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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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Form 10-Q

(Mark One)

|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended June 30, 2004
|OR                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from                   to

Commission file number333-85141

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

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

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

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

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

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

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

On August 16, 2004, 1,000 units of membership interest of the registrant were outstanding. There is no established trading market for the registrant's
units of membership interest. All of the registrant's units of membership interest are held by an affiliate.



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HUNTSMAN INTERNATIONAL LLC
FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2004

TABLE OF CONTENTS



|                                |         |                                                                                  
|------------------------------- | ------- | ---------------------------------------------------------------------------------
|PART I    FINANCIAL INFORMATION
|                                | ITEM 1. |                                                                                  
|                                |         | Consolidated Balance Sheets (Unaudited)                                          
|                                |         | Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)
|                                |         | Consolidated Statements of Member's Equity (Unaudited)                           
|                                |         | Consolidated Statements of Cash Flows (Unaudited)                                
|                                |         | Notes to Consolidated Financial Statements (Unaudited)                           
|                                | ITEM 2. |                                                                                  
|                                | ITEM 3. |                                                                                  
|                                | ITEM 4. |                                                                                  
|PART II    OTHER INFORMATION   
|                                | ITEM 1. |                                                                                  
|                                | ITEM 6. |                                                                                  

i

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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

|                                                |                                                                                             | June 30,
2004                         |         | December 31,
2003
|----------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | -----------------
|ASSETS                                          |                                                                                             |                                       |         |                  
|Current assets:                                 |                                                                                             |                                       |         |                  
|                                                | Cash and cash equivalents                                                                   |                                       | $       | 85.2             
|                                                | Trade receivables (net of allowance for doubtful accounts of $13.8 and $10.5, respectively) |                                       |         | 617.7            
|                                                | Accounts receivableaffiliates                                                              |                                       |         | 40.4             
|                                                | Inventories                                                                                 |                                       |         | 583.1            
|                                                | Prepaid expenses                                                                            |                                       |         | 20.0             
|                                                | Deferred income taxes                                                                       |                                       |         | 3.0              
|                                                | Other current assets                                                                        |                                       |         | 83.9             
|                                                |                                                                                             |                                       |         |                  
|                                                |                                                                                             | Total current assets                  |         |                  
|Property, plant and equipment, net              |                                                                                             |                                       | 3,076.3 |                  
|Investment in unconsolidated affiliates         |                                                                                             |                                       | 142.3   |                  
|Intangible assets, net                          |                                                                                             |                                       | 266.4   |                  
|Other noncurrent assets                         |                                                                                             |                                       | 434.8   |                  
|                                                |                                                                                             |                                       |         |                  
|                                                |                                                                                             | Total assets                          |         | $                
|                                                |                                                                                             |                                       |         |                  
|LIABILITIES AND MEMBER'S EQUITY                 |                                                                                             |                                       |         |                  
|Current liabilities:                            |                                                                                             |                                       |         |                  
|                                                | Trade payables (including overdraft facilities of nil and $7.5, respectively)               |                                       | $       | 495.8            
|                                                | Accounts payableaffiliates                                                                 |                                       |         | 93.4             
|                                                | Accrued liabilities                                                                         |                                       |         | 361.8            
|                                                | Current portion of long-term debt                                                           |                                       |         | 1.7              
|                                                |                                                                                             |                                       |         |                  
|                                                |                                                                                             | Total current liabilities             |         |                  
|Long-term debt                                  |                                                                                             |                                       | 2,919.0 |                  
|Deferred income taxes                           |                                                                                             |                                       | 235.0   |                  
|Other noncurrent liabilities                    |                                                                                             |                                       | 227.7   |                  
|                                                |                                                                                             |                                       |         |                  
|                                                |                                                                                             | Total liabilities                     |         |                  
|                                                |                                                                                             |                                       |         |                  
|Minority interests                              |                                                                                             |                                       | 6.1     |                  
|                                                |                                                                                             |                                       |         |                  
|Commitments and contingencies (Notes 15 and 17) |                                                                                             |                                       |         |                  
|Member's equity:                                |                                                                                             |                                       |         |                  
|                                                | Member's equity, 1,000 units                                                                |                                       |         | 1,026.1          
|                                                | (Accumulated deficit) retained earnings                                                     |                                       |         | (71.8            
|                                                | Accumulated other comprehensive income                                                      |                                       |         | 58.3             
|                                                |                                                                                             |                                       |         |                  
|                                                |                                                                                             | Total member's equity                 |         |                  
|                                                |                                                                                             |                                       |         |                  
|                                                |                                                                                             | Total liabilities and member's equity |         | $                
|                                                |                                                                                             |                                       |         |                  

See
accompanying notes to consolidated financial statements.

1

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

|                                                   |                                       | Three Months
Ended
June 30,
2004 |         | Three Months
Ended
June 30,
2003 |         | Six Months
Ended
June 30,
2004 |         | Six Months
Ended
June 30,
2003 |        
|-------------------------------------------------- | ------------------------------------- | -------------------------------- | ------- | -------------------------------- | ------- | ------------------------------ | ------- | ------------------------------ | -------
|
|Revenues:                                          |                                       |                                  |         |                                  |         |                                |         |                                |        
|                                                   | Trade sales                           |                                  | $       | 1,544.3                          |         | $                              | 1,267.6 |                                | $      
|                                                   | Related party sales                   |                                  |         | 67.4                             |         |                                | 26.9    |                                |        
|                                                   | Tolling fees                          |                                  |         | 12.0                             |         |                                | 12.9    |                                |        
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|                                                   |                                       | Total revenues                   |         |                                  | 1,623.7 |                                |         | 1,307.4                        |        
|Cost of goods sold                                 |                                       |                                  | 1,392.3 |                                  |         | 1,150.0                        |         |                                | 2,742.3
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|Gross profit                                       |                                       |                                  | 231.4   |                                  |         | 157.4                          |         |                                | 379.5  
|Expenses:                                          |                                       |                                  |         |                                  |         |                                |         |                                |        
|                                                   | Selling, general and administrative   |                                  |         | 92.8                             |         |                                | 94.4    |                                |        
|                                                   | Research and development              |                                  |         | 8.8                              |         |                                | 12.4    |                                |        
|                                                   | Other operating expense (income)      |                                  |         | 24.8                             |         |                                | (23.3   | )                              |        
|                                                   | Restructuring and plant closing costs |                                  |         | 124.9                            |         |                                | 21.5    |                                |        
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|                                                   |                                       | Total expenses                   |         |                                  | 251.3   |                                |         | 105.0                          |        
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|Operating (loss) income                            |                                       |                                  | (19.9   | )                                |         | 52.4                           |         |                                | 19.5   
|Interest expense, net                              |                                       |                                  | (62.9   | )                                |         | (64.1                          | )       |                                | (131.9 
|Loss on accounts receivable securitization program |                                       |                                  | (3.0    | )                                |         | (11.3                          | )       |                                | (6.5   
|Other expense                                      |                                       |                                  |        |                                  |         | (0.1                           | )       |                                | (0.2   
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|Loss before income taxes                           |                                       |                                  | (85.8   | )                                |         | (23.1                          | )       |                                | (119.1 
|Income tax (expense) benefit                       |                                       |                                  | (4.7    | )                                |         | 0.8                            |         |                                | (8.3   
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|Net loss                                           |                                       |                                  | (90.5   | )                                |         | (22.3                          | )       |                                | (127.4 
|Other comprehensive (loss) income                  |                                       |                                  | (15.5   | )                                |         | 70.6                           |         |                                | (13.7  
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        
|Comprehensive (loss) income                        |                                       | $                                | (106.0  | )                                | $       | 48.3                           |         | $                              | (141.1 
|                                                   |                                       |                                  |         |                                  |         |                                |         |                                |        

See
accompanying notes to consolidated financial statements.

2

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

|                         |  | Member's Equity |  | Retained
Earnings
(Accumulated
Deficit) |         | Accumulated
Other
Comprehensive
Income (Loss) |   |        |  
|------------------------ |  | --------------- |  | --------------------------------------- | ------- | --------------------------------------------- | - | ------ | -
|
|Balance, January 1, 2004 |  | 1,000           |  | $                                       | 1,026.1 |                                               | $ | 55.6   |  
|Net loss                 |  |                |  |                                         |        |                                               |   | (127.4 | )
|Other comprehensive loss |  |                |  |                                         |        |                                               |   |       |  
|                         |  |                 |  |                                         |         |                                               |   |        |  
|Balance, June 30, 2004   |  | 1,000           |  | $                                       | 1,026.1 |                                               | $ | (71.8  | )
|                         |  |                 |  |                                         |         |                                               |   |        |  

See
accompanying notes to consolidated financial statements.

3

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

|                                                                                          |                                                | Six Months Ended
June 30, 2004 |        | Six Months Ended
June 30, 2003 |  
|----------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------ | ------ | ------------------------------ | -
|
|Cash flows from operating activities:                                                     |                                                |                                |        |                                |  
|Net loss                                                                                  |                                                | $                              | (127.4 | )                              | $
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                |                                |        |                                |  
|Equity in earnings of investment in unconsolidated affiliates                             |                                                |                                |       |                                |  
|Depreciation and amortization                                                             |                                                |                                | 156.8  |                                |  
|Provision on loss for accounts receivable                                                 |                                                |                                | 3.3    |                                |  
|Noncash restructuring, plant closing and asset impairment charges                         |                                                |                                | 81.1   |                                |  
|Noncash interest expense                                                                  |                                                |                                | 10.1   |                                |  
|Deferred income taxes                                                                     |                                                |                                | 6.0    |                                |  
|Gain on foreign currency transactions                                                     |                                                |                                | (9.3   | )                              |  
|Changes in operating assets and liabilities:                                              |                                                |                                |        |                                |  
|                                                                                          | Accounts receivable                            |                                |        | (137.0                         | )
|                                                                                          | Change in receivables sold, net                |                                |        | 29.7                           |  
|                                                                                          | Inventories                                    |                                |        | 6.9                            |  
|                                                                                          | Prepaid expenses                               |                                |        | 3.6                            |  
|                                                                                          | Other current assets                           |                                |        | (25.3                          | )
|                                                                                          | Other noncurrent assets                        |                                |        | (8.0                           | )
|                                                                                          | Accounts payable                               |                                |        | 5.5                            |  
|                                                                                          | Accrued liabilities                            |                                |        | 42.6                           |  
|                                                                                          | Other noncurrent liabilities                   |                                |        | 1.6                            |  
|                                                                                          |                                                |                                |        |                                |  
|Net cash provided by (used in) operating activities                                       |                                                |                                | 40.2   |                                |  
|                                                                                          |                                                |                                |        |                                |  
|Investing activities:                                                                     |                                                |                                |        |                                |  
|Capital expenditures                                                                      |                                                |                                | (60.4  | )                              |  
|Investment in unconsolidated affiliate                                                    |                                                |                                | (11.8  | )                              |  
|Net cash received from unconsolidated affiliates                                          |                                                |                                | 8.3    |                                |  
|Advances to unconsolidated affiliates                                                     |                                                |                                | (1.2   | )                              |  
|                                                                                          |                                                |                                |        |                                |  
|Net cash used in investing activities                                                     |                                                |                                | (65.1  | )                              |  
|                                                                                          |                                                |                                |        |                                |  
|Financing activities:                                                                     |                                                |                                |        |                                |  
|                                                                                          | Net borrowings under revolving loan facilities |                                |        | 15.0                           |  
|                                                                                          | Issuance of senior notes                       |                                |        |                               |  
|                                                                                          | Repayment of long-term debt                    |                                |        |                               |  
|                                                                                          | Capital contributions by minority shareholders |                                |        | 2.7                            |  
|                                                                                          | Net borrowings under overdraft facility        |                                |        | (7.5                           | )
|                                                                                          | Debt issuance costs                            |                                |        |                               |  
|                                                                                          |                                                |                                |        |                                |  
|Net cash provided by financing activities                                                 |                                                |                                | 10.2   |                                |  
|                                                                                          |                                                |                                |        |                                |  
|Effect of exchange rate changes on cash                                                   |                                                |                                | 2.1    |                                |  
|                                                                                          |                                                |                                |        |                                |  
|(Decrease) increase in cash and cash equivalents                                          |                                                |                                | (12.6  | )                              |  
|Cash and cash equivalents at beginning of period                                          |                                                |                                | 97.8   |                                |  
|                                                                                          |                                                |                                |        |                                |  
|Cash and cash equivalents at end of period                                                |                                                | $                              | 85.2   |                                | $
|                                                                                          |                                                |                                |        |                                |  
|Supplemental cash flow information:                                                       |                                                |                                |        |                                |  
|                                                                                          | Cash paid for interest                         |                                | $      | 124.5                          |  
|                                                                                          | Cash paid for income taxes                     |                                | $      | 4.1                            |  

See
accompanying notes to consolidated financial statements.

4

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

1.     General

Description of Business

Huntsman International LLC (the "Company," including its subsidiaries, unless the context otherwise requires) is a global manufacturer and marketer of
differentiated and commodity chemicals. The Company manages its business through four segments: Polyurethanes, Performance Products, Pigments and Base Chemicals. The Company manufactures its products
at facilities located in North America, Europe, Asia and Africa and sells its products throughout the world.

Company

The Company is a wholly-owned subsidiary of Huntsman International Holdings LLC ("HIH"). All of the membership interests of HIH are owned directly and indirectly
by HMP Equity Holdings Corporation ("HMP"). HMP is 100% owned by Huntsman Group Inc. ("HGI"), subject to warrants which, if exercised, would entitle the holders thereof to acquire up to 12% of
the common equity of HMP. HGI is 100% owned by Huntsman Holdings, LLC ("Huntsman Holdings"). The voting membership interests of Huntsman Holdings are owned by the Huntsman family, MatlinPatterson
Global Opportunities Partners, L.P. ("MatlinPatterson"), Consolidated Press (Finance) Limited
("Consolidated Press") and certain members of senior management. In addition, Huntsman Holdings has issued certain non-voting preferred units to Huntsman Holdings Preferred Member LLC,
which, in turn, is owned by MatlinPatterson (indirectly), Consolidated Press, the Huntsman Cancer Foundation, certain members of senior management and certain members of the Huntsman family. Huntsman
Holdings has also issued certain non-voting preferred units to the Huntsman family, MatlinPatterson, and Consolidated Press that track the performance of an affiliate, Huntsman Advanced
Materials LLC ("AdMat"). AdMat's results of operations are not included in these consolidated financial statements. The Huntsman family has board and operational control of the Company.

