 million for the SSP and theSERP, respectively.

**STOCK-BASEDINCENTIVE PLAN**

In connection with theinitial public offering of common and preferred stock on February 16,2005, we adopted the Huntsman Stock Incentive Plan (the “Stock Incentive Plan”).The Stock Incentive Plan permits the grant of non-qualified stock options,incentive stock options, stock appreciation rights, nonvested stock, phantomstock, performance awards and other stock-based awards (“Awards”) to ouremployees, directors and consultants and to employees and consultants of oursubsidiaries, provided that incentive stock options may be granted solely toemployees. A maximum of 21,590,909 shares of common stock may be deliveredpursuant to the Awards under the Stock Incentive Plan. See “Note 24.Stock-Based Compensation Plans.”

**INTERNATIONALPLANS**

International employeesare covered by various post employment arrangements consistent with localpractices and regulations. Such obligations are included in the consolidatedfinancial statements in other non-current liabilities.

**19.**          INCOMETAXES

The following is a summaryof U.S. and non-U.S. provisions for current and deferred income taxes (dollarsin millions):

**Huntsman Corporation**

| ** **                     | ** ** | **For the Year ended December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                     | ** ** | **   2006   **                 | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
| Income tax  benefit (expense): |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| U.S.                           |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Current                        |       |                                                         | $          | 15.4 |   |   |   | $ | (1.5 | ) |   |   | $ | (11.1 | ) |   |
| Deferred                       |       |                                                         | 3.9        |   |   |   | 19.1 |   |   |   | 2.2 |   |   |
| Non-U.S.                       |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Current                        |       |                                                         | (48.8      | ) |   |   | (25.1 | ) |   |   | (24.3 | ) |   |
| Deferred                       |       |                                                         | 78.5       |   |   |   | 13.6 |   |   |   | 105.2 |   |   |
| Total                          |       |                                                         | $          | 49.0 |   |   |   | $ | 6.1 |   |   |   | $ | 72.0 |   | ** ** |

 

**Huntsman International**

| ** **                     | ** ** | **For the Year ended December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                     | ** ** | **   2006   **                 | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
| Income tax  benefit (expense): |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| U.S.                           |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Current                        |       |                                                         | $          | 15.5 |   |   |   | $ | (1.5 | ) |   |   | $ | (11.1 | ) |   |
| Deferred                       |       |                                                         | 2.2        |   |   |   | — |   |   |   | 2.4 |   |   |
| Non-U.S.                       |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Current                        |       |                                                         | (48.7      | ) |   |   | (25.1 | ) |   |   | (24.3 | ) |   |
| Deferred                       |       |                                                         | 61.0       |   |   |   | 13.4 |   |   |   | 99.3 |   |   |
| Total                          |       |                                                         | $          | 30.0 |   |   |   | $ | (13.2 | ) |   |   | $ | 66.3 |   |   |

 

F-58

----

The following schedulesreconcile the differences between U.S. federal income taxes at the U.S.statutory rate to the (provision) benefit for income taxes for us and HuntsmanInternational (dollars in millions):

**Huntsman Corporation**

| ** **                                                                           | ** ** | **For the Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **2006**                                                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| Income (loss)  from continuing operations before income taxes and minority interests |       | $                                                            | 347.5      |   | $ | (35.0 | ) | $ | (384.8 | ) |
| Expected tax at  U.S. statutory rate of 35%                                          |       | $                                                            | (121.6     | ) | $ | 12.3 |   | $ | 134.6 |   |
| Change resulting from:                                                               |       |                                                         |       |   |   |   |   |
| State (taxes)  benefit net of federal benefit                                        |       | (0.9                                                         | )          | 2.3 |   | (2.6 | ) |
| Effects of  non-U.S. operations and tax rate differential(1)                         |       | (8.7                                                         | )          | (14.1 | ) | 30.3 |   |
| Incremental U.S.  tax on non-U.S. income                                             |       | —                                                       |       | (18.1 | ) | (28.4 | ) |
| Effect of AdMat  consolidation transaction(2)                                        |       | —                                                       |       | (88.4 | ) | — |   |
| U.S. and U.K. tax  authority dispute resolutions                                     |       | 54.0                                                         |       | 0.7 |   | — |   |
| Change in  valuation allowance                                                       |       | 125.7                                                        |       | 113.4 |   | (69.7 | ) |
| Other—net                                                                       |       | 0.5                                                          |       | (2.0 | ) | 7.8 |   |
| Total income tax  benefit                                                            |       | $                                                            | 49.0       |   | $ | 6.1 |   | $ | 72.0 |   |

 

**Huntsman International**

| ** **                                                                           | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income (loss)  from continuing operations before income taxes and minority interests |       | $        | 348.6      |     | $          | 137.9    |       | $ | (340.1 | ) |
| Expected (tax)  benefit at U.S. statutory rate of 35%                                |       | $        | (122.0     | )        | $          | (48.3    | )          | $ | 119.0 |   |
| Change resulting from:                                                               |       |     |       |     |       |     |       |
| State benefit  (taxes) net of federal benefit                                        |       | 1.8      |       | (2.9     | )          | (4.0     | )          |
| Effects of  non-U.S. operations and tax rate differential(1)                         |       | (9.1     | )          | (13.4    | )          | 31.5     |       |
| Incremental U.S.  tax on non-U.S. income                                             |       | —   |       | (18.2    | )          | (28.4    | )          |
| Domestic income  (loss) allocable to minority interest                               |       | —   |       | 9.5      |       | (11.5    | )          |
| Effect of AdMat  consolidation transaction(2)                                        |       | —   |       | (88.4    | )          | —   |       |
| U.S. and U.K. tax  authority dispute resolutions                                     |       | 54.0     |       | 0.7      |       | —   |       |
| Change in  valuation allowance                                                       |       | 104.7    |       | 150.7    |       | (48.7    | )          |
| Other—net                                                                       |       | 0.6      |       | (2.9     | )          | 8.4      |       |
| Total income tax  benefit (expense)                                                  |       | $        | 30.0       |     | $          | (13.2    | )          | $ | 66.3 |   |

 

----

(1)          During the year ended December 31, 2006,included in the $8.7 million for our Company and the $9.1 million forHuntsman International in “Effects of non-U.S. operations and tax ratedifferential” above are non-recurring items including amounts associated withenacted changes in tax rates ($6.8 million) and the establishment ofcontingency reserves ($5.5 million).

(2)          The 2005 “Effect ofAdMat consolidation transaction” above is approximately $88.4 million oftax expense fully offset by changes in valuation allowances. The components ofthe $88.4 million are as follows: $30.7 million associated with loss recaptureincome related to non-U.S. losses that had previously been deducted for U.S.taxation purposes; $6.2 million associated with current year non-U.S. lossesnot deducted for U.S. tax purposes; and $51.5 million associated with thewrite-down of net deferred tax assets, with a full valuation allowance, relatedto the U.S. taxation of Huntsman Advanced Materials non-U.S. entities.Effective January 1, 2006, certain of Huntsman Advanced 

F-59

----

Materials’s non-U.S.operations previously treated as branches will no longer be treated as branchesand will only be subject to U.S. taxation on future earnings to the extent thoseearnings are repatriated. This eliminates current double taxation of foreignearnings that are inherent in the Huntsman Advanced Materials tax structure.

The components of income(loss) from continuing operations before income taxes and minority interestswere as follows (dollars in millions):

**Huntsman Corporation**

| ** ** | ** ** | **For the Year ended December 31,** | ** ** |
|------------|------------|--------------------------------------------------------------|------------|
| ** ** | ** ** | **2006**                                                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| U.S.       |       | $                                                            | 290.7      |   | $ | (111.3 | ) | $ | (155.4 | ) |
| Non-U.S.   |       | 56.8                                                         |       | 76.3 |   | (229.4 | ) |
| Total      |       | $                                                            | 347.5      |   | $ | (35.0 | ) | $ | (384.8 | ) |

 

**Huntsman International**

| ** ** | ** ** | **For the Year ended December 31,** | ** ** |
|------------|------------|--------------------------------------------------------------|------------|
| ** ** | ** ** | **2006**                                                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| U.S.       |       | $                                                            | 291.8      |   | $ | 63.1 |   | $ | (109.4 | ) |
| Non-U.S.   |       | 56.8                                                         |       | 74.8 |   | (230.7 | ) |
| Total      |       | $                                                            | 348.6      |   | $ | 137.9 |   | $ | (340.1 | ) |

 

Subsequent to acquiring Huntsman Advanced Materials inJune 2003 and through December 31, 2005, substantially all non-U.S.operations of Huntsman Advanced Materials were treated as branches of ourCompany 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 the table above and the precedingU.S. and non-U.S. allocation of the income tax provision by taxing jurisdictionmay, therefore, not be directly related.

F-60

----

Componentsof deferred income tax assets and liabilities were as follows (dollars inmillions):

**Huntsman Corporation**

| ** **                                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Deferred income tax assets:                        |       |                  |       |                  |       |   |   |   |   |
| Net operating loss and  AMT credit carryforwards   |       |                  | $          | 869.3                 |       |   |   | $ | 1,020.6 |   |   |
| Pension and other  employee compensation           |       |                  | 234.4      |                  |       |   | 167.5 |   |   |
| Property, plant and  equipment                     |       |                  | 82.3       |                  |       |   | 44.8 |   |   |
| Intangible assets                                  |       |                  | 92.3       |                  |       |   | 113.7 |   |   |
| Foreign tax credits                                |       |                  | 50.2       |                  |       |   | 13.2 |   |   |
| Other, net                                         |       |                  | 133.1      |                  |       |   | 57.0 |   |   |
| Total                                              |       |                  | 1,461.6    |                  |       |   | 1,416.8 |   |   |
| Deferred income tax liabilities:                   |       |                  |       |                  |       |   |   |   |   |
| Property, plant and  equipment                     |       |                  | (701.1     | )                     |       |   | (881.1 | ) |   |
| Pension and other  employee compensation           |       |                  | (14.6      | )                     |       |   | (39.2 | ) |   |
| Other, net                                         |       |                  | (121.4     | )                     |       |   | (82.5 | ) |   |
| Total                                              |       |                  | (837.1     | )                     |       |   | (1,002.8 | ) |   |
| Net deferred tax asset  before valuation allowance |       |                  | 624.5      |                  |       |   | 414.0 |   |   |
| Valuation allowance                                |       |                  | (571.5     | )                     |       |   | (549.3 | ) |   |
| Net deferred tax asset (liability)                 |       |                  | $          | 53.0                  |       |   |   | $ | (135.3 | ) |   |
| Current tax asset                                  |       |                  | $          | 64.6                  |       |   |   | $ | 31.2 |   |   |
| Current tax liability                              |       |                  | (9.4       | )                     |       |   | (2.4 | ) |   |
| Non-current tax asset                              |       |                  | 190.4      |                  |       |   | 94.2 |   |   |
| Non-current tax  liability                         |       |                  | (192.6     | )                     |       |   | (258.3 | ) |   |
| Total                                              |       |                  | $          | 53.0                  |       |   |   | $ | (135.3 | ) |   |

 

**Huntsman International**

| ** **                                        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Deferred income  tax assets:                      |       |                  |       |                  |       |   |   |   |   |
| Net operating loss and AMT credit carryforwards   |       |                  | $          | 790.3                 |       |   |   | $ | 942.5 |   |   |
| Pension and other employee compensation           |       |                  | 233.8      |                  |       |   | 166.9 |   |   |
| Property, plant and equipment                     |       |                  | 82.3       |                  |       |   | 44.8 |   |   |
| Intangible assets                                 |       |                  | 90.4       |                  |       |   | 107.0 |   |   |
| Foreign tax credits                               |       |                  | 50.2       |                  |       |   | 13.2 |   |   |
| Other, net                                        |       |                  | 131.5      |                  |       |   | 56.9 |   |   |
| Total                                             |       |                  | 1,378.5    |                  |       |   | 1,331.3 |   |   |
| Deferred  income tax liabilities:                 |       |                  |       |                  |       |   |   |   |   |
| Property, plant and equipment                     |       |                  | (676.7     | )                     |       |   | (851.1 | ) |   |
| Pension and other employee compensation           |       |                  | (14.6      | )                     |       |   | (39.2 | ) |   |
| Other, net                                        |       |                  | (62.5      | )                     |       |   | (39.6 | ) |   |
| Total                                             |       |                  | (753.8     | )                     |       |   | (929.9 | ) |   |
| Net deferred tax asset before valuation allowance |       |                  | 624.7      |                  |       |   | 401.4 |   |   |
| Valuation allowance                               |       |                  | (536.3     | )                     |       |   | (495.3 | ) |   |
| Net deferred tax asset (liability)                |       |                  | $          | 88.4                  |       |   |   | $ | (93.9 | ) |   |
| Current tax asset                                 |       |                  | $          | 70.7                  |       |   |   | $ | 31.2 |   |   |
| Current tax liability                             |       |                  | (9.4       | )                     |       |   | (2.4 | ) |   |
| Non-current tax asset                             |       |                  | 188.7      |                  |       |   | 94.2 |   |   |
| Non-current tax liability                         |       |                  | (161.6     | )                     |       |   | (216.9 | ) |   |
| Total                                             |       |                  | $          | 88.4                  |       |   |   | $ | (93.9 | ) |   |

 

F-61

----

As of December 31, 2006, we have U.S. federal netoperating loss carryforwards (“NOLs”) of $743.4 million. The U.S. NOLsbegin to expire in 2009 and fully expire in 2025. We also have NOLs of $1,910.0 millionin various non-U.S. jurisdictions. While the majority of the non-U.S. NOLs haveno expiration date, $493.2 million have a limited life and $26.9 million arescheduled to expire in 2007.

Included in the $1,910 million of non-U.S. NOLs is$1,059.1 million attributable to Huntsman Advanced Materials’ Luxembourgentities. As of December 31, 2006, there is a valuation allowance of$307.2 million against these net tax-effected NOLs of $313.8 million. Due tothe uncertainty surrounding the realization of the benefits of these lossesthat may result from future dissolution or restructuring of the Luxembourgentities, we have reduced the related deferred tax asset with a valuationallowance.

We are subject to the “ownership change” rules ofSection 382 of the Internal Revenue Code. Under these rules, our use of theNOLs could be limited in tax periods following the date of an ownership change.Based upon the existence of significant tax “built-in income” items, the effectof the ownership change rules on the ability to utilize the NOLs is notanticipated to be material.

We have a valuation allowance against our entire U.S.and a material portion of our non-U.S. net deferred tax assets. We havespecific valuation allowances of $38.2 million that, when reversed, will reducegoodwill and other non-current intangibles. Additionally, included in the deferred tax assets atDecember 31, 2006 is approximately $7.7 million of cumulative tax benefitrelated to equity transactions which will be credited to stockholders’ equitywhen realized, after all other valuation allowances have been reversed.

Thefollowing is a summary of changes in the valuation allowance (dollars inmillions):

**Huntsman Corporation**

| ** **                                                                                                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Valuation allowance as  of January 1                                                                                                                     |       | $        | 549.3      |     | $          | 842.1    |       | $ | 603.2 |   |
| Valuation allowance as  of December 31                                                                                                                   |       | 571.5    |       | 549.3    |       | 842.1    |       |
| Net change                                                                                                                                                    |       | (22.2    | )          | 292.8    |       | (238.9   | )          |
| Foreign currency  movements                                                                                                                                   |       | 6.5      |       | (81.1    | )          | 52.5     |       |
| Deferred tax liabilities  recorded in purchase accounting which reduced the need for valuation  allowances                                                    |       | (7.8     | )          | (2.9     | )          | —   |       |
| Recognition of net  operating losses based on final settlement with U.S. and U.K. tax  authorities, with a corresponding increase to valuation allowance |       | 53.0     |       | —   |       | —   |       |
| Adjustments to defered  tax assets with an offsetting adjustment to valuation allowance                                                                  |       | 72.3     |       | (99.8    | )          | 68.6     |       |
| Movement of net deferred  tax assets unrelated to income or loss from continuing operations                                                                   |       | 25.0     |       | 5.2      |       | 73.9     |       |
| Reversal of valuation  allowances on deferred tax assets related to prior acquisitions, with a  corresponding reduction to goodwill or intangible assets      |       | (1.1     | )          | (0.8     | )          | (25.8    | )          |
| Change in valuation  allowance per rate reconciliation                                                                                                        |       | $        | 125.7      |     | $          | 113.4    |       | $ | (69.7 | ) |
| Components of change in valuation allowance:                                                                                                                  |       |     |       |     |       |     |       |
| Effects of pre-tax  income and pre-tax losses in jurisdictions with valuation allowances                                                                      |       | $        | 104.8      |     | $          | (20.7    | )          | $ | (77.3 | ) |
| Effects of AdMat  consolidation transaction                                                                                                                   |       | —   |       | 88.4     |       | —   |       |
| Releases of valuation  allowances in various jurisdictions                                                                                                    |       | 29.1     |       | 56.5     |       | 10.8     |       |
| Establishments of  valuation allowances in various jurisdictions                                                                                              |       | (8.2     | )          | (10.8    | )          | (3.2     | )          |
| Change in valuation allowance per rate  reconciliation                                                                                                        |       | $        | 125.7      |     | $          | 113.4    |       | $ | (69.7 | ) |

 

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**Huntsman International**

| ** **                                                                                                                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Valuation allowance as  of January 1                                                                                                                |       | $        | 495.3      |     | $          | 937.2    |       | $ | 763.3 |   |
| Valuation allowance as  of December 31                                                                                                              |       | 536.3    |       | 495.3    |       | 937.2    |       |
| Net change                                                                                                                                               |       | (41.0    | )          | 441.9    |       | (173.9   | )          |
| Foreign currency  movements                                                                                                                              |       | 6.5      |       | (81.1    | )          | 52.6     |       |
| Deferred tax liabilities  recorded in purchase accounting which reduced the need for valuation  allowances                                               |       | (7.8     | )          | (2.9     | )          | —   |       |
| Recognition of net  operating losses based on final settlement with U.S. and U.K. tax  authorities, with a corresponding increase to valuation allowance |       | 53.0     |       | —   |       | —   |       |
| Adjustments to defered  tax assets with an offsetting adjustment to valuation allowance                                                                  |       | 70.7     |       | (184.7   | )          | 18.4     |       |
| Movement of net deferred  tax assets unrelated to income or loss from continuing operations                                                              |       | 24.4     |       | (21.7    | )          | 80.0     |       |
| Reversal of valuation  allowances on deferred tax assets related to prior acquisitions, with a corresponding  reduction to intangible assets             |       | (1.1     | )          | (0.8     | )          | (25.8    | )          |
| Change in valuation  allowance per rate reconciliation                                                                                                   |       | $        | 104.7      |     | $          | 150.7    |       | $ | (48.7 | ) |
| Components of change in valuation allowance:                                                                                                             |       |     |       |     |       |     |       |
| Effects of pre-tax  income and pre-tax losses in jurisdictions with valuation allowances                                                                 |       | $        | 98.2       |     | $          | 16.6     |       | $ | (56.3 | ) |
| Effects of AdMat  consolidation transaction                                                                                                              |       | —   |       | 88.4     |       | —   |       |
| Releases of valuation  allowances in various jurisdictions                                                                                               |       | 20.9     |       | 56.5     |       | 10.8     |       |
| Establishments of  valuation allowances in various jurisdictions                                                                                         |       | (14.4    | )          | (10.8    | )          | (3.2     | )          |
| Change in valuation allowance per rate  reconciliation                                                                                                   |       | $        | 104.7      |     | $          | 150.7    |       | $ | (48.7 | ) |

 

On August 16, 2005, Huntsman InternationalHoldings and Huntsman LLC were merged with and into Huntsman International,which continued in existence as the surviving entity. Prior to the merger,Huntsman International Holdings, including Huntsman International, was treatedas a partnership for U.S. federal income tax purposes and as such wasgenerally not subject to U.S. income tax, but rather such income was taxeddirectly to its owners. A net deferred tax liability was recognized for theexcess of the difference in the book and tax investment in the partnership overthe difference in the book and tax basis of the net assets of the partnership.After the merger, Huntsman International is treated as a corporate subsidiaryand subject to U.S. income tax. The basis difference in the investment in theHuntsman International Holdings partnership has been reversed, offset by acorresponding change in valuation allowance.