Interim Financial Statements

The unaudited consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of
America ("GAAP") and in management's opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of results of operations, financial position and cash
flows for the periods shown, have been made. Results for interim periods are not necessarily indicative of those to be expected for the full year. These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.

Use of Estimates

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

Reclassifications

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

5

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2.     Recently Issued Financial Accounting Standards

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

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

3.     Inventories

Inventories as of June 30, 2004 and December 31, 2003 consisted of the following (dollars in millions):

June 30,
2004

December 31,
2003Raw materials and supplies

$
145.0

$
180.2Work in progress


20.4


18.0Finished goods


417.7


398.7Total


583.1


596.9


In
the normal course of operations, the Company exchanges raw materials with other companies. No gains or losses are recognized on these exchanges, and the net open exchange positions
are valued at the Company's cost. The amount included in inventory under open exchange agreements receivable by the Company at June 30, 2004 was $1.7 million (6.6 million pounds
of feedstock and products), which represented the amount to be received by the Company under open exchange agreements. The amount deducted from inventory under open exchange agreements owed by the
Company at December 31, 2003 was $6.6 million (18.7 million pounds of feedstock and products), which represented the amount payable by the Company under open exchange agreements.

6

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4.     Property, Plant and Equipment

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

June 30,
2004

December 31,
2003Land

$
49.4

$
49.4Buildings


198.5


201.0Plant and equipment


3,866.5


3,938.9Construction in progress


169.0


156.1Total


4,283.4


4,345.4Less accumulated depreciation


(1,207.1
)

(1,089.2
)Net

$
3,076.3

$
3,256.2


Property,
plant and equipment includes gross assets acquired under capital leases of $19.4 million and $19.0 million at June 30, 2004 and December 31, 2003,
respectively; related amounts included in accumulated depreciation were $6.3 million and $5.3 million at June 30, 2004 and December 31, 2003, respectively.

5.     Investments in Unconsolidated Affiliates

The Company's ownership percentage and investments in unconsolidated affiliates, primarily manufacturing joint ventures, are as follows (dollars in millions):

June 30,
2004

December 31,
2003Louisiana Pigment Company, L.P. (50%)

$
122.1

$
130.4BASF Huntsman Shanghai Isocyanate Investment BV (50%)


17.9


6.1Rubicon, Inc. (50%)


1.1


1.0Others


1.2


1.2Total

$
142.3

$
138.7


As
noted, the Company owns 50% of BASF Huntsman Shanghai Isocyanate Investment BV. BASF Huntsman Shanghai Isocyanate Investment BV owns a 70% interest in a manufacturing joint venture,
thus giving the Company an indirect 35% interest in the manufacturing joint venture.

6.     Intangible Assets

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

June 30, 2004

December 31, 2003Carrying
Amount

Accumulated
Amortization

Net

Carrying
Amount

Accumulated
Amortization

NetPatents, trademarks, and technology

$
388.7

$
129.5

$
259.2

$
389.2

$
116.9

$
272.3Non-compete agreements


49.4


42.2


7.2


49.6


38.5


11.1Total

$
438.1

$
171.7

$
266.4

$
438.8

$
155.4

$
283.4


Amortization
expense for intangible assets for the six month period ended June 30, 2004 and 2003 was $15.5 million and $16.6 million, respectively. Estimated future
amortization expense for intangible

7

---



assets
through December 31, 2008 is $32.0 million annually in 2004 through 2005 and $24.0 million annually in 2006 through 2008.

7.     Other Noncurrent Assets

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

June 30,
2004

December 31,
2003Prepaid pension assets

$
239.7

$
235.1Debt issuance costs


45.7


54.4Capitalized turnaround expense


62.0


52.6Receivables from affiliates


17.3


13.5Spare parts inventory


51.3


55.6Other noncurrent assets


18.8


33.9Total

$
434.8

$
445.1


8.     Accrued Liabilities

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

June 30,
2004

December 31,
2003Payroll and related costs

$
65.6

$
77.1Interest


76.4


78.5Volume and rebates accruals


48.4


64.8Income tax payable


34.9


35.5Taxes (property and VAT)


23.6


32.0Restructuring and plant closing costs


58.3


22.5Interest and commodity hedging accruals


1.8


10.8Environmental accruals


6.6


5.7Other miscellaneous accruals


46.2


60.8Total

$
361.8

$
387.7


9.     Other Noncurrent Liabilities

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

June 30,
2004

December 31,
2003Pension liabilities

$
162.3

$
149.0Other postretirement benefits


10.8


11.8Environmental accruals


8.9


11.6Payable to affiliate


29.6


29.1Other noncurrent liabilities


16.1


23.0Total

$
227.7

$
224.5


10.   Restructuring and Plant Closing Costs

As of June 30, 2004 and December 31, 2003, the Company had reserves for restructuring and plant closing costs of $58.3 million and
$22.5 million, respectively. During the six months ended June 30,

8

---



2004
and 2003, the Company recorded additional reserves for workforce reductions of $52.5 million and $27.2 million, respectively. During these same periods, the Company made cash
payments against these reserves of $16.7 million and $11.4 million, respectively. Details with respect to these reserves are provided below (dollars in millions).

|                                          |          | Workforce
Reductions |      | Demolition and
Decommisioning |   | Non-cancelable
Lease Costs |   | Total |  
|----------------------------------------- | -------- | -------------------- | ---- | ----------------------------- | - | -------------------------- | - | ----- | -
|Accrued liability as of December 31, 2003 |          | $                    | 22.5 |                               | $ |                           |   | $     | 
|                                          | Charges  |                      |      | 52.5                          |   |                            |  |       |  
|                                          | Payments |                      |      | (16.7                         | ) |                            |  |       |  
|                                          |          |                      |      |                               |   |                            |   |       |  
|Accrued liability as of June 30, 2004     |          | $                    | 58.3 |                               | $ |                           |   | $     | 
|                                          |          |                      |      |                               |   |                            |   |       |  

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

|                                          |          | Polyurethanes |      | Perfomance
Products |   | Pigments |      | Base
Chemicals |      | Total |  
|----------------------------------------- | -------- | ------------- | ---- | ------------------- | - | -------- | ---- | -------------- | ---- | ----- | -
|Accrued liability as of December 31, 2003 |          | $             | 15.8 |                     | $ | 2.4      |      | $              | 4.3  |       | $
|                                          | Charges  |               |      | 22.9                |   |          | 0.4  |                |      | 27.0  |  
|                                          | Payments |               |      | (10.6               | ) |          | (0.5 | )              |      | (5.6  | )
|                                          |          |               |      |                     |   |          |      |                |      |       |  
|Accrued liability as of June 30, 2004     |          | $             | 28.1 |                     | $ | 2.3      |      | $              | 25.7 |       | $
|                                          |          |               |      |                     |   |          |      |                |      |       |  

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

As
of June 30, 2004 and December 31, 2003, the Performance Products segment reserve consisted of $2.3 million and $2.4 million, respectively, relating to the
closure of a number of plants at the Whitehaven, U.K. facility, the closure of an administrative office in London, U.K., the rationalization of a surfactants technical center in Oldbury, U.K., and the
restructuring of a facility in Barcelona, Spain. During the six months ended June 30, 2004, the Performance Products segment accrued restructuring charges of $0.4 million and made cash
payments of $0.5 million related to these restructuring activities. There are no material additional charges expected related to these restructuring activities.

As
of June 30, 2004 and December 31, 2003, the Pigments segment reserve consisted of $25.7 million and $4.3 million, respectively. During the six months ended
June 30, 2004, the Pigments segment recorded additional restructuring charges of $108.1 million and made cash payments of $5.6 million. In the first quarter 2004, the Pigments
segment recorded restructuring expenses of $3.9 million, all of which are payable in cash. In the second quarter 2004, the Pigments segment recorded restructuring expenses of
$104.2 million, of which $81.1 million is not payable in cash. In April 2004, the Company announced that, following a review of the Pigments business, it will idle approximately
55,000 tonnes, or about 10%, of its total titanium dioxide ("TiO2") production capacity

9

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in
the fourth quarter of 2004. As a result of this decision, the Company has recorded a restructuring charge of $17.0 million, a $77.2 million asset impairment charge and a
$3.9 million charge for the write off of spare parts inventory and other assets. Concerning the impairment charge, the Company determined that the value of the related long-lived
assets was impaired and recorded the non-cash charge to earnings for the impairment of these assets. The fair value of these assets for purposes of measuring the impairment was determined
using the present value of expected cash flows. These restructuring activities are expected to result in additional restructuring charges of approximately $13 million through 2005 and result in
workforce reductions of approximately 475 employees, of which 46 positions have been reduced during the six months ended June 30, 2004. As of June 30, 2004, the Pigments segment
restructuring reserve totaled $25.7 million.

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

11.   Debt

Outstanding debt consists of the following (dollars in millions):

June 30,
2004

December 31,
2003HI Credit Facilities:Revolving loan facility

$
37.0

$
22.0Term B loan


620.1


620.1Term C loan


620.1


620.1HI Senior Notes


456.6


457.1HI Subordinated Notes


1,150.4


1,169.8Other debt


36.5


38.0Subtotal


2,920.7


2,927.1Less current portion


(1.7
)

(1.8
)Total

$
2,919.0

$
2,925.3


HI Credit Facilities

As of June 30, 2004, the Company had senior secured credit facilities (the "HI Credit Facilities") which consisted of a revolving loan facility of up to
$400 million that was scheduled to mature on June 30, 2005, a $620.1 million term loan B facility that was scheduled to mature on June 30, 2007, and a $620.1 million
term loan C facility that was scheduled to mature on June 30, 2008. On July 13, 2004, the Company amended and restated the HI Credit Facilities. The HI Credit Facilities as amended and
restated now consist of a revolving loan facility of up to $375 million with a maturity of September 2008 (the "HI Revolving Facility"), which includes a $50 million multicurrency
revolving loan facility available in euros, GBP Sterling and U.S. dollars, and a term loan B facility consisting of a $1,305 million term portion and a €50 million
(approximately $61.6 million) term portion (the "HI Term Facility"). At the closing of the amendment and restatement of the HI Credit Facilities, of the $126.6 million of net proceeds,
$82.4 million was applied to repay all outstanding borrowings on the HI Revolving Facility and the balance, net of fees, increased cash and cash equivalents. The increased liquidity is
available for general corporate purposes and to provide a portion of funds for the potential construction of a polyethylene production facility at the Company's Wilton, U.K. facility. Scheduled

10

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

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

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

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

HI Senior Notes and HI Subordinated Notes

In March 2002, the Company issued $300 million 97/8% Senior Notes (collectively with the 2003 HI Senior Notes (defined below), the
"HI Senior Notes"). Interest on the HI Senior Notes is payable semi-annually and the HI Senior Notes mature on March 1, 2009. The HI Senior Notes are unsecured and are fully and
unconditionally guaranteed on a joint and several basis by the HI Guarantors. The HI Senior Notes are redeemable, in whole or in part, at any time by the Company on or prior to March 1, 2006 at
100% of the face value plus a "make whole" premium, as defined in the applicable indenture. After March 1, 2006, the HI Senior Notes may be redeemed by the Company, in whole or in part, at a
redemption price that declines from 104.937% to 100% after March 1, 2008. On April 11, 2003, the Company sold an additional $150 million in aggregate principal amount of
97/8% Senior Notes due 2009 (the "2003 HI Senior Notes"). The 2003 HI Senior Notes were priced at 105.25%.

11

---



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

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

Other Debt

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

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

12

---



Maturities

The scheduled maturities of long-term debt, after giving effect to the amendment and restatement of the HI Credit Facilities on July 13, 2004,
are as follows (dollars in millions):

Twelve month period ending:June 30, 2005

$
1.7June 30, 2006


25.2June 30, 2007


16.9June 30, 2008


16.8June 30, 2009


1,236.3Later Years


1,623.8$
2,920.7


12.   Derivatives and Hedging Activities

Interest Rate Hedging

Through the Company's borrowing activities, it is exposed to interest rate risk. Such risk arises due to the structure of the Company's debt portfolio, including
the duration of the portfolio and the mix of fixed and floating interest rates. The HI Credit Facilities require that a certain portion of debt be at fixed rates through either interest rate hedges or
through other means that provide a similar effect. Actions taken to reduce interest rate risk include managing the mix and rate characteristics of various interest bearing liabilities as well as
entering into interest rate swaps, collars and options.

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

June 30, 2004

December 31, 2003Interest rate swapsNotional amount

$
110.6

$
212.7Fair value

$
(0.5
)
$
(4.9
)Weighted average pay rate


5.03
%

5.65
%Maximum weighted average pay rate


6.82
%

6.60
%Maturing


2004


2004Interest rate collarsNotional amount

$
100.0

$
150.0Fair value

$
(1.0
)
$
(4.8
)Weighted average cap rate


7.13
%

7.00
%Weighted average floor rate


5.13
%

5.08
%Maximum weighted average floor rate


6.25
%

6.25
%Maturing


2004


2004


Under
interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest
amounts calculated by reference to an agreed notional principal amount.

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

13

---



agreements
require the Company to pay to the counterparties (major banks) the amount, if any, by which the Company's interest payments on certain of its floating-rate borrowings are less
than a certain rate.

The
majority of the interest rate contracts have been designated as cash flow hedges of future interest payments on its variable rate debt. The fair value of these interest rate
contracts designated as hedges as of June 30, 2004 and December 31, 2003 was a loss of approximately $1.0 million and $6.2 million, respectively, which is recorded in
accrued liabilities and in accumulated other comprehensive income (loss) to the extent of the effective portions of the hedging instruments. Gains and losses related to these contracts will be
reclassified from other comprehensive income (loss) into earnings in the periods in which the related hedged interest payments are made. As of June 30, 2004, losses of approximately
$1.0 million are expected to be reclassified into earnings over the remainder of 2004. Gains and losses on these agreements, including amounts recorded related to hedge ineffectiveness, are
reflected as interest expense in the statement of operations. A gain of $0.3 million and a gain $2.0 million were recorded in interest expense in the six months ended June 30,
2004 and 2003, respectively.

As
of June 30, 2004 and December 31, 2003, swap agreement liabilities with a fair value of $0.5 million and $3.4 million, respectively, have not been
designated as hedges for financial reporting purposes. The change in the liability resulted in interest income of $1.6 million.

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

Commodity Price Hedging

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

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

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

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

Foreign Currency Rate Hedging

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

14

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Net Investment Hedging

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

13.   Securitization of Accounts Receivable

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

The
Company's retained interest in receivables (including servicing assets) subject to the program was approximately $184 million and $154 million as of June 30,
2004 and December 31, 2003, respectively. The value of the retained interest is subject to credit and interest rate risk. For the six months ended June 30, 2004 and 2003, new sales of
accounts receivable sold into the program totaled approximately $2,379.6 million and $2,054.6 million, respectively, and cash collections from receivables sold into the program that were
reinvested totaled approximately $2,335.1 million and $2,035.1 million, respectively. Servicing fees received during the six months ended June 30, 2004 and 2003 were approximately
$2.6 million and $2.4 million, respectively.

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

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

Weighted average life (in months)

3Credit losses (annual rate)

Less than 1%Discount rate (annual rate)

2%


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

15

---



14.   Other Comprehensive Income (Loss)

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

|                                                                                                            |  | Accumulated other
comprehensive income |       | Other comprehensive
income (loss)
|----------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----- | ---------------------------------
|
|Foreign currency translation adjustments                                                                    |  | $                                      | 141.0 |                                  
|Additional minimum pension liability, net of tax of $29.5 million as of June 30, 2004 and December 31, 2003 |  |                                        | (77.1 | )                                
|Additional minimum pension liabilityunconsolidated affiliate                                               |  |                                        | (5.6  | )                                
|Unrealized gain on securities                                                                               |  |                                        | 1.0   |                                  
|Net unrealized gain (loss) on interest rate hedges                                                          |  |                                        | (1.0  | )                                
|                                                                                                            |  |                                        |       |                                  
|Total                                                                                                       |  | $                                      | 58.3  |                                  
|                                                                                                            |  |                                        |       |                                  

15.   Commitments and Contingencies

The Company has various purchase commitments extending through 2017 for materials, supplies and services entered into in the ordinary course of business. The
purchase commitments are contracts that require minimum volume purchases. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shutdown of
a facility. The contractual purchase price for substantially all of these contracts is variable based upon market prices, subject to annual negotiations. The Company has also entered into a limited
number of contracts which require minimum payments, even if no volume is purchased. These contracts approximate $35 million annually through 2005, declining to approximately $16 million
after 2011. Historically, the Company has not made any minimum payments under its take or pay contracts.

The
Company is a party to various proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various
environmental, products
liability and other laws. Except as otherwise discussed in "Note 16Legal Matters," based in part on the indemnities provided to the Company by Imperial Chemical Industries PLC
("ICI") and Huntsman Specialty Chemicals Corporation ("Huntsman Specialty") in connection with the transfer of business to the Company and insurance coverage, management does not believe that the
outcome of any of these matters will have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

16.   Legal Matters

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

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

16

---



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

17.   Environmental Matters

General

The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment
and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, the Company is subject to
frequent environmental inspections and monitoring by governmental enforcement authorities. In addition, the Company's production facilities require operating permits that are subject to renewal,
modification and, in certain circumstances, revocation. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations,
substantial fines and civil or criminal sanctions, as well as, under some environmental laws, the assessment of strict liability and/or joint and several liability. Moreover, changes in environmental
regulations could inhibit or interrupt the Company's operations, or require it to change its equipment or operations, and any such changes could have a material adverse effect on its business,
financial condition, results of operations or cash flows. Accordingly, environmental or regulatory matters may cause the Company to incur significant unanticipated losses, costs or liabilities.

Environmental Capital Expenditures and Accruals

The Company may incur future costs for capital improvements and general compliance under environmental and safety laws, including costs to acquire, maintain and
repair pollution control equipment. The Company estimates that capital expenditures for environmental and safety matters during 2004 will be $33.7 million. However, since capital expenditures
for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, the Company cannot provide assurance that
material capital expenditures beyond those currently anticipated will not be required under environmental and safety laws.

The
Company has established financial reserves relating to anticipated environmental restoration and remediation programs, as well as certain other anticipated environmental liabilities.
Management believes these reserves are sufficient for known requirements. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated.
The Company's liability estimates are based upon available facts, existing technology and past experience. A total of $15.5 million has been accrued related to environmental related liabilities
as of June 30, 2004. However, no assurance can be given that all potential liabilities arising out of the Company's present or past operations or ownership have been identified or fully
assessed or that future environmental liabilities will not be material to the Company.

Potential Liabilities

Given the nature of the Company's business, violations of environmental laws may result in restrictions imposed on its operating activities, substantial fines,
penalties, damages or other costs, any of which could have a material adverse effect on the Company's business, financial condition, results of

17

---



operations
or cash flows. The Company is aware of the following matters and believes (1) the reserves related to these matters to be sufficient for known requirements, and (2) the
ultimate resolution of these matters will not have a material impact on its business, financial condition, results of operations or cash flows:

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

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

Regulatory Developments

Under the European Union ("EU") Integrated Pollution Prevention and Control Directive ("IPPC"), EU member governments are to adopt rules and implement a
cross-media (air, water and waste) environmental permitting program for individual facilities. The U.K. was the first EU member government to request IPPC permit applications from the Company. In the
U.K., the sites at Wilton, North Tees, and Whitehaven have all submitted applications and received certification of their permits. The Grimsby site will accelerate its IPPC submission to 2004 (rather
than 2005) to address site operational changes, while the Greatham site is preparing to submit its application in 2005. The Company is not yet in a position to know with certainty what the other U.K.
IPPC permits will require, and it is possible that the costs of compliance could be material; however, the Company believes, based upon its experience to date, that the costs of compliance with IPPC
permitting in the U.K. will not be material to its financial condition or results of operations. Additionally, the IPPC directive has recently been implemented in France, and similar to its operations
in the U.K., the Company does not anticipate having to make material capital expenditures to comply. In the French program, sites must submit ten-year reviews of their environmental,
health and safety plans and performance, and the Calais, St Mihiel and Lavera sites are developing the necessary documents.

With
respect to the Company's facilities in EU jurisdictions other than the U.K. and France, IPPC implementing legislation is not yet in effect, or the Company has not yet been required
to seek IPPC permits. In Spain and Italy, the IPPC Directive has not yet been fully implemented. However, regional authorities in both countries have initiated discussions with local chemical
producers; and the sites at Barcelona, Pamplona, Scarlino, Patrica, and Castiglione have all started to develop programs for IPPC submissions. In the Netherlands and Germany, existing legislation
covers most, if not all, of the IPPC requirements, thus no significant work is anticipated for the sites in those countries (Rozenburg,

18

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Osnabrück,
and Deggendorf). The Petfurdo site in Hungary has started to prepare its IPPC report, as required under the rules agreed upon for EU accession.

On
October 29, 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH"
(Registration,Evaluation andAuthorisation of CHemicals),
enterprises that manufacture or import more than one ton of a chemical substance per year would be required to register such manufacture or
import in a central database. The REACH initiative, as proposed, would require risk assessment of chemicals, preparations (e.g., soaps and paints) and articles (e.g., consumer products) before those
materials could be manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk
control strategies that would require capital expenditures by the Company. As proposed, REACH would take effect in stages over the eleven years following the final effective date (assuming final
approval). The impacts of REACH on the chemical industry and on the Company are unclear at this time because the parameters of the program are still being actively debated. Nevertheless, it is
possible that REACH, if implemented, would be costly to the Company.

MTBE Developments

The use of MTBE is controversial in the United States and elsewhere and may be substantially curtailed or eliminated in the future by legislation or regulatory
action. The presence of MTBE in some groundwater supplies in California and other states (primarily due to gasoline leaking from underground storage tanks) and in surface water (primarily from
recreational watercraft) has led to public concern about MTBE's potential to contaminate drinking water supplies. Heightened public awareness regarding this issue has resulted in state, federal and
foreign initiatives to rescind the federal oxygenate requirements for reformulated gasoline or restrict or prohibit the use of MTBE in particular.

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

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

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

19

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Any
phase-out or other future regulation of MTBE in other states, nationally or internationally may result in a significant reduction in demand for the Company's MTBE and
result in a material loss in revenues or material costs or expenditures. In the event that there should be a phase-out of MTBE in the United States, the Company believes it will be able to
export MTBE to Europe or elsewhere or use its co-product TBA to produce saleable products other than MTBE. If the Company opts to produce products other than MTBE, necessary modifications
to its facilities may require significant capital expenditures and the sale of the other products may produce a materially lower level of cash flow than the sale of MTBE.

In
addition, while the Company has not been named as a defendant in any litigation concerning the environmental effects of MTBE, it cannot provide assurances that it will not be involved
in any such litigation or that such litigation will not have a material adverse effect on its business, financial condition, results of operations or cash flows. In 2003, the U.S. House of
Representatives passed a version of an energy bill that contained limited liability protection for producers of MTBE. The Senate's version of the bill did not have liability protection. This issue was
one of the reasons that a compromise energy bill was not passed. Whether a compromise will be reached on this legislation in 2004, and whether any compromise will provide liability protection for
producers, are unknown. In any event, the liability protection provision in the House bill applied only to defective product claims; it would not preclude other types of lawsuits.

Other Matters

The Texas Commission on Environmental Quality (the "TCEQ," formerly the Texas Natural Resource Conservation Commission or TNRCC) approved a settlement with
Huntsman Petrochemical Corporation effective June 12, 2003 regarding allegations of environmental regulatory violations at the Company's Port Neches, Texas, facilities. The settlement imposes
penalties totaling approximately $0.3 million, of which a small amount has been paid. The balance of the penalty is due on June 11, 2005. Additionally, the settlement requires that the
Company apply for an air emissions permit for the joint wastewater treatment plant that services all of the Port Neches facilities. Less than $0.1 million of the aforementioned penalties are
allocable to the Company. Although the Company does not anticipate it, it is possible that the terms of a joint wastewater treatment plant air permit may cause the Company to incur substantial costs
that could be material.

18.   Operating Segment Information

The Company derives its revenues, earnings and cash flows from the manufacture and sale of a wide variety of differentiated and commodity chemical products. The
Company has four reportable operating segments: Polyurethanes, Performance Products, Pigments and Base Chemicals. Sales between segments are generally recognized at external market prices.

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

Segment

ProductsPolyurethanes

MDI, TDI, TPU, polyols, aniline, PO and MTBEPerformance Products

Surfactants, ethyleneamines and other performance chemicalsPigments

Titanium dioxideBase Chemicals

Ethylene, propylene, benzene, cyclohexane and paraxylene


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

20

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

|                              |                        | Three Months
Ended
June 30,
2004 |       | Three Months
Ended
June 30,
2003 |         | Six Months
Ended
June 30,
2004 |       | Six Months
Ended
June 30,
2003 |       
|----------------------------- | ---------------------- | -------------------------------- | ----- | -------------------------------- | ------- | ------------------------------ | ----- | ------------------------------ | ------
|Revenues                      |                        |                                  |       |                                  |         |                                |       |                                |       
|                              | Polyurethanes          |                                  | $     | 733.8                            |         | $                              | 565.8 |                                | $     
|                              | Performance Products   |                                  |       | 190.9                            |         |                                | 164.5 |                                |       
|                              | Pigments               |                                  |       | 278.2                            |         |                                | 255.4 |                                |       
|                              | Base Chemicals         |                                  |       | 481.0                            |         |                                | 357.7 |                                |       
|                              | Eliminations           |                                  |       | (60.2                            | )       |                                | (36.0 | )                              |       
|                              |                        |                                  |       |                                  |         |                                |       |                                |       
|                              |                        | Total                            |       | $                                | 1,623.7 |                                | $     | 1,307.4                        |       
|                              |                        |                                  |       |                                  |         |                                |       |                                |       
|Segment EBITDA(1)             |                        |                                  |       |                                  |         |                                |       |                                |       
|                              | Polyurethanes          |                                  | $     | 100.0                            |         | $                              | 48.1  |                                | $     
|                              | Performance Products   |                                  |       | 2.5                              |         |                                | (21.6 | )                              |       
|                              | Pigments               |                                  |       | (83.5                            | )       |                                | 30.9  |                                |       
|                              | Base Chemicals         |                                  |       | 57.8                             |         |                                | 37.4  |                                |       
|                              | Corporate and other(2) |                                  |       | (19.9                            | )       |                                | 15.0  |                                |       
|                              |                        |                                  |       |                                  |         |                                |       |                                |       
|                              |                        | Total EBITDA                     |       | $                                | 56.9    |                                | $     | 109.8                          |       
|Interest expense, net         |                        |                                  | (62.9 | )                                |         | (64.1                          | )     |                                | (131.9
|Income tax (expense) benefit  |                        |                                  | (4.7  | )                                |         | 0.8                            |       |                                | (8.3  
|Depreciation and amortization |                        |                                  | (79.8 | )                                |         | (68.8                          | )     |                                | (156.8
|                              |                        |                                  |       |                                  |         |                                |       |                                |       
|                              |                        | Net loss                         |       | $                                | (90.5   | )                              | $     | (22.3                          | )     
|                              |                        |                                  |       |                                  |         |                                |       |                                |       

---

19.   Restatement of 2003 Quarterly Financial Information

In March 2004, the Company's management discovered that it had inappropriately calculated foreign exchange gains and losses with respect to its accounts
receivable securitization program and had inconsistently classified the foreign exchange gains and losses on the securitized receivables denominated in foreign currency in its statements of operations
for each of the first three quarters of 2003. As a result, the Company has restated its consolidated financial statements for each of the first three quarters of 2003 to correct its accounting and
classification of foreign exchange gains and losses