For non-U.S. entities that are not treated as branchesfor U.S. tax purposes, we do not provide for income taxes on the undistributedearnings of these subsidiaries as earnings are reinvested and, in the opinionof management, will continue to be reinvested indefinitely. The undistributedearnings of foreign subsidiaries that are deemed to be permanently investedwere $175.9 million at December 31, 2006. It is not practicable todetermine the unrecognized deferred tax liability on those earnings.

As a matter of course, oursubsidiaries are regularly audited by various taxing authorities in both theU.S. and numerous non-U.S. jurisdictions. We believe adequate provision hasbeen made for all outstanding issues for all open years. Significant judgmentsand estimates are required in determining the global provision for incometaxes, including judgments and estimates regarding the realization of deferredtax assets and the ultimate outcome of tax-related contingencies. During theordinary course of business, there are many transactions and calculations forwhich the ultimate tax determination is uncertain. We either recognize aliability, including related interest, or reduce a tax asset, for theanticipated outcome of 

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taxaudits. We adjust these amounts in light of changing facts and circumstances,such as the closing of a tax audit or the expiration of a statute oflimitations in the period in which the change occurs. If our tax positions areultimately upheld under audits by respective taxing authorities, it is possiblethat the provision for income taxes in future years may reflect significantfavorable adjustments. During 2006, the remaining unresolved issues of the IRSExam for the years ended 1998 through 2001 were settled. The net increase toour net operating losses was approximately $134 million, which was offset by acorresponding change in valuation allowance. Accruals for U.S. taxcontingencies of $30.2 million were reversed as a benefit to current taxbenefit. We also successfully settled disputes in non-U.S. jurisdictions whichresulted in the reversal of accruals for tax contingencies of $23.8 million tocurrent tax benefit. The non-U.S. dispute resolutions also resulted inincreases in deferred tax assets, offset by a corresponding increase invaluation allowances.

**20.**          COMMITMENTSAND CONTINGENCIES

**PURCHASECOMMITMENTS**

We have various purchase commitments extending through2023 for materials and supplies entered into in the ordinary course ofbusiness. The purchase commitments are contracts that require minimum volumepurchases. Certain contracts allow for changes in minimum required purchasevolumes in the event of a temporary or permanent shutdown of a facility. Thecontractual purchase prices for substantially all of these contracts requireminimum payments, even if no volume is purchased. Historically, we have notmade any minimum payments under such take or pay contracts without taking theproduct.

Totalpurchase commitments as of December 31, 2006 are as follows (dollars inmillions):

| **Year ending December 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 1,432.2    |       |
| 2008                                        |       | 510.0      |       |
| 2009                                        |       | 131.4      |       |
| 2010                                        |       | 96.9       |       |
| 2011                                        |       | 59.0       |       |
| Thereafter                                  |       | 147.6      |       |
|                                        |       | $          | 2,377.1    |       |

 

**OPERATINGLEASES**

We lease certain railcars, aircraft, equipment andfacilities under long-term lease agreements. The total expense recorded underoperating lease agreements in the accompanying consolidated statements ofoperations is approximately $52.1 million, $71.6 million and $55.2 millionfor the years ended December 31, 2006, 2005 and 2004, respectively.

Futureminimum lease payments under operating leases as of December 31, 2006 areas follows (dollars in millions):

| **Year ending December 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 53.1       |       |
| 2008                                        |       | 50.2       |       |
| 2009                                        |       | 42.5       |       |
| 2010                                        |       | 37.9       |       |
| 2011                                        |       | 30.7       |       |
| Thereafter                                  |       | 104.5      |       |
|                                        |       | $          | 318.9      |       |

 

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**LEGALMATTERS**

**DiscolorationClaims**

Certain claims have been filed against us relating todiscoloration of unplasticized polyvinyl chloride products allegedly caused byour titanium dioxide. Substantially all of the titanium dioxide that is thesubject of these claims was manufactured prior to our acquisition of ourtitanium dioxide business from ICI in 1999. Net of amounts we have receivedfrom insurers and pursuant to contracts of indemnity, we have paid an aggregateof approximately $16 million in costs and settlement amounts forDiscoloration Claims through December 31, 2006.

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.

| ** **                                | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Claims unresolved  at beginning of period |       |                                             | 2          |                                             |       |                                             | 3          |   |   |   | 4 |   |   |
| Claims filed  during period               |       |                                             | —     |                                             |       |                                             | —     |   |   |   | 1 |   |   |
| Claims resolved  during period            |       |                                             | —     |                                             |       |                                             | 1          |   |   |   | 2 |   |   |
| Claims unresolved at end  of period       |       |                                             | 2          |                                             |       |                                             | 2          |   |   |   | 3 |   |   |

 

During the year ended December 31, 2004, wesettled claims for approximately $45 million, approximately $30 million ofwhich was paid by our insurers or ICI and approximately $15 million of whichwas paid by us. During 2004, we recorded charges of $15.1 million relating toDiscoloration claims. During the year ended December 31, 2005, we settleda claim for approximately $1.0 million, all of which was paid by ICI. The twoDiscoloration Claims unresolved as of December 31, 2006, assertedaggregate damages of approximately $70 million. An appropriate liabilityhas been accrued for these claims. Based on our understanding of the merits ofthese claims and our rights under contracts of indemnity and insurance, we donot believe that the net impact on our financial condition, results ofoperations or 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 on ourhistory with Discoloration Claims to date, the fact that substantially all ofthe titanium dioxide that has been the subject of these Discoloration Claimswas manufactured and sold more than six years ago, and the fact that we haverights under contract to indemnity, including from ICI, we do not believe thatany unasserted Discoloration Claims will have a material impact on ourfinancial condition, results of operations, or liquidity. Based on thisconclusion and our inability to reasonably estimate our expected costs with respectto these unasserted claims, we have made no accruals in our financialstatements as of December 31, 2006 for costs associated with unassertedDiscoloration Claims.

**EnvironmentalLitigation**

On occasion, we receive notices of violation,enforcement and other complaints from regulatory agencies allegingnon-compliance with applicable EHS laws. Based on currently availableinformation and our past experience, we do not believe that the resolution of anypending or threatened environmental enforcement proceedings, will have amaterial impact on our financial condition, results of operations or cashflows.

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Beginning in the third quarter of 2004 and extendingthrough December 2005, we received notifications of approximately eightseparate enforcement actions from the TCEQ for alleged violations related toair emissions at our Port Neches and Port Arthur plants. These allegedviolations primarily relate to specific upset emissions, emissions from coolingtowers, or flare operations occurring at particular times and at particularoperating units during 2004 and 2005. These notices of violation appear to bepart of a larger enforcement initiative by the TCEQ regional office focused onupset emissions at chemical and refining industry plants located within theBeaumont/Port Arthur region. On November 13, 2006, the TCEQ approved asettlement under which we paid approximately $0.4 million in the aggregate tosettle these matters.

During the first quarter of 2006, we disclosed to theTCEQ that our Conroe, Texas, facility has been out of compliance with HAPregulations. On August 25, 2006, the TCEQ issued a Notice of Enforcementand on October 20, 2006 issued a proposed penalty of approximately $0.1million. Subsequently, because of mitigating factors, we reached an agreementwith TCEQ staff to settle the case for considerably less than $0.1 million. Thesettlement agreement is awaiting approval of the TCEQ.

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 attorneys’ fees to the TexasAttorney General. As of December 31, 2006, we have paid $5.5 milliontoward the penalty and $0.4 million for attorneys’ fees. The monitoringprojects are underway and on schedule. We do not anticipate that thissettlement will have a material adverse effect on our financial condition,results of operations or cash flows.

On April 29, 2006, there was a release ofhydrocarbons followed by a significant fire in the ethylene refrigeration areaof our Base Chemicals Light Olefins Unit located in Port Arthur, Texas. See “Note22. Casualty Losses and Insurance Recoveries—Port Arthur, Texas, Plant Fire.”There were no fatalities or serious injuries from the fire. An incidentinvestigation team was formed immediately. The cause of the fire was determinedto be a sudden rupture of a pipeline which had been weakened by undetectedexternal corrosion. The TCEQ has proposed, and we have accepted, a penalty ofapproximately $0.1 million for alleged excessive environmental releasesoccurring as a consequence of the fire. The settlement is awaiting approval ofthe TCEQ.

We have been named as a “premises defendant” in anumber of asbestos exposure cases, typically a claim by a non-employee ofexposure to asbestos while at a facility. In the past, these cases typicallyhave involved multiple plaintiffs bringing actions against multiple defendants,and the complaint has not indicated which plaintiffs were making claims againstwhich defendants, where or how the alleged injuries occurred, or what injurieseach plaintiff claimed. These facts, which would be central to any estimate ofprobable loss, generally have been learned only through discovery. Recentchanges in Texas tort procedures have required many pending cases to be splitinto multiple cases, one for each claimant, increasing the number of pendingcases reported below for the year ended December 31, 2006. Nevertheless,the complaints in these cases provide little additional information. We do notbelieve that the increased number of cases resulting from the changes in Texastort procedure reflects an increase in the number of underlying claims.

Where the alleged exposure occurred prior to our ownershipof the relevant “premises,” the prior owners generally have contractuallyagreed to retain liability for, and to indemnify us against, asbestos exposureclaims. This indemnification is not subject to any time or dollar amountlimitations. Upon service of a complaint in one of these cases, we tender it tothe prior owner. None of the complaints in these cases state the amount ofdamages being sought. The prior owner accepts responsibility for the conduct ofthe defense of the cases and payment of any amounts due to the claimants. Inour twelve-year experience with tendering these cases, we have not made anypayment with respect to any tendered asbestos cases. We 

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believe that the priorowners have the intention and ability to continue to honor their indemnityobligations, although we cannot assure you that they will continue to do so orthat we will not be liable 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, all of which have been accepted.

| ** **                               | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Cases unresolved  at beginning of period |       |                                             | 576        |                                             |       |                                             | 398        |   |   |   | 369 |   |   |
| Cases tendered  during period            |       |                                             | 998        |                                             |       |                                             | 284        |   |   |   | 94 |   |   |
| Cases resolved  during period(1)         |       |                                             | 207        |                                             |       |                                             | 106        |   |   |   | 65 |   |   |
| Cases unresolved at end  of period       |       |                                             | 1,367      |                                             |       |                                             | 576        |   |   |   | 398 |   |   |

----

(1)          Although theindemnifying party informs us when tendered cases have been resolved, itgenerally does not inform us of the settlement amounts relating to such cases,if any. The indemnifying party has informed us that it typically manages ourdefense together with the defense of other entities in such cases and resolvesmultiple claims involving multiple defendants simultaneously, and that itconsiders the allocation of settlement amounts, if any, among defendants to beconfidential and proprietary. Consequently, we are not able to provide thenumber of cases resolved with payment by the indemnifying party or the amountof such payments.

We have never made any payments with respect to thesecases. As of December 31, 2006, 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; however, we are notable to estimate the amount or range of loss in excess of our accruals.Additional asbestos exposure claims may be made against us in the future, andsuch claims could be material. However, because we are not able to estimate theamount or range of losses associated with such claims, we have made no accrualswith respect to unasserted asbestos exposure claims as of December 31,2006.

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, other than a number of cases that wereerroneously filed against us due to a clerical error. The cases filed in errorare subject to a voluntary dismissal agreement and are in the process of beingdismissed.

| ** **                               | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Cases unresolved  at beginning of period |       |                                             | 34         |                                             |       |                                             | 29         |   |   |   | 48 |   |   |
| Cases filed  during period               |       |                                             | 19         |                                             |       |                                             | 55         |   |   |   | 23 |   |   |
| Cases resolved  during period            |       |                                             | 11         |                                             |       |                                             | 56         |   |   |   | 42 |   |   |
| Cases unresolved at end  of period       |       |                                             | 42         |                                             |       |                                             | 34         |   |   |   | 29 |   |   |

 

We paid gross settlementcosts for asbestos exposure cases that are not subject to indemnification ofapproximately $10,000, $0.1 million and $1.0 million during the twelve monthsended December 31, 2006, 2005 and 2004, respectively. The cases for the yearended December 31, 2005 include cases filed against Rubicon LLC, which becameour consolidated subsidiary on January 1, 2005, as follows: one case filedduring the period, one case resolved during the period and six cases unresolvedat the end of the period. As of December 31, 2006, we had an accrual ofapproximately $0.6 million relating to these cases. We cannot assure you thatour liability will not exceed our accruals or that our liability associatedwith these 

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caseswould not be material to our financial condition, results of operations orliquidity; however, we are not able to estimate the amount or range of loss inexcess of our accruals. Additional asbestos exposure claims may be made againstus in the future, and such claims could be material. However, because we arenot able to estimate the amount or range of losses associated with such claims,we have made no accruals with respect to unasserted asbestos exposure claims asof December 31, 2006.

**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 States District Court, District of Kansas, initial order transferringand consolidating cases filed August 23, 2004. Other defendants named inthe Polyether Polyols cases are Bayer, BASF, Dow and Lyondell. Bayer enteredinto a settlement agreement with the plaintiffs that was approved by the court.Class certification discovery is underway in these consolidated cases.

We have also been named as a defendant in putativeclass action antitrust suits alleging a conspiracy to fix prices in the MDI,TDI, and polyether polyols industries filed in the Superior Court of Justice,Ontario, Canada on May 5, 2006 and in Superior Court, Quebec, Canada on May 17,2006. The other defendants named above in the Polyether Polyols cases are alsodefendants in these Canadian cases.

The pleadings of the plaintiffs in these antitrustsuits provide few specifics about any alleged illegal conduct of thedefendants, and we are not aware of any evidence of illegal conduct by us orany of our employees. For these reasons, we cannot estimate the possible lossor range of loss relating to these claims, and therefore we have not accrued aliability for these claims. Nevertheless, we could incur losses due to theseclaims in the future and those losses could be material.

In addition, on February 16,2006, the Antitrust Division of the U.S. Department of Justice served us with agrand jury subpoena requesting production of documents relating to thebusinesses of TDI, MDI, polyether polyols and related systems. The otherdefendants in the Polyether Polyols cases have confirmed that they have alsobeen served with subpoenas in this matter. We are cooperating fully with theinvestigation.

**Tax Dispute**

In connection with anaudit of our income tax returns for the years ended 1998 through 2001, wereceived a Notice of Proposed Adjustment from the Internal Revenue Service. Weinitiated an administrative appeal before the Internal Revenue Service withrespect to the proposed adjustment in 2005 and resolved these matters duringthe fourth quarter of 2006. The impact of the resolution on our U.S. netoperating losses, and our related accrued tax contingency liability, arediscussed in “Note 19. Income Taxes.”

**Other Proceedings**

We are a party to variousother proceedings instituted by private plaintiffs, governmental authoritiesand others arising under provisions of applicable laws, including variousenvironmental, products liability and other laws. Except as otherwise disclosedin this report, we do not believe that the outcome of any of these matters willhave a material adverse effect on our financial condition, results ofoperations or liquidity. For more information, see “Note 21. Environmental,Health and Safety Matters—Remediation Liabilities.”

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**GUARANTEE**

In January 2003, Huntsman International enteredinto two related joint venture agreements to build MDI production facilitiesnear Shanghai, China. SLIC, our manufacturing joint venture with BASF AG andthree Chinese chemical companies, opearates three plants that manufacture MNB,aniline and crude MDI. We effectively own 35% of SLIC and it is anunconsolidated affiliate.

On September 19,2003, SLIC obtained secured financing for the construction of productionfacilities. SLIC obtained various committed loans in the aggregate amount ofapproximately $229 million in U.S. dollar equivalents. As ofDecember 31, 2006, there were $87.7 million and RMB 1,095 million($140.2 million) in outstanding borrowings under these facilities. Theinterest rate on these facilities is LIBOR plus 0.48% for U.S. dollarborrowings and 90% of the Peoples Bank of China rate for RMB borrowings. Theloans are secured by substantially all the assets of SLIC  and will be paid in 16 semiannualinstallments, beginning on June 30, 2007. We unconditionally guarantee 35%of any amounts due and unpaid by SLIC under the loans described above (exceptfor a $1.5 million VAT facility which is not guaranteed). Our guaranteeremains in effect until SLIC has commenced production of at least 70% ofcapacity for at least 30 days and achieved a debt service coverage ratio of atleast 1:1. SLIC commenced operations in the third quarter of 2006. We haveestimated that the fair value of this guarantee is nil as of the closing of thetransaction and, accordingly, no amounts have been recorded.

**21.**          ENVIRONMENTAL,HEALTH AND SAFETY MATTERS

**GENERAL**

We are subject toextensive federal, state, local and foreign laws, regulations, rules andordinances relating to safety, pollution, protection of the environment and thegeneration, storage, handling, transportation, treatment, disposal and remediationof hazardous substances and waste materials. In the ordinary course ofbusiness, we are subject to frequent environmental inspections and monitoringand occasional investigations by governmental enforcement authorities. Inaddition, our production facilities require operating permits that are subjectto renewal, modification and, in certain circumstances, revocation. Actual oralleged violations of safety laws, environmental laws or permit requirementscould result in restrictions or prohibitions on plant operations, substantialcivil or criminal sanctions, as well as, under some environmental laws, theassessment of strict liability and/or joint and several liability. Moreover,changes in environmental regulations could inhibit or interrupt our operations,or require us to modify our facilities or operations. Accordingly,environmental or regulatory matters may cause us to incur significantunanticipated losses, costs or liabilities.

**EHS CAPITAL EXPENDITURES**

We may incur future costsfor capital improvements and general compliance under EHS laws, including coststo acquire, maintain and repair pollution control equipment. For the yearsended December 31, 2006 and 2005, our capital expenditures for EHS matterstotaled $53.3 million and $48.9 million, respectively. Since capitalexpenditures for these matters are subject to evolving regulatory requirementsand depend, in part, on the timing, promulgation and enforcement of specificrequirements, we cannot provide assurance that our recent expenditures will beindicative of future amounts required under EHS laws.

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**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.

Under CERCLA, and similar state laws, a current orformer owner or operator of real property may be liable for remediation costsregardless of whether the release or disposal of hazardous substances was incompliance with law at the time it occurred, and a current owner or operatormay be liable regardless of whether it owned or operated the facility at thetime of the release. We have been notified by third parties of claims againstus for cleanup liabilities at approximately 12 former facilities or third partysites, including, but not limited to, sites listed under CERCLA. Based oncurrent information and past experiences at other CERCLA sites, we do notexpect any of these third party claims to result in material liability to us.

In addition, under RCRA, and similar state laws, wemay be required to remediate contamination originating from our properties as acondition to our hazardous waste permit. Some of our manufacturing sites havean extended history of industrial chemical manufacturing and use, includingon-site waste disposal. We are aware of soil, groundwater or surfacecontamination from past operations at some of our sites, and we may findcontamination at other sites in the future. For example, our Odessa, PortArthur and Port Neches facilities in Texas, and our Geismar facility inLouisiana, are the subject of ongoing remediation requirements under RCRAauthority.

In many cases, our potential liability arising fromhistorical contamination is based on operations and other events occurringprior to our ownership of a business or specific facility. In these situations,we frequently obtained an indemnity agreement from the prior owner addressingremediation liabilities arising from pre-closing conditions. We havesuccessfully exercised our rights under these contractual covenants for anumber of sites, and where applicable, mitigated our ultimate remediationliability. We cannot assure you, however, that all of such matters will besubject to indemnity or that our existing indemnities will be sufficient tocover our liabilities for such matters.

Based on availableinformation and the indemnification rights we believe are likely to beavailable, we believe that the costs to investigate and remediate knowncontamination will not have a material adverse effect on our financial condition,results of operations or cash flows. However, if such indemnities areunavailable or do not fully cover the costs of investigation and remediation orwe are required to contribute to such costs, and if such costs are material,then such expenditures may have a material adverse effect on our financialcondition, results of operations or cash flows. At the current time, we areunable to estimate the full cost, exclusive of indemnification benefits, toremediate any of the known contamination sites.

**ENVIRONMENTALRESERVES**

We have accruedliabilities relating to anticipated environmental cleanup obligations, sitereclamation and closure costs and known penalties. Liabilities are recordedwhen potential liabilities are either known or considered probable and can bereasonably estimated. Our liability estimates are based upon available facts,existing technology and past experience. The environmental liabilities do notinclude amounts recorded as asset retirement obligations. We have accruedapproximately $14 million and $25 million for environmentalliabilities as of December 31, 2006 and 2005, respectively. Of theseamounts, approximately $6 million and $7 million are classified asaccrued liabilities on our consolidated balance sheets as of December 31,2006 and 2005, respectively, and approximately $8 million and $18 millionare classified as other noncurrent liabilities on our consolidated balancesheets as of December 31, 2006 and 2005, 

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respectively.In certain cases, our remediation liabilities are payable over periods of up to30 years. We may incur losses for environmental remediation in excess ofthe amounts accrued; however, we are not able to estimate the amount or rangeof such potential excess.

**REGULATORYDEVELOPMENTS**

Under IPPC, EU member governments are to adopt rules andimplement a cross media (air, water and waste) environmental permitting programfor individual facilities. While the EU countries are at varying stages intheir respective implementation of the IPPC permit program, we have submittedall necessary IPPC permit applications required to date, and in some casesreceived completed permits from the applicable government agency. We expect tosubmit all other IPPC applications and related documents on a timely basis asthe various countries implement the IPPC permit program. Although we do notknow with certainty what each IPPC permit will require, we believe, based uponour experience with the permits received to date, that the costs of compliancewith the IPPC permit program will not be material to our financial condition,results of operations or cash flows.

In December 2006, theEU parliament and EU council approved a new EU regulatory framework forchemicals called “REACH” (Registration, Evaluation and Authorization ofChemicals). REACH will take effect in June 2007, and the program itestablishes will be phased in over 11 years. Under the regulation companiesthat manufacture or import more than one ton of a chemical substance per yearwill be required to register such chemical substances, and isolatedintermediates, in a central database. Use authorizations will be granted for aspecific chemical if the applicants can show that any risk in using thechemical can be adequately controlled or, where there are no suitablealternatives available, if the applicant can demonstrate that the social andeconomic benefits of using the chemical outweigh the risks. Specified uses ofsome hazardous substances may be restricted. In addition, all applicants willhave to study the availability of alternative chemicals. If alternatives areavailable, a “substitution” plan will have to be submitted to the regulatoryagency. Persistent bio-accumulative and toxic substances will only beauthorized if an alternative chemical is not available. The registration,evaluation and authorization phases of the program will require expendituresand resource commitments in order to, for example, develop informationtechnology tools, generate data, prepare and submit dossiers for substanceregistration, participate in consortia, obtain legal advice, and reformulateproducts if necessary. We have established a cross-business European REACH teamthat is working closely with our businesses to identify and list all substancesmanufactured or imported by us into the European Union. Currently, it is notpossible to estimate the likely financial impact of these regulations on any ofour sites.

**GREENHOUSEGAS REGULATION**

In the EU and otherjurisdictions committed to compliance with the Kyoto Protocol to the UnitedNations Framework Convention on Climate Change (the “Convention”), there is anincreasing likelihood that our manufacturing sites will be affected in some wayover the next few years by taxation of greenhouse gas (“GHG”) emissions. Inaddition, although the U.S. is not a signatory to the Convention, severalstates, including California, are implementing their own GHG regulatoryprograms, and a federal program in the U.S. is a possibility for the future.While only a very small number of our sites are currently affected by existingGHG legislation, and none have experienced or anticipate significant costincreases as a result, it is likely that GHG emission restrictions will increaseover time. Potential consequences of such restrictions include increases inenergy costs above the level of general inflation, as well as direct compliancecosts. Currently, however, it is not possible to estimate the likely financial impactof potential future regulation on any of our sites.

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**CHEMICALFACILITY ANTI-TERRORISM RULEMAKING**

On December 28, 2006, the U.S. Department ofHomeland Security published an advanced notice of proposed rulemaking seekingpublic comment on proposed regulations for securing high risk chemicalfacilities from potential terrorist attacks, as required by the HomelandSecurity Appropriations Act of 2006. The target date set by the act for issuingthe regulations is April 4, 2007. If adopted, the regulations willimmediately implement the security program at the nation’s highest riskfacilities, and a phased implementation at other chemical facilities thatpresent security risks addressed by the statute, beginning in 2007 andcontinuing through 2008.

Since 2003, we haveconducted security vulnerability assessments at all of our higher riskmanufacturing facilities in the U.S. Those assessments led to changes in ouroperations in certain instances to ensure greater security. Whether theassessments and resulting improvements will fully satisfy the requirements ofthe final regulations, and whether additional costly changes will have to bemade, is unclear to us at this time. Currently, it is not possible to estimatethe likely financial impact of these regulations on any of our sites.

**MTBEDEVELOPMENTS**

We produce MTBE, an oxygenate that is blended withgasoline to reduce vehicle air emissions and to enhance the octane rating ofgasoline. Existing or future litigation or legislative initiatives restrictingthe use of MTBE in gasoline may subject us or our products to environmentalliability or materially adversely affect our sales and costs. Because MTBE hascontaminated some water supplies, its use has become controversial in the U.S.and elsewhere, and its use has been effectively eliminated in the U.S. market.

As a result of these developments, we currentlymarket, either directly or through third parties, MTBE to customers locatedoutside the U.S. for use as a gasoline additive, which has produced a lowerlevel of cash flow than the previous sale of MTBE in the U.S. We may also electto use all or a portion of our precursor TBA to produce saleable products otherthan MTBE. If we opt to produce products other than MTBE, necessarymodifications to our facilities will require significant capital expendituresand the sale of such other products may produce a lower level of cash flow thanthat historically produced from the sale of MTBE.

A number of lawsuits havebeen filed, primarily against gasoline manufacturers, marketers anddistributors, by persons seeking to recover damages allegedly arising from thepresence of MTBE in groundwater. While we have not been named as a defendant inany litigation concerning the environmental effects of MTBE, we cannot provideassurances that we will not be involved in any such litigation or that suchlitigation will not have a material adverse effect on our business, results ofoperations and financial condition. However, because we are not able toestimate the amount or range of losses that would be associated with suchlitigation, we have made no accruals with respect to unasserted claimsconcerning the environmental effects of MTBE as of December 31, 2006.

**22.**          CASUALTY LOSSES ANDINSURANCE RECOVERIES

**2005U.S. GULF COAST STORMS**

On September 22, 2005, we suspended operations atour Gulf Coast facilities in Texas and Louisiana as a result of hurricane Rita.In addition, we sustained property damage at our Port Neches and Port Arthur,Texas facilities as a result of the hurricane. We maintain customary insurancecoverage for property damage and business interruption. With respect tocoverage of these losses, the deductible for property damage was $10 millionper site, while business interruption coverage does not apply for the first 60days.

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In connection with thelosses incurred from hurricane Rita, we are in the process of completinginsurance claims for property damage and business interruption. During 2006, wereceived insurance recovery advances of $12.5 million, and, on January 23,2007, we executed a sworn statement in proof of loss with the insurancecompanies to receive additional insurance recovery advances of $14.0 million tobe received during the first quarter of 2007. The $26.5 million of insurancerecoveries are recorded in “Other operating income (expense)” on theaccompanying consolidated statements of operations, as they represent therecovery of losses previously recognized in prior periods, of which $13.3million was allocated to the Performance Products segment and $13.2 million wasallocated to the Base Chemicals segment. The insurance receivable of $14.0million is recorded within “Other current assets” on the accompanyingconsolidated balance sheets. We and our insurers are working to reach asettlement on the remainder of the insurance claim and we can provide noassurance with respect to the ultimate resolution of this matter.

**PORTARTHUR, TEXAS PLANT FIRE**

On April 29, 2006, our Port Arthur, Texas olefinsmanufacturing plant experienced a major fire. With the exception of cyclohexaneoperations at the site, which were restarted in June 2006, the remainingoperations at the site remain shutdown. The damage is significant and, while noassurances can be made, preliminary indications are that we expect to restartthe facility early in the third quarter of 2007. The Port Arthur manufacturingplant is covered by property damage and business interruption insurance. Withrespect to coverage for this outage, the deductible for property damage is $10million and business interruption coverage does not apply for the first 60days.

During 2006 we incurred expenditures and losses forboth property damage and business interruption as a result of the Port Arthurfire. Net of the $10 million deductible, we incurred approximately $17.2million in property damages, including the write-off of damaged assets, coststo respond and clean up the facility and costs for the repair and maintenanceof damaged equipment, all of which were accrued for recovery by insurance, asrecovery from our insurers was considered probable.

During 2006 we also accrued for the recovery of costsduring the non-deductible business interruption period from our insurancepolicies of approximately $39.2 million, as recovery from our insurers wasconsidered probable.

During the fourth quarter of 2006, we received insurancerecovery advances of $150.0 million, of which $56.4 million was applied to ourinsurance receivables related to recovery of costs incurred and $93.6 millionhas been recorded as a deferred gain and is included in “Accrued liabilities”on the accompanying consolidated balance sheets.

The incurrence of future fixed costs during thebusiness interruption period and the future repair and maintenance expense ofthe damaged equipment will be offset against the deferred gain. Any suchamounts incurred above the deferred gain will be recorded as an insurancereceivable if realization is deemed probable. Future insurance recoveryadvances, if any, in excess of accrued fixed costs and other expenses relatingto the damaged facilities will be recorded as a deferred gain, and anyremaining deferred gains associated with this event will not be recognized inour consolidated statements of operations until final settlement with ourinsurance carriers.

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**23.**          STOCKHOLDERS’EQUITY

On February 16, 2005, we completed an initialpublic offering of 55,681,819 shares of our common stock sold by us and13,579,546 share of our common stock sold by a selling stockholder, in eachcase at a price to the public of $23 per share, and 5,750,000 shares of ourmandatory convertible preferred stock sold by us at a price to the public of$50 per share. Each share of preferred stock will be convertible into betweenapproximately 1.77 and approximately 2.17 shares of our common stock, subjectto anti-dilution adjustments, depending upon the trading price of our commonstock prior to the third anniversary of our initial public offering. This willresult in between approximately 10.2 million and 12.5 million additional sharesof our common stock outstanding upon conversion. See “Note 2. Summary ofSignificant Accounting Policies—Net Income (Loss) per Share.”

The net proceeds to usfrom our initial public offering of common and preferred stock wereapproximately $1.5 billion, substantially all of which has been used to repayoutstanding indebtedness of certain of our subsidiaries.

**DIVIDENDS ON MANDATORY CONVERTIBLE PREFERRED STOCK**

In connection with theinitial public offering of our 5% mandatory convertible preferred stock on February 16,2005, we declared all dividends that will be payable on such preferred stockfrom the issuance through the mandatory conversion date, which is February 16,2008. Accordingly, we recorded dividends payable of $43.1 million and acorresponding charge to net loss available to common stockholders during theyear ended December 31, 2005. As of December 31, 2006, we had$17.6 million invested in government securities that are restricted to beused to satisfy our dividend payment obligations through the mandatoryconversion date. We expect to pay dividends in cash on February 16, May 16,August 16 and November 16 of each year prior to February 16,2008. Under certain circumstances, we may not be allowed to pay dividends incash. If this were to occur, any unpaid dividend would be payable in shares ofcommon stock on February 16, 2008 based on the market value of commonstock at that time.

**REDEEMABLE PREFERRED MEMBER’S INTEREST**

On September 30,2002, we authorized the issuance of 18% cumulative preferred members’ interest.The preferred members’ interest had a liquidation preference of$395.0 million and was entitled to a cumulative preferred return equal to18% per annum, compounded annually. As of December 31, 2004 theaccumulated liquidation preference was $574.8 million. In connection withour initial public offering of common and preferred stock, we redeemed thepreferred members’ interest on February 16, 2005.

**COMMON INTERESTS**

On September 30,2002, we authorized and issued 10,000,000 Class A Common Units and10,000,000 Class B Common Units. Both Class A Common Units and Class BCommon Units had equal rights in our management and shared ordinary profits andlosses equally. There were, however, special provisions governing distributionsof proceeds until a certain specified level of proceeds had been distributedafter which proceeds were distributed equally. All common interests wereexchanged for common stock in connection with the initial public offering ofcommon stock on February 16, 2005.

**TRACKING PREFERRED INTERESTS**

On June 30, 2003, oneof our subsidiaries authorized and issued four series of tracking preferredinterests (Series A, B, C, and D), that tracked the performance of theHuntsman Advanced Materials business (collectively, “Tracking Preferred Interests”).The Series A Tracking Preferred Interests had a liquidation preferenceequal to $128.3 million. The Series B Tracking Preferred Interestshad a liquidation preference equal to $77.0 million, reduced by the amountof certain distributions to the holders of certain 

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Class ACommon Units. The Series C Tracking Preferred Interests had a liquidationpreference equal to $231.0 million. The Series D Tracking PreferredInterests had a liquidation preference equal to $77.0 million, reduced bythe amount of certain distributions to the holders of certain Class ACommon Units. The Tracking Preferred Interests were not entitled to any returnother than their liquidation preferences. The liquidation preferences werelimited to the underlying investment in the Huntsman Advanced Materialsbusiness. The Tracking Preferred Interests did not have voting rights, andcould be redeemed by us in connection with certain sale transactions for anamount equal to their unpaid liquidation preferences. All tracking preferred interestswere exchanged for common stock in connection with the initial public offeringof common stock on February 16, 2005.

**24.**          STOCK-BASEDCOMPENSATION PLAN

Under the Huntsman Stock Incentive Plan (the “StockIncentive Plan”), a plan approved by stockholders, we may grant non-qualifiedstock options, incentive stock options, stock appreciation rights, restrictedstock, phantom stock, performance awards and other stock-based awards to ouremployees and directors and to employees and directors of our subsidiaries,provided that incentive stock options may be granted solely to employees. Theterms of the grants are fixed at the grant date. As of December 31, 2006,we were authorized to grant up to 21,590,909 shares under the Stock IncentivePlan. Option awards have a maximum contractual term of 10 years andgenerally must have an exercise price at least equal to the market price of ourcommon stock on the date the option award is granted. Stock-based awardsgenerally vest over a three-year period.

The compensation cost for the Stock Incentive Plan was$18.4 million and $9.5 million for the years ended December 31, 2006 and2005, respectively. The total income tax benefit recognized in the statement ofoperations for stock-based compensation arrangements was nil for each of yearsended December 31, 2006 and 2005. We did not have any stock-basedcompensation plans prior to 2005.

Thefair value of each stock option award is estimated on the date of grant usingthe Black-Scholes valuation model that uses the assumptions noted in thefollowing table. Because we only became a publicly-held company in February 2005,we based our assumption of expected volatility on implied volatilities from thestock of comparable companies. The expected term of options granted is estimatedbased on the contractual term of the instruments and employees’ expectedexercise and post-vesting employment termination behavior. The risk-free ratefor periods within the contractual life of the option is based on the U.S.Treasury yield curve in effect at the time of grant.
|                                                           | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Dividend yield                                            |       | 0                                          | %          | 0 | % |
| Expected  volatility                                      |       | 23.1                                       | %          | 22.4 | % |
| Risk-free  interest rate                                  |       | 4.6                                        | %          | 3.9 | % |
| Expected life of stock  options granted during the period |       | 6.6 years                                  |       | 6.6 years |   |

 

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**STOCKOPTIONS**

Asummary of stock option activity under the Stock Incentive Plan as of December 31,2006 and changes during the year then ended is presented below:
| Option Awards                     | ** ** | ** ** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | **(000)**  | ** ** | ** ** | ** ** | **(Years)**                            | ** ** | **($000)**                                          | ** ** |
| Outstanding at  January 1, 2006   |       |       | 2,579      |       |       |                                   | $          | 22.56                                               |       |                            |       |   |   |   |   |   |   |   |
| Granted                                |       |       | 1,687      |       |       |                                   | 20.46      |                                                |       |                            |       |   |   |   |   |   |   |
| Exercised                              |       |       | —     |       |       |                                   | —     |                                                |       |                            |       |   |   |   |   |   |   |
| Forfeited                              |       |       | (115       | )          |       |                                   | 22.08      |                                                |       |                            |       |   |   |   |   |   |   |
| Outstanding at  December 31, 2006 |       |       | 4,151      |       |       |                                   | 21.72      |                                                |       |                            | 8.59       |   |   |   | $ | 34 |   |   |
| Exercisable at  December 31, 2006 |       |       | 932        |       |       |                                   | 22.48      |                                                |       |                            | 8.24       |   |   |   | — |   |   |
|                                        |            |            |            |            |            |                                        |            |                                                     |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

The weighted-averagegrant-date fair value of stock options granted during the years ended December 31,2006 and 2005 was $7.27 and $7.49 per option, respectively. As of December 312006, there was $15.8 million of total unrecognized compensation cost relatedto nonvested stock option arrangements granted under the Stock Incentive Plan.That cost is expected to be recognized over a weighted-average period ofapproximately 1.6 years. No option awards were exercised during the years endedDecember 31, 2006 or 2005.

**NONVESTED SHARES**

Nonvestedshares granted under the Stock Incentive Plan consist of restricted stock,which is accounted for as an equity award, and phantom stock, which isaccounted for as a liability award because it can be settled in either stock orcash. A summary of the status of our nonvested shares as of December 31,2006 and changes during the years then ended is presented below:
|                                      | ** ** | **Equity Awards** | ** ** | **Liability Awards**                                | ** ** |
|--------------------------------------|------------|------------------------|------------|----------------------------------------------------------|------------|
| ** **                           | ** ** | **Shares**             | ** ** | **Weighted  Average Grant-  Date Fair  Value** | ** ** | **Shares** | ** ** | **Weighted  Average Grant-  Date Fair  Value** | ** ** |
| ** **                           | ** ** | **(000)**              | ** ** | ** **                                               | ** ** | **(000)** | ** ** | ** ** | ** ** |
| Nonvested at  January 1, 2006   |       |                   | 737        |                                                     |       |   | $ | 22.99 |   |   |   | 33 |   |   |   | $ | 23.00 |   |   |
| Granted                              |       |                   | 467        |                                                     |       |   | 20.46 |   |   |   | 24 |   |   |   | 20.50 |   |   |
| Vested                               |       |                   | (267       | )                                                        |       |   | 22.88 |   |   |   | (11 | ) |   |   | 23.00 |   |   |
| Forfeited                            |       |                   | (28        | )                                                        |       |   | 22.65 |   |   |   | — |   |   |   | — |   |   |
| Nonvested at  December 31, 2006 |       |                   | 909        |                                                     |       |   | 21.73 |   |   |   | 46 |   |   |   | 21.72 |   |   |

 

As of December 31,2006, there was $13.1 million of total unrecognized compensation cost relatedto nonvested share compensation arrangements granted under the Stock IncentivePlan. That cost is expected to be recognized over a weighted-average period ofapproximately 1.6 years. The total fair value of shares that vested during theyear ended December 31, 2006 and 2005 was $6.3 million and nil,respectively.