21

---



related
to the accounts receivable securitization program. A summary of the significant effects of this restatement is provided below (dollars in millions):

|                                                   |  | Three Months
Ended
June 30,
2003
As previously
reported |       | Three Months
Ended
June 30,
2003
As restated |   | Six Months
Ended
June 30,
2003
As previously
reported |   | Six Months
Ended
June 30,
2003
As restated |      
|-------------------------------------------------- |  | ------------------------------------------------------- | ----- | -------------------------------------------- | - | ----------------------------------------------------- | - | ------------------------------------------ | -----
|Other operating expense (income)                   |  | $                                                       | (8.2  | )                                            | $ | (23.3                                                 | ) | $                                          | (7.7 
|Operating income                                   |  |                                                         | 37.3  |                                              |   | 52.4                                                  |   |                                            | 54.8 
|Loss on accounts receivable securitization program |  |                                                         | (8.5  | )                                            |   | (11.3                                                 | ) |                                            | (18.1
|Net loss                                           |  |                                                         | (34.6 | )                                            |   | (22.3                                                 | ) |                                            | (84.6

20.   Employee Benefit Plans

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

|                                        |                                       | Defined Benefit Plans |   | Other Postretirement
Benefit Plans
|--------------------------------------- | ------------------------------------- | --------------------- | - | ----------------------------------
|
|Components of net periodic benefit cost |                                       |                       |   |                                   
|                                        | Service cost                          |                       | $ | 9.7                               
|                                        | Interest cost                         |                       |   | 18.2                              
|                                        | Expected return on assets             |                       |   | (20.2                             
|                                        | Amortization of transition obligation |                       |   |                                  
|                                        | Amortization of prior service cost    |                       |   | 0.1                               
|                                        | Amortization of actuarial (gain)/loss |                       |   | 5.0                               
|                                        |                                       |                       |   |                                   
|                                        | Net periodic benefit cost             |                       | $ | 12.8                              
|                                        |                                       |                       |   |                                   

|                                        |                                       | Defined Benefit Plans |   | Other Postretirement
Benefit Plans |  
|--------------------------------------- | ------------------------------------- | --------------------- | - | ---------------------------------- | -
|
|Components of net periodic benefit cost |                                       |                       |   |                                    |  
|                                        | Service cost                          |                       | $ | 19.4                               |  
|                                        | Interest cost                         |                       |   | 36.3                               |  
|                                        | Expected return on assets             |                       |   | (40.3                              | )
|                                        | Amortization of transition obligation |                       |   |                                   |  
|                                        | Amortization of prior service cost    |                       |   | 0.2                                |  
|                                        | Amortization of actuarial (gain)/loss |                       |   | 10.0                               |  
|                                        |                                       |                       |   |                                    |  
|                                        | Net periodic benefit cost             |                       | $ | 25.6                               |  
|                                        |                                       |                       |   |                                    |  

The
Company's' employees participate in a trusteed, non-contributory defined benefit pension plan (the "Plan") that covers substantially all full-time employees
of the Company. The Plan provides benefits based on years of service and final average salary. However, effective July 1, 2004, the existing Plan formula for employees not covered by a
collective bargaining agreement was converted to a cash

22

---



balance
design. For represented employees, participation in the cash balance design is subject to the terms of negotiated contracts. For participating employees, benefits accrued as of June 30,
2004 under the prior formula were converted to opening cash balance accounts. The new cash balance benefit formula provides annual pay credits from 4% to 12% of eligible pay, depending on age and
service, plus accrued interest. Participants in the plan on July 1, 2004 may be eligible for additional annual pay credits from 1% to 8%, depending on their age and service as of that date, for
up to five years.

21.   Condensed Consolidating Financial Statements

The following condensed consolidating financial statements present, in separate columns, financial information for the following: Huntsman International LLC (on a
parent only basis), with its investment in subsidiaries recorded under the equity method; the HI Guarantors on a combined, and where appropriate, consolidated basis, with the Company's investment in
the non-guarantors recorded under the equity method; and the non-guarantors on a combined, and where appropriate, a consolidated basis. Additional columns present eliminating
adjustments and consolidated totals as of June 30, 2004 and December 31, 2003 and for the periods ended June 30, 2004 and 2003. There are no contractual restrictions limiting
transfers of cash from guarantor subsidiaries to the Company. Each of the HI Guarantors is 100% owned by the Company and has fully and unconditionally guaranteed the HI Senior Notes and the HI
Subordinated Notes on a joint and several basis. The Company has not presented separate financial statements and other disclosures for each of the HI Guarantors because management believes that such
information is not material to investors.

23

---





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

|                                |                                                                     | Parent Only
Huntsman
International    |   | Guarantors |         | Non-
Guarantors |         | Eliminations |     | Consolidated
Huntsman
International |        
|------------------------------- | ------------------------------------------------------------------- | ------------------------------------- | - | ---------- | ------- | --------------- | ------- | ------------ | --- | ----------------------------------- | -------
|ASSETS                          |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|Current Assets:                 |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                | Cash and cash equivalents                                           |                                       | $ | 4.1        |         | $               | (0.4    | )            | $   | 81.5                                |        
|                                | Trade receivables (net of allowance for doubtful accounts of $13.8) |                                       |   | 59.0       |         |                 | 106.3   |              |     | 568.3                               |        
|                                | Inventories                                                         |                                       |   | 51.4       |         |                 | 73.7    |              |     | 458.0                               |        
|                                | Prepaid expenses                                                    |                                       |   | 1.1        |         |                 |        |              |     | 18.9                                |        
|                                | Deferred income taxes                                               |                                       |   |            |         |                 |         |              |     | 3.0                                 |        
|                                | Other current assets                                                |                                       |   | 202.8      |         |                 | 330.3   |              |     | 76.9                                |        
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                |                                                                     | Total current assets                  |   |            | 318.4   |                 |         | 509.9        |     |                                     | 1,206.6
|                                | Property, plant and equipement, net                                 |                                       |   | 508.3      |         |                 | 326.9   |              |     | 2,241.1                             |        
|                                | Investment in unconsolidated affiliates                             |                                       |   | 3,296.6    |         |                 | 656.3   |              |     | 19.1                                |        
|                                | Intangible assets, net                                              |                                       |   | 244.4      |         |                 | 3.7     |              |     | 18.3                                |        
|                                | Other noncurrent assets                                             |                                       |   | 74.2       |         |                 | 1,724.0 |              |     | 337.9                               |        
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                |                                                                     | Total assets                          |   | $          | 4,441.  |                 | $       | 3,220.8      |     | $                                   | 3,823.0
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|LIABILITIES AND MEMBER'S EQUITY |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|Current liabilities:            |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                | Trade payables (including overdraft facilities of nil)              |                                       | $ | 65.8       |         | $               | 82.1    |              | $   | 516.8                               |        
|                                | Accrued liabilities                                                 |                                       |   | 384.9      |         |                 | 27.2    |              |     | 475.8                               |        
|                                | Current portion of long-term debt                                   |                                       |   | 1.6        |         |                 |        |              |     | 0.1                                 |        
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                |                                                                     | Total current liabilities             |   |            | 452.3   |                 |         | 109.3        |     |                                     | 992.7  
|                                | Long-term debt                                                      |                                       |   | 2,920.9    |         |                 | 0       |              |     | 1,699.4                             |        
|                                | Deferred income taxes                                               |                                       |   |           |         |                 |        |              |     | 235.0                               |        
|                                | Other noncurrent liabilities                                        |                                       |   | 56.1       |         |                 |        |              |     | 171.6                               |        
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                |                                                                     | Total liabilities                     |   |            | 3,429.3 |                 |         | 109.3        |     |                                     | 3,098.7
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|Minority Interest               |                                                                     |                                       |  |            |         |                |         |              | 6.1 |                                     |        
|Member's equity:                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                | Member's equity, 1,000 units                                        |                                       |   | 1,026.1    |         |                 |        |              |     |                                    |        
|                                | Subsidiary equity                                                   |                                       |   |           |         |                 | 2,170.8 |              |     | 934.0                               |        
|                                | (Accumulated deficit) retained earnings                             |                                       |   | (71.8      | )       |                 | 586.4   |              |     | (162.0                              | )      
|                                | Accumulated other comprehensive income                              |                                       |   | 58.3       |         |                 | 354.3   |              |     | (53.8                               | )      
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                |                                                                     | Total member's equity                 |   |            | 1,012.6 |                 |         | 3,111.5      |     |                                     | 718.2  
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        
|                                |                                                                     | Total liabilities and member's equity |   | $          | 4,441.9 |                 | $       | 3,220.8      |     | $                                   | 3,823.0
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                     |        

24

---



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

|                                |                                                                     | Parent Only
Huntsman
International    |   | Guarantors |         | Non-
Guarantors |         | Eliminations |     | Consolidated
Huntsman
International
|------------------------------- | ------------------------------------------------------------------- | ------------------------------------- | - | ---------- | ------- | --------------- | ------- | ------------ | --- | -----------------------------------
|ASSETS                          |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|Current Assets:                 |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                | Cash and cash equivalents                                           |                                       | $ | 16.6       |         | $               | (0.3    | )            | $   | 81.5                               
|                                | Trade receivables (net of allowance for doubtful accounts of $10.5) |                                       |   | 63.5       |         |                 | 91.3    |              |     | 515.0                              
|                                | Inventories                                                         |                                       |   | 47.9       |         |                 | 78.6    |              |     | 470.4                              
|                                | Prepaid expenses                                                    |                                       |   | 5.8        |         |                 | 1.7     |              |     | 16.1                               
|                                | Deferred income taxes                                               |                                       |   |           |         |                 |        |              |     | 3.0                                
|                                | Other current assets                                                |                                       |   | 224.1      |         |                 | 316.9   |              |     | 85.5                               
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                |                                                                     | Total current assets                  |   |            | 357.9   |                 |         | 488.2        |     |                                    
|                                | Property, plant and equipment, net                                  |                                       |   | 526.5      |         |                 | 331.5   |              |     | 2,398.2                            
|                                | Investment in unconsolidated affiliates                             |                                       |   | 3,356.8    |         |                 | 791.8   |              |     | 7.3                                
|                                | Intangible assets, net                                              |                                       |   | 259.5      |         |                 | 4.6     |              |     | 19.3                               
|                                | Other noncurrent assets                                             |                                       |   | 80.5       |         |                 | 1,696.9 |              |     | 355.2                              
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                |                                                                     | Total assets                          |   | $          | 4,581.2 |                 | $       | 3,313.0      |     | $                                  
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|LIABILITIES AND MEMBER'S EQUITY |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|Current liabilities:            |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                | Trade payables (including overdraft facilities of $7.5)             |                                       | $ | 64.0       |         | $               | 68.3    |              | $   | 533.9                              
|                                | Accrued liabilities                                                 |                                       |   | 381.4      |         |                 | 40.1    |              |     | 509.6                              
|                                | Current portion of long-term debt                                   |                                       |   | 1.7        |         |                 |        |              |     | 0.1                                
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                |                                                                     | Total current liabilities             |   |            | 447.1   |                 |         | 108.4        |     |                                    
|                                | Long-term debt                                                      |                                       |   | 2,926.5    |         |                 |        |              |     | 1,686.3                            
|                                | Deferred income taxes                                               |                                       |   |           |         |                 |        |              |     | 234.8                              
|                                | Other noncurrent liabilities                                        |                                       |   | 53.9       |         |                 |        |              |     | 170.6                              
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                |                                                                     | Total liabilities                     |   |            | 3,427.5 |                 |         | 108.4        |     |                                    
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|Minority interests              |                                                                     |                                       |  |            |         |                |         |              | 3.6 |                                    
|Member's equity:                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                | Member's equity, 1000 units                                         |                                       |   | 1,026.1    |         |                 |        |              |     |                                   
|                                | Subsidiary equity                                                   |                                       |   |           |         |                 | 2,220.0 |              |     | 874.0                              
|                                | (Accumulated deficit) retained earnings                             |                                       |   | 55.6       |         |                 | 591.1   |              |     | (58.1                              
|                                | Accumulated other comprehensive income                              |                                       |   | 72.0       |         |                 | 393.5   |              |     | (3.3                               
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                |                                                                     | Total member's equity                 |   |            | 1,153.7 |                 |         | 3,204.6      |     |                                    
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    
|                                |                                                                     | Total liabilities and member's equity |   | $          | 4,581.2 |                 | $       | 3,313.0      |     | $                                  
|                                |                                                                     |                                       |   |            |         |                 |         |              |     |                                    

25

---





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

|                                                         |                                       | Parent Only
Huntsman
International |        | Guarantors |       | Non-
Guarantors |       | Eliminations |         | Consolidated
Huntsman
International |        
|-------------------------------------------------------- | ------------------------------------- | ---------------------------------- | ------ | ---------- | ----- | --------------- | ----- | ------------ | ------- | ----------------------------------- | -------
|Revenues:                                                |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         | Trade sales and services              |                                    |        | 200.8      |       |                 | 193.3 |              |         | 1,150.2                             |        
|                                                         | Related party sales                   |                                    |        | 50.1       |       |                 | 75.0  |              |         | 18.9                                |        
|                                                         | Tolling fees                          |                                    |        |           |       |                 | 11.8  |              |         | 0.2                                 |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         |                                       | Total revenue                      |        |            | 250.9 |                 |       | 280.1        |         |                                     | 1,169.3
|Cost of goods sold                                       |                                       |                                    | 200.1  |            |       | 245.5           |       |              | 1,023.3 |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Gross profit                                             |                                       |                                    | 50.8   |            |       | 34.6            |       |              | 146.0   |                                     |        
|Expenses:                                                |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         | Selling, general and administrative   |                                    |        | 34.4       |       |                 | 3.5   |              |         | 54.9                                |        
|                                                         | Research and development              |                                    |        | 8.4        |       |                 | 0.3   |              |         | 0.1                                 |        
|                                                         | Other operating (income) expense      |                                    |        | 8.4        |       |                 | 1.9   |              |         | 14.5                                |        
|                                                         | Restructuring and plant closing costs |                                    |        |           |       |                 |      |              |         | 124.9                               |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         |                                       | Total expenses                     |        |            | 51.2  |                 |       | 5.7          |         |                                     | 194.4  
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Operating income                                         |                                       |                                    | (0.4   | )          |       | 28.9            |       |              | (48.4   | )                                   |        
|Interest (expense) income, net                           |                                       |                                    | (64.2  | )          |       | 37.8            |       |              | (36.5   | )                                   |        
|Gain (loss) on sale of accounts receivable               |                                       |                                    | 2.2    |            |       | (0.7            | )     |              | (4.5    | )                                   |        
|Equity in earnings (losses) of unconsolidated affiliates |                                       |                                    | (28.1  | )          |       | (94.0           | )     |              |        |                                     |        
|Other income (expense)                                   |                                       |                                    |       |            |       |                |       |              |        |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Income (loss) before income taxes                        |                                       |                                    | (90.5  | )          |       | (28.0           | )     |              | (89.4   | )                                   |        
|Income tax (expense) benefit                             |                                       |                                    |       |            |       |                |       |              | (4.7    | )                                   |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Net (loss) income                                        |                                       |                                    | (90.5  | )          |       | (28.0           | )     |              | (94.1   | )                                   |        
|Other comprehensive income (loss)                        |                                       |                                    | (15.5  | )          |       | (33.6           | )     |              | (18.8   | )                                   |        
|Comprehensive income (loss)                              |                                       | $                                  | (106.0 | )          | $     | (61.6           | )     | $            | (112.9  | )                                   | $      
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        