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**25.**          OTHERCOMPREHENSIVE INCOME (LOSS)

Other comprehensive incomeconsisted of the following (dollars in millions):

**HuntsmanCorporation**
|                                                                                                                      | ** ** | **December 31,**  | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                           | ** ** | **2006**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                           | ** ** | **Accumulated**        | ** ** | **Income** | ** ** | **Accumulated** | ** ** | **Income** | ** ** | **Income** | ** ** |
| ** **                                                                                                           | ** ** | **income (loss)** | ** ** | **(loss)** | ** ** | **income (loss)** | ** ** | **(loss)** | ** ** | **(loss)** | ** ** |
| Foreign currency  translation adjustments, net of tax of $31.8 as of December 31,  2006 and 2005           |       |                   | $          | 228.3 |   |   | $ | 165.9 |   |   | $ | 62.4 |   |   | $ | (233.6 | ) | $ | 119.3 |   |
| Pension related adjustments, net of tax of $63.8 and $30.0 as of  December 31, 2006 and 2005, respectively |       |                   | (304.1     | ) |   | (22.9 | ) |   | (102.1 | ) |   | 15.0 |   | (56.9 | ) |
| Other  comprehensive income (loss) of unconsolidated affiliates                                                 |       |                   | 7.3        |   |   | — |   |   | 7.3 |   |   | (0.7 | ) | (1.2 | ) |
| Other                                                                                                                |       |                   | 7.1        |   |   | 6.0 |   |   | 1.1 |   |   | 7.0 |   | 9.3 |   |
| Total                                                                                                                |       |                   | $          | (61.4 | ) |   | $ | 149.0 |   |   | $ | (31.3 | ) |   | $ | (212.3 | ) | $ | 70.5 |   |

 

**Huntsman International**
|                                                                                                                   | ** ** | **December 31,**  | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                        | ** ** | **2006**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                        | ** ** | **Accumulated**        | ** ** | **Income** | ** ** | **Accumulated** | ** ** | **Income** | ** ** | **Income** | ** ** |
| ** **                                                                                                        | ** ** | **income (loss)** | ** ** | **(loss)** | ** ** | **income (loss)** | ** ** | **(loss)** | ** ** | **(loss)** | ** ** |
| Foreign currency  translation adjustments, net of tax of $0.2 as of December 31, 2006  and 2005         |       |                   | $          | 266.9 |   |   | $ | 197.0 |   |   | $ | 69.9 |   |   | $ | (215.8 | ) | $ | 110.4 |   |
| Pension related  adjustments, net of tax of $101.6 and $45.4 as of December 31, 2006 and  2005, respectively |       |                   | (404.1     | ) |   | (18.0 | ) |   | (153.3 | ) |   | (16.3 | ) | (41.2 | ) |
| Other  comprehensive income (loss) of unconsolidated affiliates                                              |       |                   | 7.3        |   |   | — |   |   | 7.3 |   |   | (0.8 | ) | (1.1 | ) |
| Other                                                                                                             |       |                   | 1.6        |   |   | 3.8 |   |   | (2.2 | ) |   | 10.6 |   | 1.8 |   |
| Total                                                                                                             |       |                   | $          | (128.3 | ) |   | $ | 182.8 |   |   | $ | (78.3 | ) |   | $ | (222.3 | ) | $ | 69.9 |   |

 

During 2006, $49.4 millionof foreign currency translation adjustments were reclassified to loss ondisposal of discontinued operations related to the U.K. PetrochemicalsDisposition.

The adoption of SFAS No. 158and related pension adjustments include the effect of the calculation of theadditional minimum pension liability prior to the adoption of SFAS No. 158,which is included in other comprehensive income, as well as the net effect of theadoption of SFAS No. 158, which is a direct adjustment to accumulatedother comprehensive income.

Items of othercomprehensive (loss) income of our Company and our consolidated affiliates havebeen recorded net of tax, with the exception of the foreign currency translationadjustments related to subsidiaries with earnings permanently reinvested. Thetax effect is determined based upon the jurisdiction where the income or losswas recognized and is net of valuation allowances that have been recorded.

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**26.**          RELATEDPARTY TRANSACTIONS

Ouraccompanying consolidated financial statements include the followingtransactions with our affiliates not otherwise disclosed (dollars in millions):
|                            | ** ** | **Year ended December 31,** | ** ** |
|----------------------------|------------|--------------------------------------------|------------|
| ** **                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Sales to:                  |       |                                       |       |   |   |   |   |
| Unconsolidated affiliates  |       | $                                          | 79.9       |   | $ | 106.2 |   | $ | 55.6 |   |
| Inventory  purchases from: |       |                                       |       |   |   |   |   |
| Unconsolidated  affiliates |       | 145.3                                      |       | 119.1 |   | 403.9 |   |
|                            |            |                                            |            |  |  |  |  |  |  |  |

 

We have agreed with the Jon and Karen HuntsmanFoundation, a private charitable foundation established by Jon M. and Karen H.Huntsman to further the charitable interests of the Huntsman family, that wewill donate our Salt Lake City office building and our option to acquire anadjacent undeveloped parcel of land to the foundation free of debt. We have agreedto complete this donation on the earlier of November 30, 2009 or the dateon which we occupy less than 20% of the two main floors of the Salt Lake Cityoffice building. Under certain circumstances, after we make this donation wewill have the right, but not the obligation, to lease space in the Salt LakeCity office building from the foundation.

Through May 2002, we paid the premiums on variouslife insurance policies for Jon M. Huntsman. These policies have beenliquidated, and the cash values have been paid to Mr. Huntsman. Mr. Huntsmanis indebted to us in the amount of approximately $1.5 million, whichrepresents the insurance premiums paid on his behalf through May 2002.This amount is included in other noncurrent assets on the accompanying balancesheets.

Wayne A. Reaud, a memberof our board of directors, is of counsel to the law firm of Reaud, Morgan &Quinn. We pay the firm $200,000 per year for legal services. Mr. Reaud hasno interest in the firm or in the proceeds for current work done at the firm.As of counsel, the law firm provides Mr. Reaud with an office and certainsecretarial services.

**27.**          OTHEROPERATING (INCOME) EXPENSE

Otheroperating (income) expense consisted of the following (dollars in millions):

| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| (Gain) loss on  sale of business/asset   |       | $                                          | (92.4      | ) | $ | (1.0 | ) | $ | 2.4 |   |
| Foreign exchange  losses (gains)         |       | 0.5                                        |       | 29.1 |   | (116.1 | ) |
| Bad debts                                |       | 6.4                                        |       | 4.2 |   | 2.0 |   |
| Legal and  contract settlements—net |       | —                                     |       | — |   | 6.6 |   |
| Property loss  recoveries                |       | (35.3                                      | )          | — |   | — |   |
| Other, net                               |       | (6.9                                       | )          | (2.1 | ) | 28.1 |   |
| Total other  operating (income) expense  |       | $                                          | (127.7     | ) | $ | 30.2 |   | $ | (77.0 | ) |

 

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**28.**          OPERATINGSEGMENT INFORMATION

We derive our revenues,earnings and cash flows from the manufacture and sale of a wide variety ofdifferentiated and commodity chemical products. We report our operationsthrough six segments: Polyurethanes, Materials and Effects, PerformanceProducts, Pigments, Polymers and Base Chemicals. We have organized our businessand derived our operating segments around differences in product lines.

Themajor products of each reportable operating segment are as follows:

| **Segment**             | ** ** | ** **                                                                                                                                                                                   | ** ** | **Products** |
|-------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|
| Polyurethanes           |       | MDI, PO, polyols, PG,  TPU, aniline and MTBE                                                                                                                                                 |
| Materials and Effects   |       | epoxy resin  compounds and formulations; cross-linking, matting and curing agents;  epoxy, acrylic and polyurethane-based adhesives, tooling resin  formulations, textile chemicals and dyes |
| Performance Products(1) |       | amines,  surfactants, LAB, maleic anhydride, other performance chemicals, EG and  technology licenses                                                                                        |
| Pigments                |       | titanium dioxide                                                                                                                                                                             |
| Polymers(2)             |       | LDPE and LLDPE,  polypropylene, EPS, styrene and APAO                                                                                                                                        |
| Base Chemicals(1)(2)    |       | ethylene, propylene and  cyclohexane                                                                                                                                                         |

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(1)          Inthe fourth quarter of 2006, our Port Neches, Texas olefins facility wastransferred from our Base Chemicals segment to our Performance Productssegment. All segment information for prior periods has been restated to reflectthis transfer.

(2)          OnFebruary 15, 2007, we entered into an agreement to sell our U.S. basechemicals and polymers assets. See “Note 31. Subsequent Events—Agreementto Sell U.S. Base Chemicals and Polymers Business.” On December 29, 2006,we sold our European base chemicals and polymers business. The operatingresults of our European base chemicals and polymers business have beenclassified as discontinued operations and, accordingly, the revenues of thisbusiness are excluded from the Base Chemicals segment revenues for all periodspresented. The EBITDA of our European base chemicals and polymers business isincluded in the Base Chemicals segment EBITDA for all periods presented. See “Note3. Discontinued Operations—Sale of European Base Chemicals and PolymersBusiness.” On June 27, 2006, we sold our U.S. butadiene and MTBE businessoperated in our Base Chemicals segment. See “Note 4. Business Dispositions andCombinations—Sale of U.S. Butadiene and MTBE Business.” The PO/MTBE operationsin our Polyurethanes segment were not included in this sale.

Salesbetween segments are generally recognized at external market prices and areeliminated in consolidation. We use EBITDA to measure the financial performanceof our global business units and for reporting the results of our operatingsegments. This measure includes all operating items relating to the businesses.The EBITDA of operating segments excludes items that principally apply to ourcompany as a whole. The revenues and EBITDA for each of our reportableoperating segments are as follows (dollars in millions):

| ** **            | ** ** | **December 31,** | ** ** |
|-----------------------|------------|-----------------------|------------|
| ** **            | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Net Sales:**        |       |                  |       |   |   |   |   |
| Polyurethanes         |       | $                     | 3,457.2    |   | $ | 3,396.3 |   | $ | 2,818.0 |   |
| Materials and Effects |       | 1,734.6               |       | 1,185.3 |   | 1,162.4 |   |
| Performance Products  |       | 2,036.8               |       | 2,025.4 |   | 1,945.5 |   |
| Pigments              |       | 1,057.8               |       | 1,052.8 |   | 1,048.1 |   |
| Polymers              |       | 1,756.8               |       | 1,702.0 |   | 1,451.8 |   |
| Base Chemicals        |       | 963.1                 |       | 1,775.5 |   | 1,715.3 |   |
| Eliminations          |       | (382.7                | )          | (460.4 | ) | (578.6 | ) |
| Total                 |       | $                     | 10,623.6   |   | $ | 10,676.9 |   | $ | 9,562.5 |   |

 

F-79

----

 

| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Huntsman Corporation:**                        |       |                  |       |   |   |   |   |
| **Segment EBITDA(1):**                           |       |                  |       |   |   |   |   |
| Polyurethanes                                    |       | $                     | 582.5      |   | $ | 676.3 |   | $ | 364.0 |   |
| Materials and Effects                            |       | 153.2                 |       | 154.1 |   | 151.0 |   |
| Performance Products                             |       | 207.8                 |       | 164.9 |   | 88.5 |   |
| Pigments                                         |       | 112.8                 |       | 115.3 |   | (30.0 | ) |
| Polymers                                         |       | 112.8                 |       | 102.7 |   | 77.6 |   |
| Base Chemicals                                   |       | 11.9                  |       | 256.7 |   | 278.7 |   |
| Corporate and other(2)                           |       | (149.8                | )          | (556.6 | ) | (37.2 | ) |
| Total                                            |       | 1,031.2               |       | 913.4 |   | 892.6 |   |
| Interest expense,  net                           |       | (350.7                | )          | (426.6 | ) | (612.6 | ) |
| Income tax benefit—continuing  operations   |       | 49.0                  |       | 6.1 |   | 72.0 |   |
| Income tax expense—discontinued  operations |       | (34.0                 | )          | (26.7 | ) | (42.9 | ) |
| Depreciation and  amortization                   |       | (465.7                | )          | (500.8 | ) | (536.8 | ) |
| Net income (loss)                                |       | $                     | 229.8      |   | $ | (34.6 | ) | $ | (227.7 | ) |
| **Depreciation and Amortization:**               |       |                  |       |   |   |   |   |
| Polyurethanes                                    |       | $                     | 142.1      |   | $ | 147.4 |   | $ | 147.8 |   |
| Materials and  Effects                           |       | 46.1                  |       | 46.5 |   | 53.8 |   |
| Performance  Products                            |       | 54.1                  |       | 56.6 |   | 56.6 |   |
| Pigments                                         |       | 79.7                  |       | 77.0 |   | 83.2 |   |
| Polymers                                         |       | 47.5                  |       | 56.2 |   | 59.5 |   |
| Base Chemicals(3)                                |       | 59.1                  |       | 80.7 |   | 87.6 |   |
| Corporate and other                              |       | 37.1                  |       | 36.4 |   | 48.3 |   |
| Total                                            |       | $                     | 465.7      |   | $ | 500.8 |   | $ | 536.8 |   |
| **Capital Expenditures:**                        |       |                  |       |   |   |   |   |
| Polyurethanes                                    |       | $                     | 81.6       |   | $ | 106.6 |   | $ | 45.8 |   |
| Materials and  Effects                           |       | 52.3                  |       | 27.4 |   | 17.4 |   |
| Performance  Products                            |       | 89.3                  |       | 44.2 |   | 43.8 |   |
| Pigments                                         |       | 40.5                  |       | 38.4 |   | 42.7 |   |
| Polymers(4)                                      |       | 218.1                 |       | 63.7 |   | 14.5 |   |
| Base Chemicals(4)                                |       | 58.4                  |       | 45.6 |   | 56.7 |   |
| Corporate and  other                             |       | 9.7                   |       | 12.8 |   | 5.7 |   |
| Total                                            |       | $                     | 549.9      |   | $ | 338.7 |   | $ | 226.6 |   |
| **Total Assets:**                                |       |                  |       |   |   |   |   |
| Polyurethanes                                    |       | $                     | 4,598.7    |   | $ | 4,074.5 |   |   |   |
| Materials and  Effects                           |       | 1,747.8               |       | 896.7 |   |   |   |
| Performance  Products                            |       | 1,882.5               |       | 1,465.1 |   |   |   |
| Pigments                                         |       | 1,601.0               |       | 1,659.7 |   |   |   |
| Polymers                                         |       | 835.8                 |       | 955.4 |   |   |   |
| Base Chemicals                                   |       | 500.0                 |       | 1,968.9 |   |   |   |
| Corporate and  other                             |       | (2,720.9              | )          | (2,149.8 | ) |   |   |
| Total                                            |       | $                     | 8,444.9    |   | $ | 8,870.5 |   |   |   |

----

(1)           Segment EBITDA is defined as net income(loss) before interest, income tax, depreciation and amortization, and certaincorporate and other items.

(2)           Corporate and other items includesunallocated corporate overhead, foreign exchange gains and losses, loss onaccounts receivable securitization program, loss on the early extinguishment ofdebt, other non-operating income and expense, minority interest insubsidiaries’ (income) loss, the extraordinary gain on acquisition of abusiness, cumulative effect of changes in accounting principle and the impactof purchase accounting adjustments.

(3)    Includes depreciation and amortization from discontinuedoperations of $45.7 million, $61.1 million and $60.6 million forthe years ended December 31, 2006, 2005 and 2004, respectively.

F-80

----

(4)           Includes capital expenditures fromdiscontinued operations of $203.6 million, $65.1 million and $40.4 million forthe years ended December 31, 2006, 2005 and 2004, respectively.

| ** **                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Huntsman International:**                              |       |                  |       |   |   |   |   |
| **Segment EBITDA(1):**                                   |       |                  |       |   |   |   |   |
| Polyurethanes                                            |       | $                     | 582.5      |   | $ | 676.3 |   | $ | 364.0 |   |
| Materials and Effects                                    |       | 153.2                 |       | 154.1 |   | 151.0 |   |
| Performance Products                                     |       | 207.8                 |       | 164.9 |   | 88.5 |   |
| Pigments                                                 |       | 112.8                 |       | 115.3 |   | (30.0 | ) |
| Polymers                                                 |       | 112.8                 |       | 102.7 |   | 77.6 |   |
| Base Chemicals                                           |       | 11.9                  |       | 256.7 |   | 278.7 |   |
| Corporate and other(2)                                   |       | (149.1                | )          | (410.3 | ) | (48.8 | ) |
| Total                                                    |       | 1,031.9               |       | 1,059.7 |   | 881.0 |   |
| Interest expense, net                                    |       | (355.2                | )          | (425.6 | ) | (592.6 | ) |
| Income tax benefit  (expense)—continuing operations |       | 30.0                  |       | (13.2 | ) | 66.3 |   |
| Income tax expense—discontinued  operations(3)      |       | (34.0                 | )          | (26.3 | ) | (43.4 | ) |
| Depreciation and  amortization                           |       | (439.1                | )          | (473.9 | ) | (499.0 | ) |
| Net income (loss)                                        |       | $                     | 233.6      |   | $ | 120.7 |   | $ | (187.7 | ) |
| **Depreciation  and Amortization:**                      |       |                  |       |   |   |   |   |
| Polyurethanes                                            |       | $                     | 142.1      |   | $ | 147.4 |   | $ | 147.8 |   |
| Materials and  Effects                                   |       | 46.1                  |       | 46.5 |   | 53.8 |   |
| Performance  Products                                    |       | 54.1                  |       | 56.6 |   | 56.6 |   |
| Pigments                                                 |       | 79.7                  |       | 77.0 |   | 83.2 |   |
| Polymers                                                 |       | 47.5                  |       | 56.2 |   | 59.5 |   |
| Base Chemicals(3)                                        |       | 59.1                  |       | 80.7 |   | 87.6 |   |
| Corporate and  other                                     |       | 10.5                  |       | 9.5 |   | 10.5 |   |
| Total                                                    |       | $                     | 439.1      |   | $ | 473.9 |   | $ | 499.0 |   |
| **Capital  Expenditures:**                               |       |                  |       |   |   |   |   |
| Polyurethanes                                            |       | $                     | 81.6       |   | $ | 106.6 |   | $ | 45.8 |   |
| Materials and  Effects                                   |       | 52.3                  |       | 27.4 |   | 17.4 |   |
| Performance  Products                                    |       | 89.3                  |       | 44.2 |   | 43.8 |   |
| Pigments                                                 |       | 40.5                  |       | 38.4 |   | 42.7 |   |
| Polymers(4)                                              |       | 218.1                 |       | 63.7 |   | 14.5 |   |
| Base Chemicals(4)                                        |       | 58.4                  |       | 45.6 |   | 56.7 |   |
| Corporate and  other                                     |       | 9.7                   |       | 12.8 |   | 5.7 |   |
| Total                                                    |       | $                     | 549.9      |   | $ | 338.7 |   | $ | 226.6 |   |
| **Total  Assets:**                                       |       |                  |       |   |   |   |   |
| Polyurethanes                                            |       | $                     | 4,598.7    |   | $ | 4,074.5 |   |   |   |
| Materials and  Effects                                   |       | 1,747.8               |       | 896.7 |   |   |   |
| Performance  Products                                    |       | 1,882.5               |       | 1,465.0 |   |   |   |
| Pigments                                                 |       | 1,601.0               |       | 1,659.7 |   |   |   |
| Polymers                                                 |       | 835.8                 |       | 955.4 |   |   |   |
| Base Chemicals                                           |       | 500.0                 |       | 1,968.9 |   |   |   |
| Corporate and  other                                     |       | (2,970.3              | )          | (2,387.2 | ) |   |   |
| Total                                                    |       | $                     | 8,195.5    |   | $ | 8,633.0 |   |   |   |

----

(1)           Segment EBITDA is defined as net income(loss) before interest, income tax, depreciation and amortization, and certaincorporate and other items.

(2)           Corporate and other items includesunallocated corporate overhead, foreign exchange gains and losses, loss onaccounts receivable securitization program, loss on the early extinguishment ofdebt, other non-operating income 

F-81

----

and expense,minority interest in subsidiaries’ (income) loss, the extraordinary gain onacquisition of a business and cumulative effect of changes in accountingprinciple.