26

---



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

|                                                         |                                       | Parent Only
Huntsman
International |       | Guarantors |       | Non-
Guarantors |       | Eliminations |       | Consolidated
Huntsman
International |      
|-------------------------------------------------------- | ------------------------------------- | ---------------------------------- | ----- | ---------- | ----- | --------------- | ----- | ------------ | ----- | ----------------------------------- | -----
|Revenues:                                                |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|                                                         | Trade sales and services              |                                    |       | 173.1      |       |                 | 154.2 |              |       | 940.3                               |      
|                                                         | Related party sales                   |                                    |       | 32.3       |       |                 | 23.1  |              |       | 35.9                                |      
|                                                         | Tolling fees                          |                                    |       |           |       |                 | 12.6  |              |       | 0.3                                 |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|                                                         |                                       | Total revenue                      |       |            | 205.4 |                 |       | 189.9        |       |                                     | 976.5
|Cost of goods sold                                       |                                       |                                    | 168.5 |            |       | 180.2           |       |              | 865.7 |                                     |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|Gross profit                                             |                                       |                                    | 36.9  |            |       | 9.7             |       |              | 110.8 |                                     |      
|Expenses:                                                |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|                                                         | Selling, general and administrative   |                                    |       | 28.0       |       |                 | 4.4   |              |       | 62.0                                |      
|                                                         | Research and development              |                                    |       | 9.6        |       |                 | 0.2   |              |       | 2.6                                 |      
|                                                         | Other operating (income) expense      |                                    |       | (4.5       | )     |                 | (7.8  | )            |       | (11.0                               | )    
|                                                         | Restructuring and plant closing costs |                                    |       |           |       |                 |      |              |       | 21.5                                |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|Total expenses                                           |                                       |                                    | 33.1  |            |       | (3.2            | )     |              | 75.1  |                                     |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|Operating income                                         |                                       |                                    | 3.8   |            |       | 12.9            |       |              | 35.7  |                                     |      
|Interest (expense) income, net                           |                                       |                                    | (63.8 | )          |       | 38.3            |       |              | (38.6 | )                                   |      
|Gain (loss) on sale of accounts receivable               |                                       |                                    | (8.5  | )          |       | (0.6            | )     |              | (2.2  | )                                   |      
|Equity in earnings (losses) of unconsolidated affiliates |                                       |                                    | 46.3  |            |       | (4.8            | )     |              |      |                                     |      
|Other expense                                            |                                       |                                    | (0.1  | )          |       |                |       |              |      |                                     |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|Income (loss) before income taxes                        |                                       |                                    | (22.3 | )          |       | 45.8            |       |              | (5.1  | )                                   |      
|Income tax (expense) benefit                             |                                       |                                    |      |            |       |                |       |              | 0.8   |                                     |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|Net (loss) income                                        |                                       |                                    | (22.3 | )          |       | 45.8            |       |              | (4.3  | )                                   |      
|Other comprehensive income (loss)                        |                                       |                                    | 70.6  |            |       | 100.6           |       |              | 24.3  |                                     |      
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      
|Comprehensive income (loss)                              |                                       | $                                  | 48.3  |            | $     | 146.4           |       | $            | 20.0  |                                     | $    
|                                                         |                                       |                                    |       |            |       |                 |       |              |       |                                     |      

27

---





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

|                                                         |                                       | Parent Only
Huntsman
International |        | Guarantors |       | Non-
Guarantors |       | Eliminations |         | Consolidated
Huntsman
International |        
|-------------------------------------------------------- | ------------------------------------- | ---------------------------------- | ------ | ---------- | ----- | --------------- | ----- | ------------ | ------- | ----------------------------------- | -------
|Revenues:                                                |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         | Trade sales and services              |                                    | $      | 386.8      |       | $               | 327.9 |              | $       | 2,284.2                             |        
|                                                         | Related party sales                   |                                    |        | 96.6       |       |                 | 124.3 |              |         | 44.6                                |        
|                                                         | Tolling fees                          |                                    |        |           |       |                 | 18.6  |              |         | 0.4                                 |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         |                                       | Total revenue                      |        |            | 483.4 |                 |       | 470.8        |         |                                     | 2,329.2
|Cost of goods sold                                       |                                       |                                    | 384.9  |            |       | 435.8           |       |              | 2,083.2 |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Gross profit                                             |                                       |                                    | 98.5   |            |       | 35.0            |       |              | 246.0   |                                     |        
|Expenses:                                                |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         | Selling, general and administrative   |                                    |        | 66.3       |       |                 | 7.1   |              |         | 112.4                               |        
|                                                         | Research and development              |                                    |        | 15.4       |       |                 | 0.8   |              |         | 4.8                                 |        
|                                                         | Other operating expense               |                                    |        | 8.3        |       |                 | 2.8   |              |         | 8.5                                 |        
|                                                         | Restructuring and plant closing costs |                                    |        |           |       |                 |      |              |         | 133.6                               |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Total expenses                                           |                                       |                                    | 90.0   |            |       | 10.7            |       |              | 259.3   |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Operating income                                         |                                       |                                    | 8.5    |            |       | 24.3            |       |              | (13.3   | )                                   |        
|Interest (expense) income, net                           |                                       |                                    | (133.2 | )          |       | 76.1            |       |              | (74.8   | )                                   |        
|Gain (loss) on sale of accounts receivable               |                                       |                                    | 2.0    |            |       | (1.0            | )     |              | (7.5    | )                                   |        
|Equity in earnings (losses) of unconsolidated affiliates |                                       |                                    | (4.5   | )          |       | (104.1          | )     |              |        |                                     |        
|Other expense                                            |                                       |                                    | (0.2   | )          |       |                |       |              |        |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Income (loss) before income taxes                        |                                       |                                    | (127.4 | )          |       | (4.7            | )     |              | (95.6   | )                                   |        
|Income tax (expense) benefit                             |                                       |                                    |       |            |       |                |       |              | (8.3    | )                                   |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Net (loss) income                                        |                                       |                                    | (127.4 | )          |       | (4.7            | )     |              | (103.9  | )                                   |        
|Other comprehensive income (loss)                        |                                       |                                    | (13.7  | )          |       | (39.2           | )     |              | (50.5   | )                                   |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Comprehensive income (loss)                              |                                       | $                                  | (141.1 | )          | $     | (43.9           | )     | $            | (154.4  | )                                   | $      
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        

28

---



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

|                                                         |                                       | Parent Only
Huntsman
International |        | Guarantors |       | Non-
Guarantors |       | Eliminations |         | Consolidated
Huntsman
International |        
|-------------------------------------------------------- | ------------------------------------- | ---------------------------------- | ------ | ---------- | ----- | --------------- | ----- | ------------ | ------- | ----------------------------------- | -------
|Revenues:                                                |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         | Trade sales and services              |                                    | $      | 344.5      |       | $               | 321.7 |              | $       | 1,868.1                             |        
|                                                         | Related party sales                   |                                    |        | 62.0       |       |                 | 47.4  |              |         | 57.0                                |        
|                                                         | Tolling Fees                          |                                    |        |           |       |                 | 20.8  |              |         | 0.5                                 |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         |                                       | Total revenue                      |        |            | 406.5 |                 |       | 389.9        |         |                                     | 1,925.6
|Cost of goods sold                                       |                                       |                                    | 338.2  |            |       | 358.0           |       |              | 1,730.0 |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Gross profit                                             |                                       |                                    | 68.3   |            |       | 31.9            |       |              | 195.6   |                                     |        
|Expenses:                                                |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|                                                         | Selling, general and administrative   |                                    |        | 63.0       |       |                 | 7.6   |              |         | 114.9                               |        
|                                                         | Research and development              |                                    |        | 19.2       |       |                 | 0.7   |              |         | 4.7                                 |        
|                                                         | Other operating income                |                                    |        | (21.6      | )     |                 | (7.8  | )            |         | (11.0                               | )      
|                                                         | Restructuring and plant closing costs |                                    |        |           |       |                 |      |              |         | 38.6                                |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Total expenses                                           |                                       |                                    | 60.6   |            |       | 0.5             |       |              | 147.2   |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Operating income                                         |                                       |                                    | 7.7    |            |       | 31.4            |       |              | 48.4    |                                     |        
|Interest (expense) income, net                           |                                       |                                    | (128.2 | )          |       | 72.8            |       |              | (72.3   | )                                   |        
|Loss on sale of accounts receivable                      |                                       |                                    | (15.1  | )          |       | (1.2            | )     |              | (4.2    | )                                   |        
|Equity in earnings (losses) of unconsolidated affiliates |                                       |                                    | 83.6   |            |       | (21.8           | )     |              |        |                                     |        
|Other expense                                            |                                       |                                    | (2.3   | )          |       |                |       |              |        |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Income (loss) before income taxes                        |                                       |                                    | (54.3  | )          |       | 81.2            |       |              | (28.1   | )                                   |        
|Income tax benefit                                       |                                       |                                    |       |            |       |                |       |              | 8.7     |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Net income (loss)                                        |                                       |                                    | (54.3  | )          |       | 81.2            |       |              | (19.4   | )                                   |        
|Other comprehensive income (loss)                        |                                       |                                    | 75.7   |            |       | 119.7           |       |              | 10.8    |                                     |        
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        
|Comprehensive income (loss)                              |                                       | $                                  | 21.4   |            | $     | 200.9           |       | $            | (8.6    | )                                   | $      
|                                                         |                                       |                                    |        |            |       |                 |       |              |         |                                     |        

29

---





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

|                                                    |  | Parent Only
Huntsman
International |          | Guarantors |   | Non-
Guarantors |   | Eliminations |          | Consolidated
Huntsman
International |  
|--------------------------------------------------- |  | ---------------------------------- | -------- | ---------- | - | --------------- | - | ------------ | -------- | ----------------------------------- | -
|Net cash provided by (used in) operating activities |  | $                                  | (84.3    | )          | $ | 100.2           |   | $            | 24.3     |                                     | $
|Investing activities:                               |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Capital expenditures                                |  |                                    | (2.5     | )          |   | (4.5            | ) |              | (53.4    | )                                   |  
|Investment in unconsolidated affiliate              |  |                                    |          |            |   |                 |   |              | (11.8    | )                                   |  
|Net cash received from unconsolidated affiliates    |  |                                    | 8.3      |            |   | 8.3             |   |              |          |                                     |  
|Advances to unconsolidated affiliates               |  |                                    | (1.2     | )          |   |                |   |              |         |                                     |  
|Proceeds from sale of fixed assets                  |  |                                    |         |            |   |                |   |              |         |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Net cash provided by (used in) investing activities |  |                                    | (3.7     | )          |   | 3.8             |   |              | (65.2    | )                                   |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Financing activities:                               |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Net borrowings under revolving loan facilities      |  |                                    | 15.0     |            |   |                |   |              |         |                                     |  
|Issuance of senior notes                            |  |                                    |         |            |   |                |   |              |         |                                     |  
|Proceeds from other long-term debt                  |  |                                    |         |            |   |                |   |              |         |                                     |  
|Repayment of long term debt                         |  |                                    |         |            |   |                |   |              |         |                                     |  
|Net borrowings under overdraft facility             |  |                                    | (7.5     | )          |   |                |   |              |         |                                     |  
|Cash contributions by parent                        |  |                                    |         |            |   | 129.1           |   |              | 2,408.8  |                                     |  
|Cash distributions from subsidiaries                |  |                                    | 2,557.7  |            |   |                |   |              |         |                                     |  
|Cash distributions to parent                        |  |                                    |         |            |   | (178.3          | ) |              | (2,379.4 | )                                   |  
|Cash distributions to subsidiaries                  |  |                                    | (2,537.9 | )          |   |                |   |              |         |                                     |  
|Capital contributions by minority shareholders      |  |                                    |         |            |   |                |   |              | 2.7      |                                     |  
|Debt issuance costs                                 |  |                                    |         |            |   |                |   |              |         |                                     |  
|Intercompany advancesnet of repayments             |  |                                    | 46.3     |            |   | (52.8           | ) |              | 6.5      |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Net cash provided by (used in) financing activities |  |                                    | 73.6     |            |   | (102.0          | ) |              | 38.6     |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Effect of exchange rate changes on cash             |  |                                    | 1.9      |            |   | (2.1            | ) |              | 2.3      |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Increase in cash and cash equivalents               |  |                                    | (12.5    | )          |   | (0.1            | ) |              | 0.0      |                                     |  
|Cash and cash equivalents at beginning of period    |  |                                    | 16.6     |            |   | (0.3            | ) |              | 81.5     |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Cash and cash equivalents at end of period          |  | $                                  | 4.1      |            | $ | (0.4            | ) | $            | 81.5     |                                     | $
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  