(3)           Includes depreciation and amortizationfrom discontinued operations of $45.7 million, $59.6 million and$60.6 million for the years ended December 31, 2006, 2005 and 2004,respectively.

(4)           Includes capital expenditures fromdiscontinued operations of $203.6 million, $65.1 million and $40.4 million forthe years ended December 31, 2006, 2005 and 2004, respectively.
|                            | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **By Geographic Area**     | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net sales:**             |       |                  |       |   |   |   |   |
| United States              |       | $                     | 6,970.3    |   | $ | 7,447.5 |   | $ | 6,385.1 |   |
| Netherlands                |       | 1,946.8               |       | 1,838.9 |   | 1,274.6 |   |
| Other nations              |       | 4,295.4               |       | 3,576.9 |   | 3,703.9 |   |
| Eliminations               |       | (2,588.9              | )          | (2,186.4 | ) | (1,801.1 | ) |
| **Total**                  |       | $                     | 10,623.6   |   | $ | 10,676.9 |   | $ | 9,562.5 |   |
| **Long-lived assets(1):**  |       |                  |       |   |   |   |   |
| **Huntsman Corporation**   |       |                  |       |   |   |   |   |
| United States              |       | $                     | 2,078.2    |   | $ | 2,267.0 |   |   |   |
| Netherlands                |       | 349.3                 |       | 326.8 |   |   |   |
| Other nations              |       | 1,631.9               |       | 2,049.4 |   |   |   |
| **Total**                  |       | $                     | 4,059.4    |   | $ | 4,643.2 |   |   |   |
| **Huntsman International** |       |                  |       |   |   |   |   |
| United States              |       | $                     | 1,848.3    |   | $ | 1,960.5 |   |   |   |
| Netherlands                |       | 349.3                 |       | 326.8 |   |   |   |
| Other nations              |       | 1,631.9               |       | 2,049.4 |   |   |   |
| **Total**                  |       | $                     | 3,829.5    |   | $ | 4,336.7 |   |   |   |

----

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

**29.**          CONDENSEDCONSOLIDATING FINANCIAL STATEMENTS—HUNTSMAN INTERNATIONAL

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;the Guarantors on a combined, and where appropriate, consolidated basis; andthe non-guarantors on a combined, and where appropriate, consolidated basis.Additional columns present eliminating adjustments and consolidated totals asof December 31, 2006 and December 31, 2005 and for the periods ended December 31,2006, 2005 and 2004. There are no contractual restrictions limiting transfersof cash from guarantor subsidiaries to Huntsman International. Each of theGuarantors is 100% owned by Huntsman International and has fully andunconditionally guaranteed Huntsman International’s outstanding notes on ajoint and several basis.

F-82

----

**CONDENSEDCONSOLIDATING BALANCE SHEETSAS OF DECEMBER 31, 2006(Dollars in Millions)**

| ** **                                          | ** ** | **Parent Company** | ** ** | **Guarantors** | ** ** | **Non- guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|----------------|------------|--------------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                          |       |                    |       |           |       |                     |       |             |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Current assets:**                                 |       |                    |       |           |       |                     |       |             |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                           |       |                    | $          | 18.1           |       |                     |       | $                | —     |                                           |       |   | $ | 227.9 |   |   |   | $ | — |   |   |   | $ | 246.0 |   |   |
| Accounts and notes  receivables, net                |       |                    | 35.3       |           |       |                     | 216.0      |             |       |                                           | 992.0      |   |   |   | — |   |   |   | 1,243.3 |   |   |
| Accounts receivable from  affiliates                |       |                    | 605.2      |           |       |                     | 2,766.0    |             |       |                                           | 445.0      |   |   |   | (3,796.7 | ) |   |   | 19.5 |   |   |
| Inventories, net                                    |       |                    | 157.9      |           |       |                     | 424.9      |             |       |                                           | 942.3      |   |   |   | (5.0 | ) |   |   | 1,520.1 |   |   |
| Prepaid expenses                                    |       |                    | 8.0        |           |       |                     | 58.6       |             |       |                                           | 16.9       |   |   |   | (27.8 | ) |   |   | 55.7 |   |   |
| Deferred income taxes                               |       |                    | 4.7        |           |       |                     | 66.5       |             |       |                                           | 4.5        |   |   |   | (5.0 | ) |   |   | 70.7 |   |   |
| Other current assets                                |       |                    | 6.4        |           |       |                     | 4.6        |             |       |                                           | 150.6      |   |   |   | — |   |   |   | 161.6 |   |   |
| **Total  current assets**                           |       |                    | 835.6      |           |       |                     | 3,536.6    |             |       |                                           | 2,779.2    |   |   |   | (3,834.5 | ) |   |   | 3,316.9 |   |   |
| Property, plant  and equipment, net                 |       |                    | 536.0      |           |       |                     | 1,298.0    |             |       |                                           | 1,992.5    |   |   |   | 3.0 |   |   |   | 3,829.5 |   |   |
| Investment in  unconsolidated affiliates            |       |                    | 3,094.4    |           |       |                     | 1,250.6    |             |       |                                           | 92.9       |   |   |   | (4,236.9 | ) |   |   | 201.0 |   |   |
| Intangible assets,  net                             |       |                    | 145.9      |           |       |                     | (8.0       | )                |       |                                           | 54.7       |   |   |   | — |   |   |   | 192.6 |   |   |
| Goodwill                                            |       |                    | —     |           |       |                     | 86.9       |             |       |                                           | 7.4        |   |   |   | (4.1 | ) |   |   | 90.2 |   |   |
| Deferred income  taxes                              |       |                    | 2.0        |           |       |                     | 2.0        |             |       |                                           | 184.7      |   |   |   | — |   |   |   | 188.7 |   |   |
| Notes receivable  from affiliates                   |       |                    | 3,572.2    |           |       |                     | 1,539.9    |             |       |                                           | —     |   |   |   | (5,112.1 | ) |   |   | — |   |   |
| Other noncurrent  assets                            |       |                    | 63.4       |           |       |                     | 124.9      |             |       |                                           | 188.3      |   |   |   | — |   |   |   | 376.6 |   |   |
| **Total  assets**                                   |       |                    | $          | 8,249.5        |       |                     |       | $                | 7,830.9    |                                           |       |   | $ | 5,299.7 |   |   |   | $ | (13,184.6 | ) |   |   | $ | 8,195.5 |   |   |
| **LIABILITIES AND MEMBER’S EQUITY**            |       |                    |       |           |       |                     |       |             |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Current liabilities:**                            |       |                    |       |           |       |                     |       |             |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                    |       |                    | $          | 73.3           |       |                     |       | $                | 281.3      |                                           |       |   | $ | 651.6 |   |   |   | $ | — |   |   |   | $ | 1,006.2 |   |   |
| Accounts payable to  affiliates                     |       |                    | 2,924.7    |           |       |                     | 245.1      |             |       |                                           | 643.7      |   |   |   | (3,796.8 | ) |   |   | 16.7 |   |   |
| Accrued liabilities                                 |       |                    | 98.5       |           |       |                     | 264.2      |             |       |                                           | 506.8      |   |   |   | (27.8 | ) |   |   | 841.7 |   |   |
| Deferred income taxes                               |       |                    | —     |           |       |                     | —     |             |       |                                           | 9.4        |   |   |   | — |   |   |   | 9.4 |   |   |
| Current portion of  long-term debt                  |       |                    | 111.8      |           |       |                     | 0.5        |             |       |                                           | 75.6       |   |   |   | — |   |   |   | 187.9 |   |   |
| **Total  current liabilities**                      |       |                    | 3,208.3    |           |       |                     | 791.1      |             |       |                                           | 1,887.1    |   |   |   | (3,824.6 | ) |   |   | 2,061.9 |   |   |
| Long-term debt                                      |       |                    | 3,356.6    |           |       |                     | 2.5        |             |       |                                           | 98.3       |   |   |   | — |   |   |   | 3,457.4 |   |   |
| Long-term  debt-affiliates                          |       |                    | 27.7       |           |       |                     | 3,536.7    |             |       |                                           | 1,547.7    |   |   |   | (5,112.1 | ) |   |   | — |   |   |
| Deferred income  taxes                              |       |                    | 4.8        |           |       |                     | 67.1       |             |       |                                           | 94.6       |   |   |   | (4.9 | ) |   |   | 161.6 |   |   |
| Other noncurrent  liabilities                       |       |                    | 119.0      |           |       |                     | 197.4      |             |       |                                           | 635.7      |   |   |   | — |   |   |   | 952.1 |   |   |
| **Total  liabilities**                              |       |                    | 6,716.4    |           |       |                     | 4,594.8    |             |       |                                           | 4,263.4    |   |   |   | (8,941.6 | ) |   |   | 6,633.0 |   |   |
| **Minority  interest in consolidated subsidiaries** |       |                    | —     |           |       |                     | 118.5      |             |       |                                           | 23.4       |   |   |   | (112.5 | ) |   |   | 29.4 |   |   |
| **Member’s  equity:**                          |       |                    |       |           |       |                     |       |             |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| Member’s equity                                |       |                    | 2,811.8    |           |       |                     | 2,228.7    |             |       |                                           | 1,314.0    |   |   |   | (3,542.7 | ) |   |   | 2,811.8 |   |   |
| Subsidiary preferred  stock                         |       |                    | —     |           |       |                     | 73.4       |             |       |                                           | 1.4        |   |   |   | (74.8 | ) |   |   | — |   |   |
| (Accumulated deficit)  retained earnings            |       |                    | (1,150.4   | )              |       |                     | 711.6      |             |       |                                           | (33.1      | ) |   |   | (678.5 | ) |   |   | (1,150.4 | ) |   |
| Accumulated other  comprehensive (loss) income      |       |                    | (128.3     | )              |       |                     | 103.9      |             |       |                                           | (269.4     | ) |   |   | 165.5 |   |   |   | (128.3 | ) |   |
| **Total  member’s equity**                     |       |                    | 1,533.1    |           |       |                     | 3,117.6    |             |       |                                           | 1,012.9    |   |   |   | (4,130.5 | ) |   |   | 1,533.1 |   |   |
| **Total liabilities and member’s equity**      |       |                    | $          | 8,249.5        |       |                     |       | $                | 7,830.9    |                                           |       |   | $ | 5,299.7 |   |   |   | $ | (13,184.6 | ) |   |   | $ | 8,195.5 |   |   |

 

F-83

----

**CONDENSEDCONSOLIDATING BALANCE SHEETSAS 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 unconsolidated 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 |   |   |
| Notes receivable 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 MEMBER’S 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                                     |       |                    | 4,290.6    |           |       |               | 3.1        |             |       |                                           | 119.6      |   |   |   | — |   |   |   | 4,413.3 |   |   |
| Long-term debt—affiliates                     |       |                    | 67.5       |           |       |               | 2,131.5    |             |       |                                           | 1,815.4    |   |   |   | (4,014.4 | ) |   |   | — |   |   |
| 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 |   |   |
| **Member’s  equity:**                         |       |                    |       |           |       |               |       |             |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| Member’s 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 member’s equity**                     |       |                    | 1,331.7    |           |       |               | 4,385.3    |             |       |                                           | 1,202.2    |   |   |   | (5,587.5 | ) |   |   | 1,331.7 |   |   |
| **Total  liabilities and member’s equity**    |       |                    | $          | 7,374.2        |       |               |       | $                | 7,733.6    |                                           |       |   | $ | 5,288.0 |   |   |   | $ | (11,762.8 | ) |   |   | $ | 8,633.0 |   |   |

 

F-84

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSYEAR ENDED DECEMBER 31, 2006(Dollars in Millions)**

| ** **                                                                       | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |   |   |   |   |   |   |   |   |
| Trade sales, services and fees                                                   |       | $                   | 1,459.5    |           |       | $                    | 4,067.9    |             |       |                                           | $          | 5,016.3 |   |   |   | $ | — |   |   |   | $ | 10,543.7 |   |   |
| Related party sales                                                              |       | 310.4               |       |           | 325.0      |                 |       |             | 941.7      |                                           |       |   | (1,497.2 | ) |   |   | 79.9 |   |   |
| **Total  revenues**                                                              |       | 1,769.9             |       |           | 4,392.9    |                 |       |             | 5,958.0    |                                           |       |   | (1,497.2 | ) |   |   | 10,623.6 |   |   |
| **Cost of  goods sold**                                                          |       | 1,420.6             |       |           | 3,947.4    |                 |       |             | 5,188.0    |                                           |       |   | (1,488.9 | ) |   |   | 9,067.1 |   |   |
| **Gross profit**                                                                 |       | 349.3               |       |           | 445.5      |                 |       |             | 770.0      |                                           |       |   | (8.3 | ) |   |   | 1,556.5 |   |   |
| Selling, general  and administrative                                             |       | 140.8               |       |           | 145.8      |                 |       |             | 508.9      |                                           |       |   | (0.7 | ) |   |   | 794.8 |   |   |
| Research and  development                                                        |       | 37.5                |       |           | 29.8       |                 |       |             | 48.1       |                                           |       |   | — |   |   |   | 115.4 |   |   |
| Other operating  expense (income)                                                |       | 58.3                |       |           | (173.9     | )                    |       |             | (12.1      | )                                              |       |   | — |   |   |   | (127.7 | ) |   |
| Restructuring,  impairment and plant closing (credits) costs                     |       | (0.1                | )          |           | 7.4        |                 |       |             | 12.7       |                                           |       |   | — |   |   |   | 20.0 |   |   |
| **Operating income**                                                             |       | 112.8               |       |           | 436.4      |                 |       |             | 212.4      |                                           |       |   | (7.6 | ) |   |   | 754.0 |   |   |
| Interest expense,  net                                                           |       | (138.4              | )          |           | (82.2      | )                    |       |             | (134.6     | )                                              |       |   | — |   |   |   | (355.2 | ) |   |
| Gain (loss) on  accounts receivable securitization program                       |       | 12.1                |       |           | (12.3      | )                    |       |             | (15.9      | )                                              |       |   | — |   |   |   | (16.1 | ) |   |
| Equity in income  of investment in affiliates and subsidiaries              |       | 302.0               |       |           | (19.5      | )                    |       |             | 3.7        |                                           |       |   | (282.6 | ) |   |   | 3.6 |   |   |
| Other (expense)  income                                                          |       | (42.0               | )          |           | 10.8       |                 |       |             | 0.1        |                                           |       |   | (6.6 | ) |   |   | (37.7 | ) |   |
| **Income  from continuing operations before income taxes and minority interest** |       | 246.5               |       |           | 333.2      |                 |       |             | 65.7       |                                           |       |   | (296.8 | ) |   |   | 348.6 |   |   |
| Income tax  benefit                                                              |       | 7.0                 |       |           | 7.1        |                 |       |             | 15.9       |                                           |       |   | — |   |   |   | 30.0 |   |   |
| Minority interest  in subsidiaries’ income                                  |       | —              |       |           | (39.8      | )                    |       |             | (1.0       | )                                              |       |   | 37.9 |   |   |   | (2.9 | ) |   |
| **Income  from continuing operations**                                           |       | 253.5               |       |           | 300.5      |                 |       |             | 80.6       |                                           |       |   | (258.9 | ) |   |   | 375.7 |   |   |
| Loss from  discontinued operations, net of tax                              |       | (17.4               | )          |           | —     |                 |       |             | (180.6     | )                                              |       |   | — |   |   |   | (198.0 | ) |   |
| Extraordinary (loss)  gain on the acquisition of a business, net of tax     |       | (2.5                | )          |           | —     |                 |       |             | 58.4       |                                           |       |   | — |   |   |   | 55.9 |   |   |
| **Net  income (loss)**                                                           |       | $                   | 233.6      |           |       | $                    | 300.5      |             |       |                                           | $          | (41.6 | ) |   |   | $ | (258.9 | ) |   |   | $ | 233.6 |   |   |

 

F-85

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSYEAR 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    |             |       |                                           | $          | 4,469.4 |   |   |   | $ | — |   |   |   | $ | 10,570.7 |   |   |
| Related party sales                                                              |       | 248.9               |       |           | 255.9      |                 |       |             | 965.1      |                                           |       |   | (1,363.7 | ) |   |   | 106.2 |   |   |
| **Total revenues**                                                               |       | 1,612.9             |       |           | 4,993.2    |                 |       |             | 5,434.5    |                                           |       |   | (1,363.7 | ) |   |   | 10,676.9 |   |   |
| **Cost of goods sold**                                                           |       | 1,290.5             |       |           | 4,445.7    |                 |       |             | 4,665.2    |                                           |       |   | (1,357.5 | ) |   |   | 9,043.9 |   |   |
| **Gross profit**                                                                 |       | 322.4               |       |           | 547.5      |                 |       |             | 769.3      |                                           |       |   | (6.2 | ) |   |   | 1,633.0 |   |   |
| Selling, general and  administrative                                             |       | 117.8               |       |           | 158.4      |                 |       |             | 385.9      |                                           |       |   | (0.7 | ) |   |   | 661.4 |   |   |
| Research and development                                                         |       | 34.9                |       |           | 26.0       |                 |       |             | 34.6       |                                           |       |   | — |   |   |   | 95.5 |   |   |
| Other operating (income)  expense                                                |       | (26.3               | )          |           | 6.7        |                 |       |             | 49.8       |                                           |       |   | — |   |   |   | 30.2 |   |   |
| Restructuring,  impairment and plant closing costs                               |       | 5.0                 |       |           | 23.7       |                 |       |             | 85.4       |                                           |       |   | — |   |   |   | 114.1 |   |   |
| **Operating income**                                                             |       | 191.0               |       |           | 332.7      |                 |       |             | 213.6      |                                           |       |   | (5.5 | ) |   |   | 731.8 |   |   |
| Interest expense, net                                                            |       | (220.7              | )          |           | (67.9      | )                    |       |             | (137.0     | )                                              |       |   | — |   |   |   | (425.6 | ) |   |
| (Gain) loss on accounts  receivable securitization program                       |       | 15.7                |       |           | (2.8       | )                    |       |             | (21.9      | )                                              |       |   | — |   |   |   | (9.0 | ) |   |
| Equity in income of  investment in 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 and minority interest** |       | 139.8               |       |           | 375.6      |                 |       |             | 74.3       |                                           |       |   | (451.8 | ) |   |   | 137.9 |   |   |
| Income tax benefit  (expense)                                                    |       | 25.0                |       |           | (28.0      | )                    |       |             | (10.2      | )                                              |       |   | — |   |   |   | (13.2 | ) |   |
| Minority interest in  subsidiaries’ income                                  |       | —              |       |           | (20.0      | )                    |       |             | (0.8       | )                                              |       |   | 19.1 |   |   |   | (1.7 | ) |   |
| **Income from continuing  operations**                                           |       | 164.8               |       |           | 327.6      |                 |       |             | 63.3       |                                           |       |   | (432.7 | ) |   |   | 123.0 |   |   |
| (Loss) income from  discontinued operations, net of tax                     |       | (43.9               | )          |           | —     |                 |       |             | 69.1       |                                           |       |   | — |   |   |   | 25.2 |   |   |
| 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-86