30

---



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

|                                                    |  | Parent Only
Huntsman
International |          | Guarantors |   | Non-
Guarantors |   | Eliminations |          | Consolidated
Huntsman
International |  
|--------------------------------------------------- |  | ---------------------------------- | -------- | ---------- | - | --------------- | - | ------------ | -------- | ----------------------------------- | -
|Net cash provided by (used in) operating activities |  | $                                  | (119.2   | )          | $ | 101.2           |   | $            | (25.7    | )                                   | $
|Investing activities:                               |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Capital expenditures                                |  |                                    | (3.7     | )          |   | (2.7            | ) |              | (47.6    | )                                   |  
|Advances to unconsolidated affiliates               |  |                                    |         |            |   | 0.7             |   |              |         |                                     |  
|Proceeds from sale of fixed assets                  |  |                                    | (1.5     | )          |   |                |   |              |         |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Net cash used in investing activities               |  |                                    | (5.2     | )          |   | (2.0            | ) |              | (47.6    | )                                   |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Financing activities:                               |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Net borrowings under revolving loan facilities      |  |                                    | 138.2    |            |   |                |   |              |         |                                     |  
|Issuance of senior notes                            |  |                                    | 157.9    |            |   |                |   |              |         |                                     |  
|Repayment of long term debt                         |  |                                    | (194.0   | )          |   |                |   |              | (1.3     | )                                   |  
|Cash contributions by parent                        |  |                                    |         |            |   | 146.4           |   |              | 2,057.3  |                                     |  
|Cash distributions from subsidiaries                |  |                                    | 2,200.2  |            |   |                |   |              |         |                                     |  
|Cash distributions to parent                        |  |                                    |         |            |   | (131.8          | ) |              | (2,068.4 | )                                   |  
|Cash distributions to subsidiaries                  |  |                                    | (2,203.7 | )          |   |                |   |              |         |                                     |  
|Shares of subsidiary issued to minorities for cash  |  |                                    |         |            |   |                |   |              | 2.8      |                                     |  
|Intercompany advancesnet of repayments             |  |                                    | 27.9     |            |   | (113.8          | ) |              | 81.6     |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Net cash provided by (used in) financing activities |  |                                    | 126.5    |            |   | (99.2           | ) |              | 72.0     |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Effect of exchange rate changes on cash             |  |                                    | 7.5      |            |   |                |   |              | 2.7      |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Increase in cash and cash equivalents               |  |                                    | 9.6      |            |   |                |   |              | 1.4      |                                     |  
|Cash and cash equivalents at beginning of period    |  |                                    | 19.0     |            |   | 0.3             |   |              | 56.1     |                                     |  
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  
|Cash and cash equivalents at end of period          |  | $                                  | 28.6     |            | $ | 0.3             |   | $            | 57.5     |                                     | $
|                                                    |  |                                    |          |            |   |                 |   |              |          |                                     |  

31

---





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

Forward-looking Statements

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

Certain Defined Terms

In this report, "HI," the "Company," "we," "us" or "our" refer to Huntsman International LLC and, unless the context otherwise requires, its subsidiaries. In this
report, "HIH" refers to Huntsman International Holdings LLC, "Huntsman LLC" or "HLLC" refers to Huntsman LLC and, unless the context otherwise requires, its subsidiaries, "AdMat" refers to Huntsman
Advanced Materials LLC and, unless the context otherwise requires, its subsidiaries, "Huntsman Specialty" refers to Huntsman Specialty Chemicals Corporation, "HSCHC" refers to Huntsman Specialty
Chemical Holdings Corporation, "MatlinPatterson" refers to MatlinPatterson Global Opportunities Partners, L.P. and, unless the context otherwise requires, its affiliates, "Consolidated Press" refers
to Consolidated Press Holdings Limited and, unless the context otherwise requires, its subsidiaries, and "ICI" refers to Imperial Chemical Industries PLC and, unless the context otherwise requires,
its subsidiaries.

Overview

We derive our revenues, earnings and cash flow from the sale of a wide variety of differentiated and commodity chemicals. We manage our operations through our
four principal operating segments: Polyurethanes, Performance Products, Pigments and Base Chemicals. We manufacture products at facilities located in North America, Europe, Asia, Australia and Africa,
and our products are sold throughout the world. The major products of each reportable operating segment are as follows:

Segment

ProductsPolyurethanes

MDI, TDI, TPU, polyols, aniline, PO and MTBEPerformance Products

Surfactants, ethyleneamines and other performance chemicalsPigments

Titanium dioxide ("TiO2")Base Chemicals

Ethylene, propylene, benzene, cyclohexane and paraxylene


Our
products are divided into two broad categoriesdifferentiated and commodity chemicals. Our Polyurethanes and Performance Products businesses mainly produce differentiated
products and our Pigments and Base Chemicals businesses mainly produce commodity chemicals. Among our commodity products, our Pigments business, while cyclical, tends to follow different trends and is
not influenced by the same factors as our petrochemical-based commodity products. In addition, there are a limited number of significant competitors in our Pigments business, relatively high barriers
to entry and strong customer loyalty. Each of our four operating segments is impacted to varying degrees by economic conditions, prices of raw materials and global supply and demand pressures.

Historically,
the demand for many of our Polyurethanes products has been relatively resistant to changes in global economic conditions as industry growth in product demand has been
strongly

32

---



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

In
comparison to our commodity businesses, the demand for many of the products we produce in our Performance Products segment historically has also been relatively resistant to changes
in global economic conditions. Like our Polyurethanes segment, Performance Products growth in general is strongly influenced by product substitution, innovation and new product development. Also,
demand stability benefits from a broad range of end markets. A significant portion of our Performance Products is sold into consumer end use applications including household detergents, personal care
products and cosmetics. As such, historically, demand for these products has been relatively stable and tends to be less susceptible to changes in global economic conditions. In the past year, weak
economic conditions in Europe, high raw material and energy costs, significant overcapacity in surfactants and the strength of the major European currencies versus the U.S. dollar (which negatively
impacts the competitiveness of European exports), has had a negative impact on the surfactants portion of our Performance Products segment.

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

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

33

---



Recent Developments

Amendment and Restatement of HI Credit Facilities

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

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

34

---



Results of Operations

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

|                                                                                           |  | Three Months
Ended
June 30,
2004 |         | Three Months
Ended
June 30,
2003(2) |   | Percent
Change(3) |   | Six Months
Ended
June 30,
2004 |    | Six Months
Ended
June 30,
2003(2) |         | Percent
Change(3) |  
|------------------------------------------------------------------------------------------ |  | -------------------------------- | ------- | ----------------------------------- | - | ----------------- | - | ------------------------------ | -- | --------------------------------- | ------- | ----------------- | -
|Revenues                                                                                   |  | $                                | 1,623.7 |                                     | $ | 1,307.4           |   | 24                             | %  | $                                 | 3,121.8 |                   | $
|Cost of goods sold                                                                         |  |                                  | 1,392.3 |                                     |   | 1,150.0           |   | 21                             | %  |                                   | 2,742.3 |                   |  
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  
|Gross profit                                                                               |  |                                  | 231.4   |                                     |   | 157.4             |   | 47                             | %  |                                   | 379.5   |                   |  
|Selling, general and administrative, research and development and other operating expenses |  |                                  | 126.4   |                                     |   | 83.5              |   | 51                             | %  |                                   | 226.4   |                   |  
|Restructuring and plant closing costs                                                      |  |                                  | 124.9   |                                     |   | 21.5              |   | 481                            | %  |                                   | 133.6   |                   |  
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  
|Operating (loss) income                                                                    |  |                                  | (19.9   | )                                   |   | 52.4              |   | NM                             |    |                                   | 19.5    |                   |  
|Interest expense, net                                                                      |  |                                  | (62.9   | )                                   |   | (64.1             | ) | (2                             | )% |                                   | (131.9  | )                 |  
|Loss on accounts receivable securitization program                                         |  |                                  | (3.0    | )                                   |   | (11.3             | ) | (73                            | )% |                                   | (6.5    | )                 |  
|Other expense                                                                              |  |                                  |        |                                     |   | (0.1              | ) | NM                             |    |                                   | (0.2    | )                 |  
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  
|Loss before income taxes                                                                   |  |                                  | (85.8   | )                                   |   | (23.1             | ) | 271                            | %  |                                   | (119.1  | )                 |  
|Income tax (expense) benefit                                                               |  |                                  | (4.7    | )                                   |   | 0.8               |   | NM                             |    |                                   | (8.3    | )                 |  
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  
|Net loss                                                                                   |  | $                                | (90.5   | )                                   | $ | (22.3             | ) | 306                            | %  | $                                 | (127.4  | )                 | $
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  
|Interest expense, net                                                                      |  |                                  | 62.9    |                                     |   | 64.1              |   | (2                             | )% |                                   | 131.9   |                   |  
|Income tax expense (benefit)                                                               |  |                                  | 4.7     |                                     |   | (0.8              | ) | NM                             |    |                                   | 8.3     |                   |  
|Depreciation and amortization                                                              |  |                                  | 79.8    |                                     |   | 68.8              |   | 16                             | %  |                                   | 156.8   |                   |  
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  
|EBITDA(1)                                                                                  |  | $                                | 56.9    |                                     | $ | 109.8             |   | (48                            | )% | $                                 | 169.6   |                   | $
|                                                                                           |  |                                  |         |                                     |   |                   |   |                                |    |                                   |         |                   |  

---

35

---





Included
in EBITDA are the following items:

Three Months
Ended
June 30,
2004

Three Months
Ended
June 30,
2003(2)

Six Months
Ended
June 30,
2004

Six Months
Ended
June 30,
2003(2)Foreign exchange gains/(loss)unallocated

$
(5.4
)
$
34.7

$
8.0

$
49.1Loss on accounts receivable securitization program


(3.0
)

(11.3
)

(6.5
)

(20.5
)Asset write-down











(2.8
)Legal settlement, net of recoveries


(14.9
)




(14.9
)

Restructuring and plant closing costs:Polyurethanes

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


(0.4
)

(20.1
)

(0.4
)

(20.1
)Pigments


(104.2
)




(108.1
)

Base Chemicals


(2.2
)




(2.2
)

Total restructuring and plant closing costs

$
(124.9
)
$
(21.5
)
$
(133.6
)
$
(38.6
)


---

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 (As Restated)

For the three months ended June 30, 2004, we had a net loss of $90.5 million on revenues of $1,623.7 million compared to a net loss of
$22.3 million on revenues of $1,307.4 million for the same period in 2003. The increase of $68.2 million in net loss was the result of the following items:



36

---





37

---





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

|                     |       | Three Months
Ended
June 30,
2004 |       | Three Months
Ended
June 30,
2003 |   | Percent Change(1) |        
|-------------------- | ----- | -------------------------------- | ----- | -------------------------------- | - | ----------------- | -------
|Revenues             |       |                                  |       |                                  |   |                   |        
|Polyurethanes        |       | $                                | 733.8 |                                  | $ | 565.8             |        
|Performance Products |       |                                  | 190.9 |                                  |   | 164.5             |        
|Pigments             |       |                                  | 278.2 |                                  |   | 255.4             |        
|Base Chemicals       |       |                                  | 481.0 |                                  |   | 357.7             |        
|Eliminations         |       |                                  | (60.2 | )                                |   | (36.0             | )      
|                     |       |                                  |       |                                  |   |                   |        
|                     | Total |                                  | $     | 1,623.7                          |   | $                 | 1,307.4
|                     |       |                                  |       |                                  |   |                   |        
|Segment EBITDA       |       |                                  |       |                                  |   |                   |        
|Polyurethanes        |       | $                                | 100.0 |                                  | $ | 48.1              |        
|Performance Products |       |                                  | 2.5   |                                  |   | (21.6             | )      
|Pigments             |       |                                  | (83.5 | )                                |   | 30.9              |        
|Base Chemicals       |       |                                  | 57.8  |                                  |   | 37.4              |        
|Corporate and other  |       |                                  | (19.9 | )                                |   | 15.0              |        
|                     |       |                                  |       |                                  |   |                   |        
|                     | Total |                                  | $     | 56.9                             |   | $                 | 109.8  
|                     |       |                                  |       |                                  |   |                   |        

---

Polyurethanes

For the three months ended June 30, 2004, Polyurethanes revenues increased by $168.0 million, or 30%, to $733.8 million from
$565.8 million for the same period in 2003. MDI sales revenue increased by 27%, due to a 17% increase in sales volumes, supported by 8% higher average selling prices. MDI sales volumes
increased by 38%, 18% and 10% in Asia, Europe and the Americas, respectively. Higher MDI volumes reflect recent improvement in the global economy. The increase in MDI average selling prices resulted
from improved market demand and the strength of the major European currencies versus the U.S. dollar. Polyol sales revenue increased by 11% as average selling prices increased by 7% and sales volumes
increased by 4%. Total PO/MTBE products sales revenues increased by 64%. However, PO revenues, excluding tolling, decreased by 3% due to a 9% decrease in volumes which was partly offset by a 6%
increase in average selling prices. PO tolling revenue decreased by 9% due to a 10% reduction in average selling prices. MTBE sales revenue increased by 53% due to a 32% increase in average selling
prices in response to stronger crude oil and gasoline markets, on relatively unchanged sales volumes.

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

38

---



Performance Products

For the three months ended June 30, 2004, Performance Products revenues increased by $26.4 million, or 16%, to $190.9 million from
$164.5 million for the same period in 2003. Performance Products average selling prices increased by 12%, of which 6% was due to the strength of the major European currencies versus the U.S.
dollar, while sales volumes increased by 4%. Surfactants revenues increased by 10% as compared to the comparable period in 2003, due to a 9% increase in average selling prices and a 1% increase in
sales volumes. Surfactants average selling prices were higher mainly as a result of the strengthening of the major European currencies versus the U.S. dollar. Ethyleneamines revenues increased by 15%
compared with the same period in 2003, resulting from a 13% increase in sales volumes and a 6% increase in average selling prices. Ethyleneamines sales volumes were higher due to
increased customer demand, while ethyleneamines average selling prices increased in response to higher raw material and energy prices. Other sales revenues, primarily for other amine products,
increased by 37% compared with the same period in 2003, primarily as a result of the initiation of tolling agreements with affiliates in mid-2003.

For
the three months ended June 30, 2004, Performance Products segment EBITDA increased by $24.1 million to $2.5 million from a loss of $21.6 million for the
same period in 2003. This increase is mainly due to the $20.1 million restructuring charge which was recorded in the 2003 period relating to the closure of certain manufacturing units at our
Whitehaven, U.K. facility. A $14.6 million increase attributable to higher average selling prices and a $2.3 million increase attributable to higher sales volumes was partially offset by
a $15.6 million increase in raw material and energy costs. The remaining increase in EBITDA was primarily the result of lower manufacturing costs and SG&A. Manufacturing costs and SG&A
decreased by $1.6 million and $1.3 million, respectively, due to the effect of cost reduction programs initiated in our surfactants business during 2003 and lower maintenance costs in
our ethyleneamines business, partially offset by the strength of the major European currencies versus the U.S. dollar.