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSYEAR 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    |           |       | $                    | 4,136.7    |             |       |                                           | $          | 4,192.4 |   |   |   | $ | — |   |   |   | $ | 9,506.9 |   |   |
| Related party sales                                                                     |       | 181.3               |       |           | 266.4      |                 |       |             | 141.3      |                                           |       |   | (533.4 | ) |   |   | 55.6 |   |   |
| **Total  revenues**                                                                     |       | 1,359.1             |       |           | 4,403.1    |                 |       |             | 4,333.7    |                                           |       |   | (533.4 | ) |   |   | 9,562.5 |   |   |
| **Cost of  goods sold**                                                                 |       | 1,126.6             |       |           | 4,012.3    |                 |       |             | 3,719.1    |                                           |       |   | (520.7 | ) |   |   | 8,337.3 |   |   |
| **Gross profit**                                                                        |       | 232.5               |       |           | 390.8      |                 |       |             | 614.6      |                                           |       |   | (12.7 | ) |   |   | 1,225.2 |   |   |
| Selling, general and administrative                                                     |       | 78.3                |       |           | 179.5      |                 |       |             | 399.1      |                                           |       |   | (21.4 | ) |   |   | 635.5 |   |   |
| Research and  development                                                               |       | 32.2                |       |           | 27.3       |                 |       |             | 36.7       |                                           |       |   | — |   |   |   | 96.2 |   |   |
| Other operating  income                                                                 |       | (9.1                | )          |           | (30.2      | )                    |       |             | (37.7      | )                                              |       |   | — |   |   |   | (77.0 | ) |   |
| Restructuring,  impairment and plant closing costs                                      |       | 2.4                 |       |           | 14.4       |                 |       |             | 266.1      |                                           |       |   | — |   |   |   | 282.9 |   |   |
| **Operating income (loss)**                                                             |       | 128.7               |       |           | 199.8      |                 |       |             | (49.6      | )                                              |       |   | 8.7 |   |   |   | 287.6 |   |   |
| Interest expense,  net                                                                  |       | (369.0              | )          |           | (46.7      | )                    |       |             | (176.9     | )                                              |       |   | — |   |   |   | (592.6 | ) |   |
| (Gain) loss on  accounts receivable securitization program                              |       | 3.6                 |       |           | (2.0       | )                    |       |             | (14.9      | )                                              |       |   | — |   |   |   | (13.3 | ) |   |
| Equity in income  (loss) of investment in 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 and minority interest** | ** ** | (203.0              | )          |           | 139.6      | ** **           |       |             | (231.7     | )                                              |       |   | (45.0 | ) |   |   | (340.1 | ) |   |
| Income tax  benefit (expense)                                                           |       | 23.1                |       |           | (52.9      | )                    |       |             | 96.1       |                                           |       |   | — |   |   |   | 66.3 |   |   |
| Minority interest  in subsidiaries’ income                                         |       | —              |       |           | (10.5      | )                    |       |             | (1.0       | )                                              |       |   | 4.3 |   |   |   | (7.2 | ) |   |
| **(Loss)  income from continuing operations**                                           |       | (179.9              | )          |           | 76.2       |                 |       |             | (136.6     | )                                              |       |   | (40.7 | ) |   |   | (281.0 | ) |   |
| (Loss) income  from discontinued operations, net of tax                            |       | (7.8                | )          |           | —     |                 |       |             | 101.1      |                                           |       |   | — |   |   |   | 93.3 |   |   |
| **Net (loss) income**                                                                   |       | $                   | (187.7     | )              |       | $                    | 76.2       |             |       |                                           | $          | (35.5 | ) |   |   | $ | (40.7 | ) |   |   | $ | (187.7 | ) |   |

 

F-87

----

**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYEAR ENDED DECEMBER 31, 2006(Dollars in Millions)**

| ** **                                               | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net  cash provided by (used in) operating activities** |       | $                   | 1,496.5    |           |       | $                  | (980.8     | )                |       |                                           | $          | 374.1 |   |   |   | $ | (6.3 | ) |   |   | $ | 883.5 |   |   |
| **Investing activities:**                                | ** ** | ** **          | ** ** |           |       |               |       |             |       |                                           |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                    |       | (31.1               | )          |           | (112.7     | )                  |       |             | (406.1     | )                                              |       |   | — |   |   |   | (549.9 | ) |   |
| Acquisition of a business,  net of cash acquired         |       | (10.1               | )          |           | —     |               |       |             | (166.8     | )                                              |       |   | — |   |   |   | (176.9 | ) |   |
| Proceeds from  sale of businesses/assets                 |       | —              |       |           | 200.6      |               |       |             | 693.9      |                                           |       |   | — |   |   |   | 894.5 |   |   |
| Investment in  affiliates, net                           |       | 714.6               |       |           | (7.4       | )                  |       |             | (13.8      | )                                              |       |   | (705.3 | ) |   |   | (11.9 | ) |   |
| Other, net                                               |       | —              |       |           | —     |               |       |             | 3.4        |                                           |       |   | — |   |   |   | 3.4 |   |   |
| **Net  cash provided by investing activities**           |       | 673.4               |       |           | 80.5       |               |       |             | 110.6      |                                           |       |   | (705.3 | ) |   |   | 159.2 |   |   |
| **Financing  activities:**                               | ** ** | ** **          | ** ** |           |       |               |       |             |       |                                           |       |   |   |   |   |   |   |   |   |
| Net repayments  under revolving loan facilities          |       | —              |       |           | —     |               |       |             | (6.3       | )                                              |       |   | — |   |   |   | (6.3 | ) |   |
| Net repayments on  overdraft facility                    |       | —              |       |           | —     |               |       |             | (6.8       | )                                              |       |   | — |   |   |   | (6.8 | ) |   |
| Repayment of  long-term debt                             |       | (1,755.1            | )          |           | (8.7       | )                  |       |             | (20.2      | )                                              |       |   | — |   |   |   | (1,784.0 | ) |   |
| Proceeds from  long-term debt                            |       | 810.3               |       |           | —     |               |       |             | 62.1       |                                           |       |   | — |   |   |   | 872.4 |   |   |
| Intercompany  (repayments) borrowings                    |       | (1,190.8            | )          |           | 912.5      |               |       |             | (422.8     | )                                              |       |   | 701.1 |   |   |   | — |   |   |
| Net borrowings (repayments)  on note payable             |       | 17.0                |       |           | (0.9       | )                  |       |             | (2.2       | )                                              |       |   | — |   |   |   | 13.9 |   |   |
| Debt issuance  costs paid                                |       | (12.8               | )          |           | —     |               |       |             | —     |                                           |       |   | — |   |   |   | (12.8 | ) |   |
| Call premiums  related to early extinguishment of debt   |       | (30.4               | )          |           | —     |               |       |             | —     |                                           |       |   | — |   |   |   | (30.4 | ) |   |
| Contribution from  minority shareholder                  |       | —              |       |           | —     |               |       |             | 6.2        |                                           |       |   | — |   |   |   | 6.2 |   |   |
| Dividends paid                                           |       | —              |       |           | (10.5      | )                  |       |             | —     |                                           |       |   | 10.5 |   |   |   | — |   |   |
| Other, net                                               |       | —              |       |           | —     |               |       |             | 4.0        |                                           |       |   | — |   |   |   | 4.0 |   |   |
| **Net  cash (used in) provided by financing activities** |       | (2,161.8            | )          |           | 892.4      |               |       |             | (386.0     | )                                              |       |   | 711.6 |   |   |   | (943.8 | ) |   |
| Effect of exchange rate changes on cash                  |       | —              |       |           | —     |               |       |             | 14.6       |                                           |       |   | — |   |   |   | 14.6 |   |   |
| Increase (decrease) in cash and cash equivalents         |       | 8.1                 |       |           | (7.9       | )                  |       |             | 113.3      |                                           |       |   | — |   |   |   | 113.5 |   |   |
| Cash and cash  equivalents at beginning of period        |       | 10.0                |       |           | 7.9        |               |       |             | 114.6      |                                           |       |   | — |   |   |   | 132.5 |   |   |
| Cash and cash  equivalents at end of period              |       | $                   | 18.1       |           |       | $                  | —     |             |       |                                           | $          | 227.9 |   |   |   | $ | — |   |   |   | $ | 246.0 |   |   |

 

F-88

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWYEAR 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      |             |       |                                           | $          | 248.2 |   |   |   | $ | (11.2 | ) |   |   | $ | 981.0 |   |   |
| **Investing activities:**                                   | ** ** | ** **          | ** ** |           |       |               |       |             |       |                                           |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                       |       | (32.9               | )          |           | (70.2      | )                  |       |             | (235.6     | )                                              |       |   | — |   |   |   | (338.7 | ) |   |
| Proceeds from  sale of assets                               |       | 6.4                 |       |           | 7.1        |               |       |             | 10.2       |                                           |       |   | — |   |   |   | 23.7 |   |   |
| Investment in  affiliates, net                              |       | (114.0              | )          |           | (5.8       | )                  |       |             | (6.3       | )                                              |       |   | 124.3 |   |   |   | (1.8 | ) |   |
| Change in  restricted cash                                  |       | 0.3                 |       |           | 8.6        |               |       |             | —     |                                           |       |   | — |   |   |   | 8.9 |   |   |
| Other, net                                                  |       | —              |       |           | (1.6       | )                  |       |             | 0.7        |                                           |       |   | — |   |   |   | (0.9 | ) |   |
| **Net  cash used in investing activities**                  |       | (140.2              | )          |           | (61.9      | )                  |       |             | (231.0     | )                                              |       |   | 124.3 |   |   |   | (308.8 | ) |   |
| **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 |   |   |
| Net borrowings  (repayments) on notes payable          |       | (30.5               | )          |           | (1.9       | )                  |       |             | 0.8        |                                           |       |   | — |   |   |   | (31.6 | ) |   |
| Debt issuance  costs paid                                   |       | (16.9               | )          |           | (0.4       | )                  |       |             | —     |                                           |       |   | — |   |   |   | (17.3 | ) |   |
| Call premiums  related to early extinguishment of debt      |       | (64.2               | )          |           | (50.8      | )                  |       |             | 10.3       |                                           |       |   | — |   |   |   | (104.7 | ) |   |
| Dividend to  parent for acquisition of minority interest    |       | (124.8              | )          |           | —     |               |       |             | —     |                                           |       |   | — |   |   |   | (124.8 | ) |   |
| Capital  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       | )                  |       |             | 4.8        |                                           |       |   | — |   |   |   | 4.7 |   |   |
| **Net  cash used in financing activities**                  |       | (145.1              | )          |           | (400.2     | )                  |       |             | (122.5     | )                                              |       |   | (113.1 | ) |   |   | (780.9 | ) |   |
| 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-89

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWYEAR 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      |             |       |                                           | $          | 70.7 |   |   |   | $ | (7.5 | ) |   |   | $ | 181.1 |   |   |
| **Investing  activities:**                                    | ** ** | ** **          | ** ** |           |       |               |       |             |       |                                           |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                         |       | (22.8               | )          |           | (60.8      | )                  |       |             | (143.0     | )                                              |       |   | — |   |   |   | (226.6 | ) |   |
| Proceeds from  sale of assets                                 |       | 0.1                 |       |           | —     |               |       |             | 5.1        |                                           |       |   | — |   |   |   | 5.2 |   |   |
| Investment in  affiliates, net                                |       | (2.6                | )          |           | 8.6        |               |       |             | (11.8      | )                                              |       |   | — |   |   |   | (5.8 | ) |   |
| Change in  restricted cash                                    |       | 0.6                 |       |           | 1.0        |               |       |             | —     |                                           |       |   | — |   |   |   | 1.6 |   |   |
| Other, net                                                    |       | —              |       |           | 2.2        |               |       |             | 0.9        |                                           |       |   | — |   |   |   | 3.1 |   |   |
| **Net  cash used in investing activities**                    |       | (24.7               | )          |           | (49.0      | )                  |       |             | (148.8     | )                                              |       |   | — |   |   |   | (222.5 | ) |   |
| **Financing  activities:**                                    | ** ** | ** **          | ** ** |           |       |               |       |             |       |                                           |       |   |   |   |   |   |   |   |   |
| Net borrowings  under revolving loan facilities               |       | 90.8                |       |           | —     |               |       |             | 23.0       |                                           |       |   | — |   |   |   | 113.8 |   |   |
| Net repayments of  overdraft facility                         |       | (7.5                | )          |           | (0.9       | )                  |       |             | (2.2       | )                                              |       |   | — |   |   |   | (10.6 | ) |   |
| Repayments 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 |   |   |
| Net repayments on  notes payable                              |       | (19.6               | )          |           | —     |               |       |             | —     |                                           |       |   | — |   |   |   | (19.6 | ) |   |
| Debt issuance  costs paid                                     |       | (35.6               | )          |           | —     |               |       |             | —     |                                           |       |   | — |   |   |   | (35.6 | ) |   |
| Call premiums  related to early extinguishment of debt        |       | (17.0               | )          |           | —     |               |       |             | —     |                                           |       |   | — |   |   |   | (17.0 | ) |   |
| 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-90

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**30.**          SELECTEDUNAUDITED QUARTERLY FINANCIAL DATA

A summary of selectedunaudited quarterly financial data for the years ended December 31, 2006and 2005 is as follows (dollars in millions):

**Huntsman Corporation**

| ** **                                                           | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                           | ** ** | **March 31,  2006**         | ** ** | **June 30,  2006** | ** ** | **September 30,  2006** | ** ** | **December 31,  2006** | ** ** |
| Revenues                                                             |       |                             | $          | 2,656.7 |   |   | $ | 2,745.0 |   |   | $ | 2,686.0 |   |   |   | $ | 2,535.9 |   |   |
| Gross profit                                                         |       |                             | 393.8      |   |   | 427.3 |   |   | 372.9 |   |   |   | 345.5 |   |   |
| Restructuring,  impairment and plant closing costs                   |       |                             | 7.7        |   |   | 8.8 |   |   | 3.5 |   |   |   | — |   |   |
| Income from continuing  operations                                   |       |                             | 86.1       |   |   | 193.2 |   |   | 69.9 |   |   |   | 44.4 |   |   |
| Income (loss)  before extraordinary gain and accounting changes      |       |                             | 69.0       |   |   | 212.4 |   |   | (189.5 | ) |   |   | 82.0 |   |   |
| Net income (loss)                                                    |       |                             | 69.0       |   |   | 262.9 |   |   | (182.3 | ) |   |   | 80.2 |   |   |
| Basic income  (loss) per share:                                      |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from continuing operations                                    |       |                             | 0.39       |   |   | 0.88 |   |   | 0.32 |   |   |   | 0.20 |   |   |
| Income (loss) before extraordinary gain and accounting  changes |       |                             | 0.31       |   |   | 0.96 |   |   | (0.86 | ) |   |   | 0.37 |   |   |
| Net income (loss)                                                    |       |                             | 0.31       |   |   | 1.19 |   |   | (0.83 | ) |   |   | 0.36 |   |   |
| Diluted income  (loss) per share:                                    |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from continuing operations                                    |       |                             | 0.37       |   |   | 0.83 |   |   | 0.30 |   |   |   | 0.19 |   |   |
| Income (loss) before extraordinary gain and accounting  changes |       |                             | 0.30       |   |   | 0.91 |   |   | (0.81 | ) |   |   | 0.35 |   |   |
| Net income (loss)                                                    |       |                             | 0.30       |   |   | 1.13 |   |   | (0.78 | ) |   |   | 0.34 |   |   |
|                                                                      |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                         | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **March 31,  2005**         | ** ** | **June 30,  2005** | ** ** | **September 30,  2005** | ** ** | **December 31,  2005** | ** ** |
| Revenues                                           |       |                             | $          | 2,746.7 |   |   | $ | 2,786.4 |   |   | $ | 2,587.9 |   |   |   | $ | 2,555.9 |   |   |
| Gross profit                                       |       |                             | 488.1      |   |   | 457.3 |   |   | 403.7 |   |   |   | 266.3 |   |   |
| Restructuring,  impairment and plant closing costs |       |                             | 8.3        |   |   | 16.7 |   |   | 66.6 |   |   |   | 22.5 |   |   |
| (Loss) income  from continuing operations          |       |                             | (113.7     | ) |   | 124.8 |   |   | (15.4 | ) |   |   | (26.3 | ) |   |
| (Loss) income  before accounting changes           |       |                             | (56.4      | ) |   | 112.7 |   |   | (29.9 | ) |   |   | (33.3 | ) |   |
| Net (loss) income                                  |       |                             | (52.4      | ) |   | 112.7 |   |   | (29.9 | ) |   |   | (65.0 | ) |   |
| Basic income (loss) per share:                     |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations           |       |                             | (0.71      | ) |   | 0.57 |   |   | (0.07 | ) |   |   | (0.12 | ) |   |
| (Loss) income before accounting changes            |       |                             | (0.45      | ) |   | 0.51 |   |   | (0.14 | ) |   |   | (0.15 | ) |   |
| Net (loss) income                                  |       |                             | (0.43      | ) |   | 0.51 |   |   | (0.14 | ) |   |   | (0.29 | ) |   |
| Diluted income (loss) per share:                   |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations           |       |                             | (0.71      | ) |   | 0.54 |   |   | (0.07 | ) |   |   | (0.12 | ) |   |
| (Loss) income before accounting changes            |       |                             | (0.45      | ) |   | 0.48 |   |   | (0.14 | ) |   |   | (0.15 | ) |   |
| Net (loss) income                                  |       |                             | (0.43      | ) |   | 0.48 |   |   | (0.14 | ) |   |   | (0.29 | ) |   |
|                                                    |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-91

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**Huntsman International**

| ** **                                                      | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                      | ** ** | **March 31,  2006**         | ** ** | **June 30,  2006** | ** ** | **September 30,  2006** | ** ** | **December 31,  2006** | ** ** |
| Revenues                                                        |       |                             | $          | 2,656.7 |   |   | $ | 2,745.0 |   |   | $ | 2,686.0 |   |   |   | $ | 2,535.9 |   |   |
| Gross profit                                                    |       |                             | 397.8      |   |   | 430.6 |   |   | 378.2 |   |   |   | 349.9 |   |   |
| Restructuring,  impairment and plant closing costs              |       |                             | 7.7        |   |   | 8.8 |   |   | 3.5 |   |   |   | — |   |   |
| Income from  continuing operations                              |       |                             | 84.4       |   |   | 155.3 |   |   | 72.8 |   |   |   | 63.2 |   |   |
| Income (loss)  before extraordinary gain and accounting changes |       |                             | 67.3       |   |   | 174.5 |   |   | (166.6 | ) |   |   | 102.5 |   |   |
| Net income (loss)                                               |       |                             | 67.3       |   |   | 220.6 |   |   | (157.7 | ) |   |   | 103.4 |   |   |
|                                                                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                         | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **March 31,  2005**         | ** ** | **June 30,  2005** | ** ** | **September 30,  2005** | ** ** | **December 31,  2005** | ** ** |
| Revenues                                           |       |                             | $          | 2,746.7 |   |   | $ | 2,786.4 |   |   | $ | 2,587.9 |   |   |   | $ | 2,555.9 |   |   |
| Gross profit                                       |       |                             | 493.8      |   |   | 461.0 |   |   | 408.5 |   |   |   | 269.7 |   |   |
| Restructuring,  impairment and plant closing costs |       |                             | 8.3        |   |   | 16.7 |   |   | 66.6 |   |   |   | 22.5 |   |   |
| Income (loss)  from continuing operations          |       |                             | 60.6       |   |   | 116.8 |   |   | (13.4 | ) |   |   | (41.0 | ) |   |
| Income (loss)  before accounting changes           |       |                             | 117.9      |   |   | 104.7 |   |   | (27.9 | ) |   |   | (46.5 | ) |   |
| Net income (loss)                                  |       |                             | 122.1      |   |   | 104.7 |   |   | (27.9 | ) |   |   | (78.2 | ) |   |
|                                                    |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

On December 29, 2006, we sold our European basechemicals and polymers business. The results of operations of our European basechemicals and polymers business for current and prior periods have been classifiedas discontinued operations. For further information, see “Note 3. DiscontinuedOperations.”

On June 27, 2006, wesold the assets comprising our U.S. butadiene and MTBE operations operated byour Base Chemicals segment. On June 30, 2006, we completed the TextileEffects Acquisition. For further information, see “Note 4. BusinessDispositions and Combinations.”

**31.**          SUBSEQUENTEVENTS

**AGREEMENTTO SELL U.S. BASE CHEMICALS AND POLYMERS BUSINESS**

On February 15, 2007, we entered into the PendingU.S. Petrochemicals Disposition, pursuant to which Flint Hills Resources, awholly owned subsidiary of Koch, will acquire our U.S. base chemicals andpolymers business. Under the agreement, Flint Hills Resources will acquire ourU.S. base chemicals and polymers manufacturing assets for approximately $456million in cash, plus the value of inventory (approximately $286 million at December 31,2006) on the date of closing. We will retain other elements of working capital,including accounts receivables, accounts payable and certain accruedliabilities (net, approximately $19 million at December 31, 2006), whichwill be liquidated for cash in the ordinary course of business. Subject tocustomary regulatory approvals and other closing conditions, the transaction isexpected to close during the third quarter of 2007, following the re-start ofour Port Arthur, Texas, olefins manufacturing facility. For more information,see “Note 22. Casualty Losses and Insurance Recoveries—Port Arthur, Texas PlantFire.” 

We expect to incur a loss in connection with the anticipated2007 sale of our U.S. base chemicals and polymers business. As ofDecember 31, 2006, these assets were classified as held and used inaccordance with SFAS No. 144, *Accounting for theimpairment or Disposal of Long-Lived Assets*, because these assetswere not immediately available for sale in their present condition due to therequired repair and restart of the Port Arthur facility. We tested these assetsfor recoverability using expected future cash flows together 

F-92

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with expected proceedsfrom the Port Arthur fire insurance recovery and concluded that these expectedfuture cash flows were in excess of the carrying value of the business expectedto be sold. Therefore, we did not recognize an impairment charge as ofDecember 31, 2006. We will continue to assess these assets forrecoverability during 2007. As the date of sale completion nears and insurance proceedsare received, future cash flows associated with these assets will diminish and,at some point in 2007, we expect that future cash flows will no longer besufficient to recover the carrying value of the business to be sold and weexpect to recognize an impairment charge.

The transaction includesour olefins and polymers manufacturing assets located at five U.S. sites: PortArthur, Odessa and Longview, Texas; Peru, Illinois; and Marysville, Michigan.The business employs about 900 associates. The captive ethylene unit at ourretained Port Neches, Texas, site of our Performance Products segmentoperations is not included in the sale. This asset, along with a long-termpost-closing arrangement for the supply of ethylene and propylene from FlintHills to us, will continue to provide feedstock for our downstream derivativeunits.

**DECLARATIONOF DIVIDEND**

On February 14, 2007,our board of directors approved initiation of a quarterly cash dividend on ourcommon stock, and declared a $0.10 per share cash dividend, payable on March 30,2007, to shareholders of record as of March 15, 2007. We have notpreviously paid dividends on our common stock.

**SALE OF AUSTRALIAN POLYESTER RESINS ASSETS**

On January 4, 2007, we completed the sale of ourAustralian polyester resins assets to Nuplex for A$9.6 million (approximately$7.5 million) in cash, plus the value of inventory at the sale date, for atotal transaction value of A$20.3 million (approximately $15.8 million),subject to post closing adjustments. The transaction further includesadditional consideration to be received over a three year period upon achievingcertain associated earnings targets. The sale includes our Australianpolyesters, vinylesters and gelcoats manufacturing assets. In connection withthe sale agreement, we also entered into a tolling agreement with Nuplexwhereby we will continue to manufacture product using the Australian polyesterresins assets. Nuplex will own the assets located on our site. The tollingagreement expires January 2009.

The results of operations of these assets were notclassified as a discontinued operation under applicable accounting rules becausewe expect significant continuing cash flows from the Australian polyesterresins assets through the tolling arrangement with Nuplex.

F-93

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**HUNTSMANCORPORATION (PARENT ONLY)**

**Schedule I—CondensedFinancial Information of Registrant**

**HUNTSMANCORPORATION (Parent Only)BALANCE SHEETS(Dollars in Millions)**

| ** **                                                                                                                                                                       | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **ASSETS**                                                                                                                                                                       | ** ** | ** **            | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                                                                                                                                                       |       | $                     | 17.2       |   | $ | 10.3 |   |
| Investment in  government securities (restricted as to use)                                                                                                                      |       | 14.1                  |       | 14.2 |   |
| **Total current assets**                                                                                                                                                         |       | 31.3                  |       | 24.5 |   |
| Investment in  government securities (restricted as to use)                                                                                                                      |       | 3.5                   |       | 17.0 |   |
| Investment in and  advances to affiliates                                                                                                                                        |       | 1,720.3               |       | 1,511.5 |   |
| **Total assets**                                                                                                                                                                 |       | $                     | 1,755.1    |   | $ | 1,553.0 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Dividends payable                                                                                                                                                                |       | $                     | 14.6       |   | $ | 14.4 |   |
| **Total current liabilities**                                                                                                                                                    |       | 14.6                  |       | 14.4 |   |
| Dividends payable                                                                                                                                                                |       | 3.6                   |       | 18.0 |   |
| Other long term  liability                                                                                                                                                       |       | 0.3                   |       | — |   |
| **Total liabilities**                                                                                                                                                            |       | 18.5                  |       | 32.4 |   |
| **STOCKHOLDERS’  EQUITY**                                                                                                                                                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Common stock,  $0.01 par value, 1,200,000,000 shares authorized, 221,549,461 and 221,200,997  issued and 220,652,429 and 220,451,484 outstanding in 2006 and 2005,  respectively |       | 2.2                   |       | 2.2 |   |
| Mandatory  convertible preferred stock, $0.01 par value, 100,000,000 shares authorized,  and 5,750,000 issued and outstanding                                                    |       | 287.5                 |       | 287.5 |   |
| Additional  paid-in capital                                                                                                                                                      |       | 2,798.4               |       | 2,779.8 |   |
| Unearned  stock-based compensation                                                                                                                                               |       | (12.5                 | )          | (11.8 | ) |
| Accumulated  deficit                                                                                                                                                             |       | (1,277.6              | )          | (31.3 | ) |
| Accumulated other  comprehensive loss                                                                                                                                            |       | (61.4                 | )          | (1,505.8 | ) |
| **Total stockholders’ equity**                                                                                                                                              |       | 1,736.6               |       | 1,520.6 |   |
| **Total  liabilities and stockholders’ equity**                                                                                                                             |       | $                     | 1,755.1    |   | $ | 1,553.0 |   |

 

This statement should be read in conjunction with the notes to the consolidated financial statements.

F-94

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**HUNTSMANCORPORATION (Parent Only)STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(Dollars in Millions)**

| ** **                                              | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Indirect costs                                          |       | $                                          | (5.4       | ) | $ | — |   | $ | — |   |
| Interest income                                         |       | 1.5                                        |       | 2.7 |   | — |   |
| Equity in income  (losses) of subsidiaries              |       | 233.7                                      |       | (37.3 | ) | (227.7 | ) |
| **Net income (loss)**                                   |       | 229.8                                      |       | (34.6 | ) | (227.7 | ) |
| Preferred stock dividend                                |       | —                                     |       | (43.1 | ) | (87.7 | ) |
| **Net  income (loss) available to common stockholders** |       | $                                          | 229.8      |   | $ | (77.7 | ) | $ | (315.4 | ) |
| **Net income (loss)**                                   |       | $                                          | 229.8      |   | $ | (34.6 | ) | $ | (227.7 | ) |
| Other  comprehensive income (loss) from subsidiaries    |       | 149.0                                      |       | (212.3 | ) | 70.5 |   |
| **Comprehensive income (loss)**                         |       | $                                          | 378.8      |   | $ | (246.9 | ) | $ | (157.2 | ) |

 

This statement should be read in conjunction with the notes to the consolidated financial statements.

F-95

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**HUNTSMANCORPORATION (Parent Only)CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)(Dollars in Millions)**

| ** ** | ** ** | **Shares**            | ** ** | ** **                                       | ** ** | ** **        | ** ** | ** **                             | ** ** | ** **                                       | ** ** | ** **                       | ** ** | ** **                                    | ** ** | ** **               | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------|------------|-----------------------|------------|--------------------------------------------------|------------|-------------------|------------|----------------------------------------|------------|--------------------------------------------------|------------|----------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** ** | ** ** | **Common Stock** | ** ** | **Mandatory  convertible  preferred stock** | ** ** | **Common  stock** | ** ** | **Preferred  members’  interest** | ** ** | **Mandatory  convertible  preferred stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Unearned stock-  based  compensation** | ** ** | **Accumulated  deficit** | ** ** | **Accumulated other  comprehensive  (loss) income** | ** ** | **Total**  | ** ** |
|            |            |                       |            |                                                  |            |                   |            |                                        |            |                                                  |            |                                  |            |                                               |            |                          |            |                                                               |            |            |            |            |            |            |            |            |            |            |            |            |            |            |            |  |  |

| Balance, January 1, 2004                                                                   |   |   | —      |   |   |   | —    |   |   |   | $      | — |   |   |   | $      | 194.4  |   |   |   | $      | — |    |   |   | $      | 800.2   |   |   |   | $        | — |   |   |   | $      | (1,243.5 | )       |   |   | $ | 61.2  |   |   | $ | (187.7  | )      |
|-------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|----------|--------|--------|--------|--------|--------|----------|---------|--------|--------|---|-------|--------|--------|---|---------|--------|
| Net loss                                                                                        |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | (227.7   | )      |   |   | — |   |     | (227.7  | )      |
| Purchase accounting adjustment                                                                  |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | 1.3    |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | —   |   |   |   | 49.3   |   |     | 50.6    |   |
| Other comprehensive income                                                                      |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | —   |   |   |   | 70.5   |   |     | 70.5    |   |
| Dividends accrued on redeemable preferred member’s  interest                               |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (87.7   | )      |   |   | —  |   |   |   | —   |   |   |   | — |   |     | (87.7   | )      |
| Balance, December 31, 2004                                                                 |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | 195.7  |   |   |   | — |   |   |   | 712.5   |   |   |   | —  |   |   |   | (1,471.2 | )      |   |   | 181.0  |   |     | (382.0  | )      |
| Net loss                                                                                        |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | (34.6    | )      |   |   | — |   |     | (34.6   | )      |
| Other comprehensive loss                                                                        |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | —   |   |   |   | (212.3 | )      |     | (212.3  | )      |
| Exchange of previous common and preferred members’  interest and warrants for common stock |   |   | 164,769,665 |   |   |   | —    |   |   |   | 1.6    |   |   |   | (195.7 | )      |   |   | — |   |   |   | 885.5   |   |   |   | —  |   |   |   | —   |   |   |   | — |   |     | 691.4   |   |
| Issuance of common stock and mandatory convertible  preferred stock                             |   |   | 55,681,819  |   |   |   | 5,750,000 |   |   |   | 0.6    |   |   |   | — |   |   |   | 287.5  |   |   |   | 1,203.8 |   |   |   | —  |   |   |   | —   |   |   |   | — |   |     | 1,491.9 |   |
| Issuance of nonvested stock  awards                                                             |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 16.3    |   |   |   | (16.3   | )      |   |   | —   |   |   |   | — |   |     | —  |   |
| Recognition of stock-based compensation                                                         |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 4.8     |   |   |   | 4.5     |   |   |   | —   |   |   |   | — |   |     | 9.3     |   |
| Dividends declared on mandatory convertible preferred  stock                                    |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (43.1   | )      |   |   | —  |   |   |   | —   |   |   |   | — |   |     | (43.1   | )      |
| Balance, December 31, 2005                                                                 |   |   | 220,451,484 |   |   |   | 5,750,000 |   |   |   | 2.2    |   |   |   | — |   |   |   | 287.5  |   |   |   | 2,779.8 |   |   |   | (11.8   | )      |   |   | (1,505.8 | )      |   |   | (31.3  | )      |     | 1,520.6 |   |
| Net income                                                                                      |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | 229.8    |   |   |   | — |   |     | 229.8   |   |
| Other comprehensive income                                                                      |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | —   |   |   |   | 149.0  |   |     | 149.0   |   |
| Issuance of nonvested stock  awards                                                             |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 9.0     |   |   |   | (9.0    | )      |   |   | —   |   |   |   | — |   |     | —  |   |
| Vesting of stock awards                                                                         |   |   | 278,531     |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 0.2     |   |   |   | —  |   |   |   | —   |   |   |   | — |   |     | 0.2     |   |
| Recognition of stock-based compensation                                                         |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 9.4     |   |   |   | 8.3     |   |   |   | —   |   |   |   | — |   |     | 17.7    |   |
| Cumulative effect of adoption of SFAS No. 158,  net of tax                                 |   |   | —      |   |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | —   |   |   |   | (179.1 | )      |     | (179.1  | )      |
| Repurchase and cancellation of stock awards                                                |   |   | (77,586     | )      |   |   | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —  |   |   |   | —  |   |   |   | (1.6     | )      |   |   | — |   |     | (1.6    | )      |
| Balance,  December 31, 2006                                                                |   |   | 220,652,429 |   |   |   | 5,750,000 |   |   |   | $      | 2.2    |   |   |   | $      | — |   |   |   | $      | 287.5  |    |   |   | $      | 2,798.4 |   |   |   | $        | (12.5  | )      |   |   | $      | (1,277.6 | )       |   |   | $ | (61.4 | )      |   | $ | 1,736.6 |   |

 

This statement should be read in conjunction with the notes to the consolidated financial statements.

F-96

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**HUNTSMANCORPORATION (Parent Only)STATEMENTS OF CASH FLOWS(Dollars in Millions)**

| ** **                                                      | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating Activities:**                                       | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                               |       | $                                          | 229.8      |   | $ | (34.6 | ) | $ | (227.7 | ) |
| Noncash interest  income                                        |       | —                                     |       | (1.1 | ) | — |   |
| Equity in  (earnings) losses of subsidiaries                    |       | (233.7                                     | )          | 37.3 |   | 227.7 |   |
| Changes in  operating assets and liabilities                    |       | 10.8                                       |       | — |   | — |   |
| **Net cash provided by operating activities**                   |       | 6.9                                        |       | 1.6 |   | — |   |
| **Investing  Activities:**                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net investment in  and advances to subsidiaries                 |       | —                                     |       | (1,442.3 | ) | — |   |
| Net investment in  government securities (restricted as to use) |       | 14.4                                       |       | (30.1 | ) | — |   |
| **Net  cash provided by (used in) investing activities**        |       | 14.4                                       |       | (1,472.4 | ) | — |   |
| **Financing  Activities:**                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividends paid to  preferred stockholders                       |       | (14.4                                      | )          | (10.8 | ) | — |   |
| Net proceeds from  issuance of common and preferred stock       |       | —                                     |       | 1,491.9 |   | — |   |
| **Net  cash (used in) provided by financing activities**        |       | (14.4                                      | )          | 1,481.1 |   | — |   |
| Increase in cash                                                |       | 6.9                                        |       | 10.3 |   | — |   |
| Cash at beginning  of period                                    |       | 10.3                                       |       | — |   | — |   |
| **Cash at  end of period**                                      |       | $                                          | 17.2       |   | $ | 10.3 |   | $ | — |   |

 

This statement should be read in conjunction with the notes to the consolidated financial statements.

F-97

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**HUNTSMANCORPORATION AND SUBSIDIARIESSchedule II—Valuation and Qualifying Accounts(Dollars in Millions)**

| **Column A**                 | ** ** | ** ** | ** ** | **Column B**                              | ** ** | **Column C**                            | ** ** | **Column D**                    | ** ** | **Column E** | ** ** |
|-----------------------------------|------------|------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------|------------|-------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Additions**                                  | ** ** | ** **                                   | ** ** | ** **                           | ** ** |
| **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, 2006 |       |       | $          | 33.7                                           |       |                                         |       | $                                    | 6.4        |              |       |   | $ | — |   |   |   | $ | (1.1 | ) |   |   | $ | 39.0 |   |   |
| 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 |   |   |
|                                   |            |            |            |                                                |            |                                              |            |                                      |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-98

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIESSchedule II—Valuation and Qualifying Accounts(Dollars in Millions)**

| **Column A**                 | ** ** | ** ** | ** ** | **Column B**                              | ** ** | **Column C**                            | ** ** | **Column D**                    | ** ** | **Column E** | ** ** |
|-----------------------------------|------------|------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------|------------|-------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Additions**                                  | ** ** | ** **                                   | ** ** | ** **                           | ** ** |
| **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, 2006 |       |       | $          | 33.7                                           |       |                                         |       | $                                    | 6.4        |              |       |   | $ | — |   |   |   | $ | (1.1 | ) |   |   | $ | 39.0 |   |   |
| 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 |   |   |
|                                   |            |            |            |                                                |            |                                              |            |                                      |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-99

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**EXHIBIT INDEX**
| Number | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **Description** | ** ** |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|------------|
| 2.1    |       | Asset Purchase Agreement, dated as of April 5,  2006, by and among Texas Petrochemicals L.P., Huntsman Petrochemical  Corporation and Huntsman Fuels, L.P. (incorporated by reference to  Exhibit 2.1 to our current report on Form 8-K filed on  April 11, 2006.                                                                                                                                                                                                        |
| 2.2    |       | Second Amendment to Asset Purchase Agreement, dated  as of June 14, 2006, by and among Texas Petrochemicals L.P., Huntsman  Petrochemical Corporation and Huntsman Fuels, L.P. (incorporated by reference  to Exhibit 2.1 to our current report on Form 8-K filed on  June 16, 2006)                                                                                                                                                                                     |
| 2.3    |       | Asset Purchase Agreement, dated February 15,  2007 among Flint Hills Resources, LLC, Huntsman International LLC, Huntsman  Petrochemical Corporation, Huntsman International Chemicals Corporation,  Huntsman Polymers Holdings Corporation, Huntsman Expandable Polymers Company,  LLC, Huntsman Polymers Corp. and Huntsman Chemical Company of  Canada, Inc. (incorporated by reference to Exhibit 2.1 to our current report  on Form 8-K filed on February 20, 2007) |
| 3.1    |       | Amended and  Restated Certificate of Incorporation of the Company (incorporated by  reference to Exhibit 3.1 to our registration statement on Form S-1  (File No. 333-120749))                                                                                                                                                                                                                                                                                                               |
| 3.2    |       | Certificate of  Designations, Preferences and Rights of 5% Mandatory Convertible Preferred  Stock (incorporated by reference to Exhibit 3.01 to our current report on  Form 8-K filed February 16, 2005 (File No. 001-32427))                                                                                                                                                                                                                                                      |
| 3.3    |       | Amended and  Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to  our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                                      |
| 4.1    |       | 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 the annual report on Form 10-K/A of Huntsman  International LLC for the year ended December 31, 2001)                                                                                                  |
| 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  Supplemental Indenture, dated as of January 11, 2002, 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 4.7 to amendment no. 1 to the annual report on Form 10-K/A  of Huntsman International LLC for the year ended December 31, 2001)                                                             |
| 4.6    |       | Amended and  Restated Indenture, dated as of June 14, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $200,000,000 91¤2%  Senior Subordinated Notes due 2007 (incorporated by reference to Exhibit 4.27  to the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))                                                                |
| 4.7    |       | Form of Amended  and Restated $200,000,000 91¤2% Senior  Subordinated Note due 2007 (included as Exhibit A to Exhibit 4.6)                                                                                                                                                                                                                                                                                                                                                         |
| 4.8    |       | First  Supplemental Indenture, dated as of July 11, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $200,000,000 91¤2%  Senior Subordinated Notes due 2007 (incorporated by reference to  Exhibit 4.29 to the registration statement on Form S-4 of Huntsman  LLC (File No. 333-112279))                                                                 |