Pigments

For the three months ended June 30, 2004, Pigment revenues increased by $22.7 million, or 9%, to $278.1 million from
$255.4 million for the same period in 2003. Sales volumes increased by 9%, with volumes increasing by 13%, 7% and 8% in North America, Asia and Europe, respectively, due to improved customer
demand. Average selling prices remained at similar levels compared to the same period in 2003, as an underlying decrease of 5% in local currency prices was largely offset by the effect of strength of
the major European currencies versus the U.S. dollar. Average selling prices as measured in local currencies rose by 2% in Asia, but fell by 9% in Europe and 3% in North America.

For
the three months ended June 30, 2004, Pigments segment EBITDA decreased by $114.4 million to a loss of $83.5 million from income of $30.9 million
for the same period in 2003. The decrease in segment EBITDA is mainly due to restructuring and plant closing costs of $104.2 million and charges of $14.9 million relating to the payment
of costs and settlement amounts for Discoloration Claims recorded in the 2004 period. EBITDA was impacted by $9.9 million due primarily to higher sales volumes, offset by $10.1 million
in higher raw material and energy costs, primarily due to the strength of the major European currencies versus the U.S. dollar. In addition, manufacturing costs were $3.9 million lower, mainly
due to an increase in the amount of manufacturing costs absorbed in inventories, partially offset by the strength of the major European currencies versus the U.S. dollar. SG&A costs were
$1.0 million lower mainly as a result of ongoing cost reduction initiatives.

Base Chemicals

For the three months ended June 30, 2004, Base Chemicals revenues increased by $123.3 million, or 34%, to $481.0 million from
$357.7 million for the same period in 2003. Sales volumes increased by

39

---



16%
and average selling prices increased by 16%. Ethylene revenues increased by 58% resulting from a 29% increase in sales volumes and a 22% increase in average selling prices. Propylene revenues
increased by 6% resulting from a 5% increase in average selling prices and a 1% increase in sales volumes. Paraxylene revenues increased by 28% resulting from a 23% increase in average selling prices
and a 4% increase in sales volumes. Benzene revenues increased by 56% resulting from a 27% increase in sales volumes and a 24% increase in average selling prices. Cyclohexane revenues increased by 55%
resulting from a 35% increase in average selling prices and a 15% increase in sales volumes. Higher sales volumes resulted from improved customer demand, while higher average selling prices increased
in response to higher raw material prices, improved market conditions and the strength of the major European currencies versus the U.S. dollar.

For
the three months ended June 30, 2004, Base Chemicals segment EBITDA increased by $20.4 million to $57.8 million from $37.4 million for the same period in
2003. Average selling price and sales volume increases contributed $89.8 million and were partially offset by increased raw material costs of $66.5 million. Manufacturing costs increased
by $4.2 million due to the strength of the major European currencies versus the U.S. dollar. SG&A and other costs were $3.6 million lower for the three months ended June 30, 2004
as compared to the same period in 2003 due to foreign currency translation gains and lower charges associated with the mark to market evaluation of feedstock hedges, partially offset by
$2.2 million in restructuring costs in the 2004 period.

Corporate and Other

Corporate and other items includes unallocated corporate overhead, loss on our accounts receivable securitization program and unallocated foreign exchange gains
and losses. For the three months ended June 30, 2004, EBITDA from corporate and other items decreased by $34.9 million to a loss of $19.9 million from income of
$15.0 million for the same period of 2003. Decreased EBITDA resulted primarily due to unallocated foreign currency losses of $5.4 million in the second quarter of 2004 as compared to
unallocated foreign currency gains of $34.7 million in the second quarter of 2003. Reduced EBITDA resulting from the effects of foreign currencies was partially offset by reduced losses on our
accounts receivable securitization program, which decreased by $8.3 million to a loss of $3.0 million in the three months ended June 30, 2004 as compared to a loss of
$11.3 million in the same period of 2003. Losses on the accounts receivable securitization program include the discount on receivables sold into the program, fees and expenses associated with
the program and gains (losses) on foreign currency hedge contracts mandated by the terms of the program to hedge currency exposures on the collateral supporting the off-balance sheet debt
issued. The decreased loss on the accounts
receivable securitization program was primarily due to reduced losses on foreign exchange hedge contracts mandated by our accounts receivable securitization program.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 (As Restated)

For the six months ended June 30, 2004, we had a net loss of $127.4 million on revenues of $3,121.8 million compared to a net loss of
$54.3 million on revenues of $2,605.1 million for the same period in 2003. The increase of $73.1 million in net loss was the result of the following items:



40

---





41

---





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

Six Months
Ended
June 30,
2004

Six Months
Ended
June 30,
2003

Percent Change(1)RevenuesPolyurethanes

$
1,373.4

$
1,120.7

23
%Performance Products


375.0


325.6

15
%Pigments


533.1


501.5

6
%Base Chemicals


954.9


729.9

31
%Eliminations


(114.6
)

(72.6
)
58
%Total

$
3,121.8

$
2,605.1

20
%Segment EBITDAPolyurethanes

$
172.8

$
88.2

96
%Performance Products


4.3


(19.2
)
NMPigments


(75.8
)

59.8

NMBase Chemicals


89.2


63.8

40
%Corporate and other


(20.9
)

9.8

NMTotal

$
169.6

$
202.4

(16
)%


---

Polyurethanes

For the six months ended June 30, 2004, Polyurethanes revenues increased by $252.7 million, or 23%, to $1,373.4 million from
$1,120.7 million for the same period in 2003. MDI sales revenue increased by 27%, due to a 17% increase in sales volumes, and a 9% increase in average selling prices. MDI sales volumes rose by
49%, 30% and 11% in Asia, Europe and the Americas, respectively due to improved customer demand resulting from stronger global economic conditions. MDI average selling prices increased by 9% as a
result of improved market conditions and in response to increased raw material costs and the strength of the major European currencies versus the U.S. dollar. Polyol sales revenue increased by 12% as
average selling prices increased by 9% and sales volumes increased by 3%. PO/MTBE product sales revenues increased by 27%. PO revenues, excluding tolling, decreased 1% on a 4% decrease in volumes due
to a turnaround and inspection ("T&I") which took place in the first quarter 2004, partly offset by a 3% increase in average selling prices. MTBE sales revenue increased by
14% due to a 13% increase in selling prices due to stronger crude oil and gasoline markets and a 1% increase in sales volumes.

For
the six months ended June 30, 2004, Polyurethanes segment EBITDA increased by $84.6 million to $172.8 million from $88.2 million for the same period in
2003. Increased segment EBITDA resulted mainly from a $127.0 million increase in revenue due to higher sales volumes and higher average selling prices, partly offset by $39.3 million in
increased raw material and energy costs. We also recorded $22.9 million in restructuring charges in 2004 in connection with cost reduction efforts at our Everberg, Belgium, West Deptford, New
Jersey and Rozenburg, Netherlands sites. In the first half of 2003, we recorded restructuring charges in the amount of $18.5 million. For the six months ended June 30, 2004, fixed
manufacturing costs increased $1.2 million and SG&A costs decreased $2.7 million, as savings from our ongoing restructuring activities were more than sufficient to offset the impact of
the strength of the major European currencies versus the U.S. dollar.

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Performance Products

For the six months ended June 30, 2004, Performance Products revenues increased by $49.4 million, or 15%, to $375.0 million from
$325.6 million for the same period in 2003. Performance Products average selling prices increased by 16%, of which 9% was due to the strength of the major European currencies versus the U.S.
dollar. Sales volumes were essentially unchanged. Surfactants revenues increased by 9% as compared to the same period in 2003, resulting from a 14% increase in average selling prices, offset by a 4%
decrease in sales volumes. The 14% increase in surfactants average selling prices was mainly due to a strengthening of the major European currencies versus the U.S. dollar, together with local selling
price increases of 2%. The reduction in surfactants sales volumes was largely the result of competitive activity and decreased export business as a result of the strength of the major European
currencies versus the U.S. dollar. Ethyleneamines revenues increased by 2% compared with the comparable period in 2003, resulting from an increase in average selling prices as sales volumes were
essentially unchanged. The increase in ethyleneamines average selling prices was due to price increases implemented to offset increased raw material and energy costs. Other sales revenues, primarily
for other amines, increased by 58% compared with the same period in 2003, primarily as a result of the initiation of tolling agreements with affiliates.

For
the six months ended June 30, 2004, Performance Products segment EBITDA increased by $23.5 million to $4.3 million from a loss of $19.2 million for the
same period in 2003. This increase is mainly due to $20.1 million restructuring and plant closing costs in the 2003 period relating to the closure of certain manufacturing units at our
Whitehaven, U.K. facility. A $36.6 million increase attributable to higher average selling prices and a $1.6 million increase attributable to higher sales volumes, primarily in
ethlyeneamines, was largely offset by a $37.1 million increase in raw material and energy costs. The remaining increase in EBITDA was primarily the result of lower manufacturing costs and SG&A.
Manufacturing costs decreased by $3.0 million due to the effect of cost reduction programs
initiated in our surfactants business during 2003 and lower maintenance costs in our ethyleneamines business, partially offset by the strength of the major European currencies versus the U.S. dollar.
SG&A expenses increased by $0.3 million as cost reductions in our surfactants business were more than offset by the effect of the strength of the major European currencies versus the U.S.
dollar.

Pigments

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

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

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Base Chemicals

For the six months ended June 30, 2004, Base Chemicals revenues increased by $225.0 million, or 31%, to $954.9 million from
$729.9 million for the same period in 2003. Overall, average selling prices increased by 13%. Sales volumes increased by 15% due to improved customer demand. Ethylene revenues increased by 48%
resulting from a 25% increase in average selling prices and a 19% increase in sales volumes. Propylene revenues increased by 5% resulting from a 6% increase in average selling prices and a 1% decrease
in sales volumes. Paraxylene revenues increased by 22% resulting from a 15% increase in average selling prices and a 6% increase in sales volumes. Benzene revenues increased by 41% resulting from a
22% increase in average selling prices and a 16% increase in sales volumes. Cyclohexane revenues increased by 36% resulting from a 25% increase in average selling prices and an 8% increase in sales
volumes. Higher sales volumes resulted from improved customer demand, while
average selling prices increased in response to higher raw material costs, improved market conditions and the strength of the major European currencies versus the U.S. dollar.

For
the six months ended June 30, 2004, Base Chemicals segment EBITDA increased by $25.4 million to $89.2 million from $63.8 million for the same period in
2003. Selling price and sales volume increases contributed $140.5 million, partially offset by increased raw material and energy costs of $95.2 million. Manufacturing costs increased by
$11.6 million due primarily to the strength of the major European currencies versus the U.S. dollar. SG&A and other costs increased by $6.1 million due to the impact of the strength of
the major European currencies versus the U.S. dollar and $4.0 million in certain nonrecurring expense items. These increases were offset by lower charges associated with the mark to market
evaluation of feedstock hedges and lower underlying SG&A expenditures. Increased SG&A and other costs was also the result of $2.2 million in restructuring charges in 2004.

Corporate and Other

Corporate and other items includes unallocated corporate overhead, loss on our accounts receivable securitization program and unallocated foreign exchange gains
and losses. For the six months ended June 30, 2004, EBITDA from corporate and other items decreased by $30.7 million to a loss of $20.9 million from income of $9.8 million
for the same period in 2003. Decreased EBITDA resulted primarily from lower foreign currency gains the first half of 2004 as compared to the foreign currency gains in the first half of 2003 with a
gain of $8.0 million in the first half of 2004 and a gain of $49.1 million in the first half of 2003. Reduced EBITDA resulting from the effects of foreign currencies was partially offset
by reduced losses on our accounts receivable securitization program, which decreased by $14.0 million to a loss of $6.5 million in the six months ended June 30, 2004 as compared
to a loss of $20.5 million for the same period in 2003. Losses on the accounts receivable securitization program include the discount on receivables sold into the program, fees and expenses
associated with the program and gains (losses) on foreign currency hedge contracts mandated by the terms of the program to hedge currency exposures on the collateral supporting the
off-balance sheet debt issued. The decreased loss on the accounts receivable securitization program was primarily due to reduced losses on foreign exchange hedge contracts mandated by our
accounts receivable securitization program. Other items of unallocated corporate overhead remained relatively flat compared with the prior period.

Liquidity and Capital Resources

Cash

Net cash provided by operating activities for the six months ended June 30, 2004 increased to $40.2 million from $43.7 million used in
operating activities for the same period in 2003. The increase is primarily attributable to improved gross profit, as discussed above, for the six months ended June 30, 2004.

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Net
cash used in investing activities for the six months ended June 30, 2004 increased to $65.1 million from $54.8 million for the same period in 2003. The increase
was primarily attributable to increased capital expenditures of $6.4 million largely related to the planned T&Is at our PO and ethyleneamines facilities and capital expenditures associated with
one of our Chinese MDI joint ventures. In addition, during the six months ended June 30, 2004, we made an investment of $11.8 million in our other Chinese MDI joint venture and received
$7.1 million in additional cash from non-consolidated affiliates.

Net
cash provided by financing activities for the six months ended June 30, 2004 decreased to $10.2 million, as compared to $99.3 million for the same period in
2003. The decrease is mainly a result of reduced net borrowings to fund operating cash requirements as explained above.

Debt and Liquidity

As of June 30, 2004, the HI Credit Facilities consisted of a revolving loan facility of up to $400 million that was scheduled to mature on
June 30, 2005, a $620.1 million term loan B facility that was scheduled to mature on June 30, 2007, and a $620.1 million term loan C facility that was scheduled to mature
on June 30, 2008. On July 13, 2004, we completed an amendment and restatement of the HI Credit Facilities. Pursuant to the amendment and restatement, the HI Revolving Facility was
reduced from $400 million to $375 million and its maturity was extended from June 2006 to September 2008. The HI Revolving Facility includes a $50 million
multicurrency revolving loan facility available in euros, GBP Sterling and U.S. dollars. In addition, our existing term loans B and C, totaling $1,240.2 million, were repaid and replaced with
the new HI Term Facility consisting of a $1,305 million term portion and a €50 million (approximately $61.6 million) term portion. The additional proceeds from the
HI Term Facility borrowings of approximately $126.6 million were applied to repay the $82.4 million of outstanding borrowings as of July 13, 2004 on the HI Revolving Facility, and
the remaining proceeds, net of fees incurred in the transaction, increased cash on our balance sheet. Pursuant to the amendment and restatement of the HI Credit Facilities, the additional liquidity is
available for general corporate purposes and to provide a portion of the funds for the potential construction of a polyethylene production facility at our Wilton, U.K. facility.

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

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

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

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

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

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

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

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

46

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on,
and need for, foreign currency hedges as experienced in prior periods under the accounts receivable securitization program.

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

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

Off-Balance Sheet Arrangements

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

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

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

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

Weighted average life (in months)

3Credit losses (annual rate)

Less than 1%Discount rate (annual rate)

2%


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

Contractual Obligations and Commercial Commitments

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

On
July 13, 2004, the Company amended and restated its HI Credit Facilities. After giving effect to the amendment and restatement, the maturity of our long-term debt
would be as follows:

Years EndedJune 30,
2005

June 30,
2006-2008

June 30,
2009-2010

June 30,
After 2010

TotalLong-term debt

$
1.7

$
58.9

$
2,843.7

$
16.4

$
2,920.7


Restructuring and Plant Closing Costs

As of June 30, 2004 and December 31, 2003, we had reserves for restructuring and plant closing costs of $58.3 million and
$22.5 million, respectively. During the six months ended June 30, 2004 and 2003, we recorded additional reserves for workforce reductions of $52.5 million and
$27.2 million, respectively. During these same periods, we made cash payments against these reserves of $16.7 million and $11.4 million, respectively. Details with respect to
these reserves are provided below (dollars in millions).

|                                          |          | Workforce
Reductions |      | Demolition and
Decommisioning |   | Non-cancelable
Lease Costs |   | Total |  
|----------------------------------------- | -------- | -------------------- | ---- | ----------------------------- | - | -------------------------- | - | ----- | -
|Accrued liability as of December 31, 2003 |          | $                    | 22.5 |                               | $ |                           |   | $     | 
|                                          | Charges  |                      |      | 52.5                          |   |                            |  |       |  
|                                          | Payments |                      |      | (16.7                         | ) |                            |  |       |  
|                                          |          |                      |      |                               |   |                            |   |       |  
|Accrued liability as of June 30, 2004     |          | $                    | 58.3 |                               | $ |                           |   | $     | 
|                                          |          |                      |      |                               |   |                            |   |       |  

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

|                                          |          | Polyurethanes |      | Perfomance
Products |   | Pigments |      | Base
Chemicals |      | Total |  
|----------------------------------------- | -------- | ------------- | ---- | ------------------- | - | -------- | ---- | -------------- | ---- | ----- | -
|Accrued liability as of December 31, 2003 |          | $             | 15.8 |                     | $ | 2.4      |      | $              | 4.3  |       | $
|                                          | Charges  |               |      | 22.9                |   |          | 0.4  |                |      | 27.0  |  
|                                          | Payments |               |      | (10.6               | ) |          | (0.5 | )              |      | (5.6  | )
|                                          |          |               |      |                     |   |          |      |                |      |       |  
|Accrued liability as of June 30, 2004     |          | $             | 28.1 |                     | $ | 2.3      |      | $              | 25.7 |       | $
|                                          |          |               |      |                     |   |          |      |                |      |       |  

As
of December 31, 2003, our Polyurethanes segment reserve consisted of $15.8 million related to the restructuring activities at our Rozenburg, Netherlands site (as
announced in 2003), the workforce

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

As
of June 30, 2004 and December 31, 2003, our Performance Products segment reserve consisted of $2.3 million and $2.4 million, respectively, relating to the
closure of a number of plants at our Whitehaven, U.K. facility, the closure of an administrative office in London, U.K., the rationalization of a surfactants technical center in Oldbury, U.K., and the
restructuring of a facility in Barcelona, Spain. During the six months ended June 30, 2004, our Performance Products segment accrued restructuring charges of $0.4 million and made cash
payments of $0.5 million related to these restructuring activities. There are no material additional charges expected related to these restructuring activities.

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

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

Investing Activities

Capital expenditures for the six months ended June 30, 2004 were $60.4 million, an increase of approximately $6.4 million as compared to the
same period in 2003. The increase was largely attributable to increased capital expenditures related to the planned T&Is at our PO and ethyleneamines facilities and increased capital expenditures
associated with one of our Chinese MDI joint ventures. In addition, during the six months ended June 30, 2004, we made an investment of $11.8 million in our other Chinese MDI joint
venture and received $8.3 million from non-consolidated

49

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

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

In
connection with our agreements with our Rubicon and Louisiana Pigment joint ventures, we are obligated to fund our proportionate share of capital expenditures. During the six months
ended June 30, 2004 and 2003, we invested $1.2 million and $1.5 million, respectively, in Rubicon. With respect to Louisiana Pigment, during the six months ended June 30,
2004 and 2003, we received $8.3 million and $0.7 million, respectively.

Environmental Matters

General

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

Environmental Capital Expenditures and Accruals

We may incur future costs for capital improvements and general compliance under environmental and safety laws, including costs to acquire, maintain and repair
pollution control equipment. We estimate that capital expenditures for environmental and safety matters during 2004 will be $33.7 million. However, since capital expenditures for these matters
are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, we cannot provide assurance that material capital
expenditures beyond those currently anticipated will not be required under environmental and safety laws.

We
have established financial reserves relating to anticipated environmental restoration and remediation programs, as well as certain other anticipated environmental liabilities.
Management believes these reserves are sufficient for known requirements. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated.
Our liability estimates are based upon available facts, existing technology and past experience. A total of $15.5 million has been accrued related to environmental related liabilities as of
June 30, 2004.

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However,
no assurance can be given that all potential liabilities arising out of our present or past operations or ownership have been identified or fully assessed or that future environmental
liabilities will not be material to our Company.

Potential Liabilities

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

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

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

Regulatory Developments

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

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

On
October 29, 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH"
(Registration,Evaluation andAuthorisation of CHemicals),
enterprises that manufacture or import more than one ton of a chemical substance per year would be required to register such manufacture or
import in a central database. The REACH initiative, as proposed, would require risk assessment of chemicals, preparations (e.g., soaps and paints) and articles (e.g., consumer products) before those
materials could be manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk
control strategies that would require capital expenditures by our Company. As proposed, REACH would take effect in stages over the eleven years following the final effective date (assuming final
approval). The impacts of REACH on the chemical industry and on us are unclear at this time because the parameters of the program are still being actively debated. Nevertheless, it is possible that
REACH, if implemented, would be costly to our Company.

MTBE Developments

The use of MTBE is controversial in the United States and elsewhere and may be substantially curtailed or eliminated in the future by legislation or regulatory
action. The presence of MTBE in some groundwater supplies in California and other states (primarily due to gasoline leaking from underground storage tanks) and in surface water (primarily from
recreational watercraft) has led to public concern about MTBE's potential to contaminate drinking water supplies. Heightened public awareness regarding this issue has resulted in state, federal and
foreign initiatives to rescind the federal oxygenate requirements for reformulated gasoline or restrict or prohibit the use of MTBE in particular.

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

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

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

Any
phase-out or other future regulation of MTBE in other states, nationally or internationally may result in a significant reduction in demand for our MTBE and result in a
material loss in revenues or material costs or expenditures. In the event that there should be a phase-out of MTBE in the United States, we believe we will be able to export MTBE to Europe
or elsewhere or use its co-product TBA to produce saleable products other than MTBE. We believe that our low production costs at our PO/MTBE facility will put us in a favorable position
relative to other higher cost sources (primarily, on-purpose manufacturing). If we opt to produce products other than MTBE, necessary modifications to our facilities may require
significant capital expenditures and the sale of the other products may produce a materially lower level of cash flow than the sale of MTBE.

In
addition, while we have not been named as a defendant in any litigation concerning the environmental effects of MTBE, we cannot provide assurances that we will not be involved in any
such litigation or that such litigation will not have a material adverse effect on our business, financial condition, results of operations or cash flows. In 2003, the U.S. House of Representatives
passed a version of an energy bill that contained limited liability protection for producers of MTBE. The Senate's version of the bill did not have liability protection. This issue was one of the
reasons that a compromise energy bill was not passed. Whether a compromise will be reached on this legislation in 2004, and whether any compromise will provide liability protection for producers, are
unknown. In any event, the liability protection provision in the House bill applied only to defective product claims; it would not preclude other types of lawsuits.

Other Matters

The Texas Commission on Environmental Quality (the "TCEQ," formerly the Texas Natural Resource Conservation Commission or TNRCC) approved a settlement with
Huntsman Petrochemical Corporation effective June 12, 2003 regarding allegations of environmental regulatory violations at our Port Neches, Texas, facilities. The settlement imposes penalties
totaling approximately $0.3 million, of which a small amount has been paid. The balance of the penalty is due on June 11, 2005. Additionally, the settlement requires that we apply for an
air emissions permit for the joint wastewater treatment plant that services all of the Port Neches facilities. Less than $0.1 million of the aforementioned penalties are allocable to us.
Although we do not anticipate it, it is possible that the terms of a joint wastewater treatment plant air permit may cause us to incur substantial costs that could be material.

Employee Benefit Plans

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

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change
to a cash balance formula for certain of our employees will not have a material impact on our future pension expense or contribution requirements.

Recent Financial Accounting Standards

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

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

Critical Accounting Policies

There have been no changes in the six months ended June 30, 2004 with respect to our critical accounting policies as presented in our 2003 annual report on
Form 10-K.

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Changes in Financial Condition

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

June 30,
2004

December 31,
2003

Difference

Percent
ChangeCurrent assets:Cash and cash equivalents

$
85.2

$
97.8

$
(12.6
)
(13
)%Accounts and notes receivable


658.1


564.4


93.7

17
%Inventories


583.1


596.9


(13.8
)
(2
)%Prepaid expenses


20.0


23.6


(3.6
)
(15
)%Deferred income taxes


3.0


3.0





%Other current assets


83.9


83.6


0.3


%Total current assets


1,433.3


1,369.3


64.0

5
%Current liabilities:Accounts payable


589.2


561.3


27.9

5
%Accrued liabilities


361.8


387.7


(25.9
)
(7
)%Current portion of long-term debt


1.7


1.8


(0.1
)
(6
)%Total current liabilities


952.7


950.8


1.9


%Working capital

$
480.6

$
418.5

$
62.1

15
%


As
of June 30, 2004, our working capital increased by $62.1 million as a result of the net impact of the following significant changes:



Cautionary Statement for Forward-Looking Information

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

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statements
from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

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

There
are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report.
The following are among the factors that could cause actual results to differ materially from the forward-looking statements. There may be other factors, including those discussed elsewhere in this
report, that may cause our actual results to differ materially from the forward-looking statements. Any forward-looking statements should be considered in light of the risk factors specified in our
2003 annual report on Form 10-K, some of which are summarized below.



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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including changes in interest rates, currency exchange rates and certain commodity prices. Our exposure to foreign currency market
risk is somewhat limited since our sales prices are typically denominated in euros or U.S. dollars. From time to time, we may enter into foreign currency derivative instruments to minimize the
short-term economic impact of movements in foreign currency rates. Our exposure to changing commodity prices is somewhat limited since the majority of our raw materials are acquired at
posted or market related prices, and sales prices for finished products are generally at market related prices which are set on a quarterly basis in line with industry practice. To manage the
volatility relating to these exposures, from time to time, we enter into various derivative transactions. We hold and issue derivative financial instruments for economic hedging purposes only.

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

Prior
to the amendment and restatement of the HI Credit Facilities, under the terms of the HI Credit Facilities, we were required to hedge a significant portion of our floating rate debt
through June 2004. In recent years, we have issued fixed rate debt in the form of the HI Senior Notes and HI Subordinated Notes that serves as a natural hedge for a portion of our floating rate
debt. Now, effective with the amendment and restatement, we are no longer required to hedge our floating rate debt. As of June 30, 2004, we had outstanding approximately $211 million
notional amount of interest rate swap, cap and collar transactions, which have maturities of three months or less. All such outstanding interest rate derivatives have maturity dates of no later than
September 30, 2004. The majority of these transactions hedge against movements in U.S. dollar interest rates. The U.S. dollar swap transaction obligates us to pay a fixed amount of 5.895%. The
U.S. dollar collar transactions carry floors ranging from 5.0% to 5.25% and caps ranging from 7.0% to 7.25%. We have also entered into a euro-denominated swap transaction that obligates us
to pay a fixed rate of approximately 4.31%. We do not hedge our interest rate exposure in a manner that would eliminate the effects of changes in market interest rates on our cash flow and earnings.
Assuming a 1.0% (100 basis point) increase in interest rates, without giving effect to interest rate hedges, the effect on the annual interest expense would be an increase of approximately
$13 million. This increase would be reduced by approximately $2 million, on an annualized basis, as a result of the effects of the interest rate swap, cap and collar transactions
described above.

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

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

ITEM 4.    CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2004. Based on this
evaluation, our chief executive officer and
chief financial officer have concluded that, as of June 30, 2004, our disclosure controls and procedures were (1) designed to ensure that material information relating to our Company,
including our consolidated subsidiaries, is made known to the chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report
was being prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by our Company in the reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms.

No
change in our internal control over financial reporting occurred during the three months ended June 30, 2004 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

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

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

We
are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various
environmental, products liability and other laws. Except as otherwise disclosed in this report, and based in part on the indemnities provided to us in connection with the transfer of businesses to us
and our insurance coverage, we do not believe that the outcome of any of these matters will have a material adverse effect on our financial condition or results of operations. See
"Part IItem 2Management's

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Discussion
and Analysis of Financial Condition and Results of OperationsEnvironmental Matters" for a discussion of environmental proceedings.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K





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SIGNATURE

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

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

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EXHIBIT INDEX

|Number |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1   |  | Amended and Restated Credit Agreement, dated as of July 13, 2004, among Huntsman International LLC, as the borrower, Huntsman International Holdings LLC, as the guarantor, Deutsche Bank Trust Company Americas, as
administrative agent, Deutsche Bank Securities Inc., as co-lead arranger and joint book runner, Citigroup Global Marketers Inc., as co-syndication agent, co-lead arranger and joint book runner, JP Morgan Securities Inc., as co-documentation agent and
joint book runner, UBS Securities LLC, as co-syndication agent, Credit Suisse First Boston, as co-documentation agent, Merrill Lynch, Pierce Fenner & Smith Inc., as co- documentation agent, and various lending institutions party
thereto
|31.1   |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.2   |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.1   |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|32.2   |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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