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| 4.9  |   | Second  Supplemental Indenture, dated as of August 5, 2002, among Huntsman  Corporation (now known as Huntsman LLC), as Issuer, each of the Guarantors  party thereto and Wilmington Trust Company, as Trustee, relating to the  $200,000,000 91¤2%  Senior Subordinated Notes due 2007 (incorporated by reference to  Exhibit 4.30 to the registration statement on Form S-4 of Huntsman  LLC (File No. 333-112279))                                                                        |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.10 |   | Amended and  Restated Indenture, dated as of June 14, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (incorporated by reference to Exhibit 4.31 to  the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))   |
| 4.11 |   | Form of Amended  and Restated Fixed Rate Note due 2007 (included as Exhibit A to Exhibit 4.10)                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.12 |   | Form of Amended  and Restated Floating Rate Note due 2007 (included as Exhibit B to  Exhibit 4.10)                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.13 |   | Form of Guarantee  relating to the $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (included as Exhibit F to Exhibit 4.10)                                                                                                                                                                                                                                                                                     |
| 4.14 |   | First  Supplemental Indenture, dated as of July 11, 2002, among Huntsman Corporation  (now known as Huntsman LLC), as Issuer, each of the Guarantors party thereto  and Wilmington Trust Company, as Trustee, relating to the $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (incorporated by reference to Exhibit 4.34 to  the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))     |
| 4.15 |   | Second  Supplemental Indenture, dated as of August 15, 2002, among Huntsman  Corporation (now known as Huntsman LLC), as Issuer, each of the Guarantors  party thereto and Wilmington Trust Company, as Trustee, relating to the  $275,000,000 91¤2%  Senior Subordinated Notes due 2007 and the $125,000,000 Senior Subordinated  Floating Rate Notes due 2007 (incorporated by reference to Exhibit 4.35 to the  registration statement on Form S-4 of Huntsman LLC (File No. 333-112279)) |
| 4.16 |   | Indenture, dated  as of September 30, 2003, among Huntsman LLC, the Guarantors party thereto  and HSBC Bank USA, as Trustee, relating to the 115¤8%  Senior Secured Notes due 2010 (incorporated by reference to Exhibit 4.36 to  the registration statement on Form S-4 of Huntsman LLC (File No. 333-112279))                                                                                                                                                                              |
| 4.17 |   | Form of  Unrestricted 115¤8%  Senior Secured Note due 2010 (included as Exhibit A-2 to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.18 |   | Form of Guarantee  relating to the 115¤8%  Senior Secured Notes due 2010 (included as Exhibit E to Exhibit 4.16)                                                                                                                                                                                                                                                                                                                                                                             |
| 4.19 |   | Indenture, dated  as of June 30, 2003, among Huntsman Advanced Materials LLC, as Issuer, each  of the Guarantors named therein and Wells Fargo Bank Minnesota, National  Association, as Trustee relating to 11% Senior Secured Notes due 2010 and  Senior Secured Floating Rate Notes due 2008 (incorporated by reference to  Exhibit 4.1 to the registration statement on Form S-4 of Huntsman  Advanced Materials LLC (File No. 333-115344))                                                        |
| 4.20 |   | Form of  Unrestricted Fixed Rate Note (included as Exhibit A-3 to Exhibit 4.19)                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.21 |   | Form of  Unrestricted Floating Rate Note (included as Exhibit A-4 to Exhibit 4.19)                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.22 |   | Form of Guarantee  (included as Exhibit E to Exhibit 4.19)                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.23 |   | Registration  Rights Agreement, dated as of June 30, 2003, among Huntsman Advanced  Materials LLC and the Guarantors named therein, as Issuers, and Deutsche Bank  Securities Inc. and UBS Securities LLC, as Initial Purchasers (incorporated  by reference to Exhibit 4.5 to the registration statement on Form S-4  of Huntsman Advanced Materials LLC (File No. 333-115344))                                                                                                                       |

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| 4.24 |   | First  Supplemental Indenture, dated as of April 10, 2003, between Vantico Group  S.A., as issuer, and The Bank of New York, as trustee (incorporated by  reference to Exhibit 4.7 to the registration statement of Form S-4  of Huntsman Advanced Materials LLC (File No. 333-115344))                                                                                                                                              |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.25 |   | Second  Supplemental Indenture, dated as of June 17, 2003, between Vantico Group  S.A., as issuer, and The Bank of New York, as trustee (incorporated by  reference to Exhibit 4.8 to the registration statement of Form S-4  of Huntsman Advanced Materials LLC (File No. 333-115344))                                                                                                                                              |
| 4.26 |   | Third Supplemental  Indenture, dated as of June 30, 2003, between Vantico Group S.A., as issuer,  and The Bank of New York, as trustee (incorporated by reference to Exhibit  4.51 to the registration statement on Form S-4 of HMP Equity  Holdings Corporation (File No. 333-116100))                                                                                                                                              |
| 4.27 |   | Indenture, dated  as of June 22, 2004, among Huntsman LLC, the Guarantors party thereto and  HSBC Bank USA, as Trustee, relating to the 111¤2%  Senior Notes due 2012 and Senior Floating Rate Notes due 2011 (incorporated  by reference to Exhibit 4.1 to the quarterly report on Form 10-Q of  Huntsman LLC for the three months ended June 30, 2004)                                                                             |
| 4.28 |   | Form of  Restricted Fixed Rate Note due 2012 (included as Exhibit A-1 to Exhibit  4.27)                                                                                                                                                                                                                                                                                                                                                   |
| 4.29 |   | Form of  Restricted Floating Rate Note due 2011 (included as Exhibit A-2 to  Exhibit 4.27)                                                                                                                                                                                                                                                                                                                                                |
| 4.30 |   | Form of Guarantee  relating to the 111¤2%  Senior Notes due 2012 and Senior Floating Rate Notes due 2011 (included as  Exhibit E to Exhibit 4.45)                                                                                                                                                                                                                                                                                    |
| 4.31 |   | Indenture, dated  as of December 17, 2004, among Huntsman International LLC, as Issuer, the  Guarantors named therein and Wells Fargo Bank, National Association, as  Trustee, relating to the 73¤8% Senior  Subordinated Notes due 2015 and the 71¤2% Senior  Subordinated Notes due 2015 (incorporated by reference to Exhibit 4.1 to the  current report on Form 8-K of Huntsman International LLC filed December  23, 2004) |
| 4.32 |   | Form of  Restricted 73¤8%  Senior Subordinated Note denominated in dollars due 2015 (included as Exhibit  A-1 to Exhibit  4.31)                                                                                                                                                                                                                                                                                                 |
| 4.33 |   | Form of  Restricted 71¤2%  Senior Subordinated Note denominated in euros due 2015 (included as Exhibit A-2  to Exhibit 4.31)                                                                                                                                                                                                                                                                                                         |
| 4.34 |   | Form of  Unrestricted 73¤8%  Senior Subordinated Note denominated in dollars due 2015 (included as Exhibit  A-3 to Exhibit  4.31)                                                                                                                                                                                                                                                                                               |
| 4.35 |   | Form of  Unrestricted 71¤2%  Senior Subordinated Note denominated in euros due 2015 (included as Exhibit A-4  to Exhibit 4.31)                                                                                                                                                                                                                                                                                                       |
| 4.36 |   | Form of Guarantee  (included as Exhibit E to Exhibit 4.31)                                                                                                                                                                                                                                                                                                                                                                                |
| 4.37 |   | Registration  Rights Agreement dated as of February 10, 2005 by and among the Company and  the stockholders signatory thereto (incorporated by reference to Exhibit 10.1  to our current report on Form 8-K filed February 16, 2005 (File  No. 001-32427))                                                                                                                                                                           |
| 4.38 |   | Form of stock  certificate of Huntsman Corporation (incorporated by reference to Exhibit A  to Exhibit 3.01 to our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                              |
| 4.39 |   | Form of mandatory  convertible preferred stock certificate of Huntsman Corporation (incorporated  by reference to Exhibit A to Exhibit 3.01 to our current report on Form 8-K  filed February 16, 2005 (File No. 001-32427))                                                                                                                                                                                                              |
| 4.40 |   | Supplemental  Indenture, dated as of July 11, 2005, among Huntsman LLC, the Guarantors  named therein and HSBC Bank USA, National Association, as Trustee, relating  to the 111¤2%  Huntsman LLC Senior Notes due 2012 and Huntsman LLC 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)                                       |
| 4.41 |   | Supplemental  Indenture, dated as of July 13, 2005 among Huntsman LLC, the Guarantors named  therein and HSBC Bank USA, National Association, as Trustee, relating to the 115¤8% Huntsman LLC Senior Secured  Notes due 2010 (incorporated by reference to Exhibit 4.2 to the current  report on Form 8-K of Huntsman LLC filed July 15, 2005)                                                                                       |

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| 4.42 |   | Supplemental  Indenture dated August 16, 2005 to Indenture dated March 13, 2001, as  amended, by and among Huntsman International LLC, the guarantors named  therein, and The Bank of New York, as trustee, relating to Huntsman  International LLC’s euro denominated 101¤8% Senior Subordinated Notes due  2009 (incorporated by reference to Exhibit 4.2 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                                                                                      |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.43 |   | Supplemental  Indenture dated August 16, 2005 to Indenture dated as December 17, 2004 by  and among Huntsman International LLC, 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 Huntsman  International LLC’s dollar denominated 73¤8% Senior Subordinated Notes due  2015 and euro denominated 71¤2% Senior Subordinated Notes due  2015 (incorporated by reference to Exhibit 4.4 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005) |
| 4.44 |   | Supplemental  Indenture dated August 16, 2005, to Indenture dated as of September 30,  2003  by and among Huntsman  International LLC (as successor to Huntsman LLC), the guarantors named  therein, and HSBC Bank USA, National Association, as trustee, relating to  Huntsman International LLC’s 115¤8% Senior Secured Notes due 2010, originally issued by  Huntsman LLC (incorporated by reference to Exhibit 4.7 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                      |
| 4.45 |   | Supplemental  Indenture dated August 16, 2005, to Indenture dated as of June 22, 2004  by and among Huntsman International LLC (as  successor to Huntsman LLC), the guarantors named therein, and HSBC Bank USA,  National Association, as trustee, relating to Huntsman International LLC’s 111¤2%  Senior Notes due 2012 and Senior Floating Rate Notes due 2011, originally  issued by Huntsman LLC (incorporated by reference at Exhibit 4.10 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                           |
| 4.46 |   | Form of  Restricted Stock Agreement for Outside Directors (incorporated by reference  to Exhibit 4.7 of our registration statement on Form S-8 filed February 10,  2006 (File No. 333-131729))                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.47 |   | Form of  Restricted Stock Unit Agreement for Outside Directors (incorporated be  reference to Exhibit 4.8 of our registration statement on Form S-8 filed  February 10, 2006 (File No. 333-131729))                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.48 |   | Indenture, dated  as of November 13, 2006, among Huntsman International LLC, as Issuer,  the Guarantors party thereto, and Wells Fargo Bank, National Association, as  Trustee, relating to the $200,000,000 77¤8%  Senior Subordinated Notes due 2014 and the €400,000,000 67¤8  Senior Subordinated Notes due 2013  (incorporated by reference to Exhibit 4.1 to our quarterly report on  Form 10-Q for the three months ended September 30, 2006, filed on  November 14, 2006)                                                                                                     |
| 4.49 |   | Form of  Restricted 77¤8%  Senior Subordinated Note denominated in dollars due 2014 (included as Exhibit A-1  to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.50 |   | Form of  Restricted 67¤8%  Senior Subordinated Note denominated in euros due 2013 (included as  Exhibit A-2 to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.51 |   | Form of  Unrestricted 77¤8%  Senior Subordinated Note denominated in dollars due 2014 (included as Exhibit A-3  to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.52 |   | Form of  Unrestricted 67¤8%  Senior Subordinated Note denominated in euros due 2013 (included as  Exhibit A-4 to Exhibit 4.48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.53 |   | Exchange and Registration  Rights Agreement, dated as of November 13, 2006, among Huntsman  International LLC, as Issuer, the Guarantors party thereto, and the Purchasers  as defined therein, relating to $200,000,000 aggregated principal amount of  the 77¤8%  Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.2  to our quarterly report on Form 10-Q for the three months ended September 30,  2006, filed on November 14, 2006                                                                                                                                         |
| 10.1 |   | Business  Consulting Agreement, dated as of June 3, 2003, between Huntsman  International LLC and Jon M. Huntsman (incorporated by reference to Exhibit  10.41 to the registration statement on Form S-4 of Huntsman  International LLC (File No. 333-106482))                                                                                                                                                                                                                                                                                                                                                                     |

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| 10.2  |   | Aircraft Dry  Lease, dated as of September 14, 2001, between Jstar Corporation and Airstar  Corporation (incorporated by reference to Exhibit 10.10 to the registration  statement on Form S-4 of Huntsman LLC (File No. 333-112279))                                                                                                                                                                                                                                      |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.3  |   | Huntsman Cost  Reduction Incentive Plan and Form of Participation Agreement (incorporated by  reference to Exhibit 10.1 to the current report on Form 8-K of HMP  Equity Holdings Corporation filed on November 23, 2004)                                                                                                                                                                                                                                                  |
| 10.4  |   | Gift Agreement by  and among Huntsman Group Inc. and the Jon and Karen Huntsman Foundation  (incorporated by reference to Exhibit 10.17 to our registration statement on  Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                  |
| 10.5  |   | Pledge,  Assignment and Collateral Agency Agreement dated February 16, 2005 between  the Company and Citibank, N.A. (incorporated by reference to Exhibit 10.2 to  our current report on Form 8-K filed February 16, 2005 (File No. 001-32427))                                                                                                                                                                                                                            |
| 10.6  |   | Huntsman  Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.19  to our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                   |
| 10.7  |   | Form of Nonqualified  Stock Option Agreement (incorporated by reference to Exhibit 10.20 to our  registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                 |
| 10.8  |   | Form of  Restricted Stock Agreement (incorporated by reference to Exhibit 10.21 to our  registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                          |
| 10.9  |   | Form of Stock  Appreciation Rights Agreement (incorporated by reference to Exhibit 10.22 to  our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                 |
| 10.10 |   | Form of Phantom  Share Agreement (incorporated by reference to Exhibit 10.23 to our  registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                             |
| 10.11 |   | Form of Executive  Severance Plan (incorporated by reference to Exhibit 10.24 to amendment  No. 3 to our registration statement on Form S-1 dated February 8, 2005  (File No. 333-120749))                                                                                                                                                                                                                                                                            |
| 10.12 |   | Form of  Indemnification Agreement (incorporated by reference to Exhibit 10.25 to our  registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                           |
| 10.13 |   | Employment  Agreement with Paul Hulme (incorporated by reference to Exhibit 10.24 to  amendment No. 1 to our registration statement on Form S-1 dated January  6, 2005 (File No. 333-120749))                                                                                                                                                                                                                                                                              |
| 10.14 |   | Employment  Agreement with Anthony Hankins (incorporated by reference to Exhibit 10.27 to  our registration statement on Form S-1 (File No. 333-120749))                                                                                                                                                                                                                                                                                                                   |
| 10.15 |   | Huntsman  Supplemental Executive Retirement Plan, as amended through the sixth  amendment, April 21, 2005 (incorporated by reference to Exhibit 10.1 to our  quarterly report on Form 10-Q for the three-months ended March 31, 2005)                                                                                                                                                                                                                                 |
| 10.16 |   | Credit Agreement  dated August 16, 2005 among Huntsman International LLC, Deutsche Bank AG New  York Branch as Administrative Agent and the other financial institutions  named therein (incorporated by reference to Exhibit 10.1 to Huntsman  International LLC’s current report on Form 8-K filed August 22, 2005)                                                                                                                                                 |
| 10.17 |   | 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 Huntsman International LLC’s 115¤8% Senior Secured Notes  (incorporated by reference to Exhibit 10.2 to Huntsman International  LLC’s current report on Form 8-K filed August 22, 2005) |
| 10.18 |   | Second Amendment  to Amended and Restated Pooling Agreement, dated August 16, 2005, among  Huntsman Receivables France LLC, Huntsman (Europe), BVBA and J.P. Morgan Bank  (incorporated by reference to Exhibit 10.4 to Huntsman International LLC’s  current report on Form 8-K filed on August 22, 2005)                                                                                                                                                            |

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| 10.19  |   | 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 Huntsman International LLC’s  current report on Form 8-K filed on August 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20  |   | Form of  Non-qualified Stock Option Agreement for Outside Directors (incorporated by  reference to Exhibit 10.1 to our current report on Form 8-K filed November 8,  2005 (File No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.21  |   | Amended and  Restated Huntsman Supplemental Executive Retirement Plan (incorporated by  reference to Exhibit 10.1 of our current report on Form 8-K filed December  30, 2005 (File No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.22  |   | Huntsman  Supplemental Executive MPP Plan (incorporated be reference to Exhibit 10.2 of  our current report on Form 8-K filed December 30, 2005 (File No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.23  |   | Amended and  Restated Huntsman Supplemental Savings Plan (incorporated be reference to  Exhibit 10.3 of our current report on Form 8-K filed December 30, 2005 (File  No. 001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.24  |   | Huntsman Outside  Directors Elective Deferral Plan (incorporated be reference to Exhibit 10.4  of our current report on Form 8-K filed December 30, 2005 (File No.  001-32427))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.25  |   | Second Amended  and Restated Pooling Agreement, among Huntsman Receivables Finance LLC, Huntsman  (Europe) BVBA and J.P. Morgan Bank (Ireland), as trustee, dated as of  April 18, 2006 (incorporated by reference to Exhibit 10.1 to our  quarterly report on Form 10-Q for the three months ended March 31,  2006, filed on May 9, 2006)                                                                                                                                                                                                                                                                                                                                                   |
| 10.26  |   | Amended and  Restated 2000-1 Supplement to Second Amended and Restated Pooling Agreement,  among Huntsman Receivables Finance LLC, Huntsman (Europe) BVBA, Jupiter Securitization  Corporation, the several financial institutions party thereto as funding  agents, the Series 2000-1 Conduit Purchasers party thereto, the several  financial institutions party thereto as Series 2000-1 APA Banks,  J.P.Morgan Securities Ltd., JPMorgan Chase Bank, N.A., and J.P.Morgan  (Ireland) plc, as trustee, dated as of April 18, 2006 (incorporated by reference  to Exhibit 10.2 to our quarterly report on Form 10-Q for the three  months ended March 31, 2006, filed on May 9, 2006) |
| 10.27  |   | Amended and  Restated Contribution Agreement, between Huntsman International LLC and  Huntsman Receivables Finance LLC, dated as of April 18, 2006  (incorporated by reference to Exhibit 10.3 to our quarterly report on  Form 10-Q for the three months ended March 31, 2006, filed on  May 9, 2006)                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.28  |   | Second Amended  and Restated Servicing Agreement, dated as of April 18, 2006, among  Huntsman Receivables Finance LLC, Huntsman (Europe) BVBA, the various  affiliates of Huntsman International LLC party thereto as local servicers,  J.P.Morgan Bank (Ireland), as Trustee, PricewaterhouseCoopers LLP, and  Huntsman International LLC (incorporated by reference to Exhibit 10.4 to  our quarterly report on Form 10-Q for the three months ended March 31,  2006, filed on May 9, 2006)                                                                                                                                                                                                     |
| 10.29  |   | Consent and  Second Amendment to Credit Agreement and Amendment to Security Documents,  dated June 30, 2006, by and among Huntsman International LLC, as  Borrower, Deutsche Bank AG New York Branch, as Administrative Agent and  Collateral Agent, and the other financial institutions party thereto  (incorporated by reference to Exhibit 10.1 to our current report on  Form 8-K filed on July 7, 2006)                                                                                                                                                                                                                                                                                          |
| 10.30* |   | Withdrawal of Originator,  dated November 28, 2006, among Huntsman Receivables Finance LLC,  Huntsman (Europe) BVBA, the various affiliates of Huntsman International LLC  party thereto as local servicers, J.P.Morgan Bank (Ireland), as Trustee,  PricewaterhouseCoopers LLP, and Huntsman International LLC                                                                                                                                                                                                                                                                                                                                                                                                       |
| 21.1*  |   | Subsidiaries of  the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 23.1*  |   | Consent of Independent  Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

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| 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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