**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,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 September 30, 2005**                                                                     |
| ** **                                                                                                                     | ** ** | ** **                                                                                               |
| **OR**                                                                                                                         |
| ** **                                                                                                                     | ** ** | ** **                                                                                               |
| **o**                                                                                                                          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **                                                                                                                     | ** ** | ** **                                                                                               |
| **For the transition period from               to** |

 

**Commissionfile number 333-85141**

 

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**HUNTSMAN INTERNATIONAL LLC**

(Exact name of registrant asspecified in its charter)

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

 

**500Huntsman Way**

**SaltLake City, Utah 84108**

**(801) 584-5700**

(Address of principal executiveoffices and telephone number)

 

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Indicate by check mark whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. YES ý   NO o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct). YES o   NO ý

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the ExchangeAct). YES o   NO ý

 

On November 14, 2005, 1,443 units ofmembership interest of the registrant were outstanding. There is no establishedtrading market for the registrant’s units of membership interest. All of theregistrant’s units of membership interest are held by an affiliate.

 

The registrant meets the conditions set forthin General Instructions H(1)(a) and (b) of Form 10-Q and istherefore filing this form with a reduced disclosure format.

 

 

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**HUNTSMANINTERNATIONAL LLC**

 

**QUARTERLYREPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD**

**ENDEDSEPTEMBER 30, 2005**

 

**TABLEOF CONTENTS**

 
| PART I.  | FINANCIAL INFORMATION                                                                        |   |
|---------------|----------------------------------------------------------------------------------------------|--------|
|          |                                                                                         |   |
| ITEM 1.       | Financial Statements                                                                         |   |
|          | Condensed Consolidated Balance Sheets (Unaudited)                                            |   |
|          | Condensed Consolidated Statements of Operations and Comprehensive  (Loss) Income (Unaudited) |   |
|          | Condensed Consolidated Statements of Members’ Equity (Deficit)  (Unaudited)             |   |
|          | Condensed Consolidated Statements of Cash Flows (Unaudited)                                  |   |
|          | Notes to Condensed Consolidated Financial Statements (Unaudited)                             |   |
| ITEM 2.       | Management’s Narrative Analysis of Results  of Operations                               |   |
| ITEM 3.       | Quantitative and Qualitative Disclosures  About Market Risk                                  |   |
| ITEM 4.       | Controls and Procedures                                                                      |   |
| PART II. | OTHER INFORMATION                                                                            |   |
| ITEM 1.       | Legal Proceedings                                                                            |   |
|          |                                                                                         |   |
| ITEM 6.       | Exhibits                                                                                     |   |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)**

 

**(Dollarsin Millions)**

 
|                                                                                                       | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                 |       |                         |       |                        |       |
|                                                                                                       |       |                         |       |                        |       |
| **Current  assets:**                                                                                       |       |                         |       |                        |       |
| Cash and  cash equivalents                                                                                 |       | $                            | 137.3      |                        | $          | 149.7 |   |
| Restricted  cash                                                                                           |       | —                       |       | 8.9                         |       |
| Accounts and  notes receivables (net of allowance for doubtful accounts of $30.0 and $18.4,  respectively) |       | 1,194.4                      |       | 1,351.0                     |       |
| Accounts  receivable from affiliates                                                                       |       | 11.9                         |       | 9.8                         |       |
| Inventories,  net                                                                                          |       | 1,140.7                      |       | 1,074.4                     |       |
| Prepaid  expenses                                                                                          |       | 60.8                         |       | 45.8                        |       |
| Deferred  income taxes                                                                                     |       | 10.9                         |       | 10.9                        |       |
| Other  current assets                                                                                      |       | 21.0                         |       | 11.5                        |       |
| **Total  current assets**                                                                                  |       | 2,577.0                      |       | 2,662.0                     |       |
|                                                                                                       |       |                         |       |                        |       |
| Property,  plant and equipment, net                                                                        |       | 4,052.3                      |       | 4,435.6                     |       |
| Investment  in unconsolidated affiliates                                                                   |       | 174.5                        |       | 170.9                       |       |
| Intangible  assets, net                                                                                    |       | 220.4                        |       | 252.4                       |       |
| Goodwill                                                                                                   |       | 3.3                          |       | 3.3                         |       |
| Deferred  income taxes                                                                                     |       | 30.2                         |       | 8.2                         |       |
| Receivables  from affiliates                                                                               |       | 5.2                          |       | 23.6                        |       |
| Other  noncurrent assets                                                                                   |       | 600.9                        |       | 661.6                       |       |
| **Total  assets**                                                                                          |       | $                            | 7,663.8    |                        | $          | 8,217.6 |   |
|                                                                                                       |       |                         |       |                        |       |
| **LIABILITIES  AND MEMBERS’ EQUITY (DEFICIT)**                                                        |       |                         |       |                        |       |
|                                                                                                       |       |                         |       |                        |       |
| **Current  liabilities:**                                                                                  |       |                         |       |                        |       |
| Accounts  payable, including overdraft of $17.3 and nil, respectively                                      |       | $                            | 918.2      |                        | $          | 882.9 |   |
| Accounts  payable to affiliates                                                                            |       | 14.0                         |       | 30.3                        |       |
| Accrued  liabilities                                                                                       |       | 582.8                        |       | 672.9                       |       |
| Deferred income  taxes                                                                                     |       | 7.8                          |       | 8.2                         |       |
| Current  portion of long-term debt                                                                         |       | 40.2                         |       | 35.8                        |       |
| **Total  current liabilities**                                                                             |       | 1,563.0                      |       | 1,630.1                     |       |
|                                                                                                       |       |                         |       |                        |       |
| Long-term  debt                                                                                            |       | 4,122.0                      |       | 5,450.9                     |       |
| Long-term  debt to affiliates                                                                              |       | —                       |       | 454.6                       |       |
| Deferred  income taxes                                                                                     |       | 208.6                        |       | 180.2                       |       |
| Other  noncurrent liabilities                                                                              |       | 558.2                        |       | 570.1                       |       |
| **Total  liabilities**                                                                                     |       | 6,451.8                      |       | 8,285.9                     |       |
|                                                                                                       |       |                         |       |                        |       |
| **Minority  interests**                                                                                    |       | 18.5                         |       | 8.8                         |       |
| ** **                                                                                                 |       |                         |       |                        |       |
| **Commitments  and contingencies (Notes 10 and 11)**                                                       |       |                         |       |                        |       |
|                                                                                                       |       |                         |       |                        |       |
| **Members’  equity (deficit):**                                                                       |       |                         |       |                        |       |
| Members’  equity, 1,443 and 1,000 units, respectively                                                 |       | 2,581.7                      |       | 1,321.3                     |       |
| Accumulated  deficit                                                                                       |       | (1,368.9                     | )          | (1,548.5                    | )          |
| Accumulated  other comprehensive (loss) income                                                             |       | (19.3                        | )          | 150.1                       |       |
| **Total  members’ equity (deficit)**                                                                  |       | 1,193.5                      |       | (77.1                       | )          |
| **Total  liabilities and members’ equity (deficit)**                                                  |       | $                            | 7,663.8    |                        | $          | 8,217.6 |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

1

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND**

 

**COMPREHENSIVE(LOSS) INCOME (UNAUDITED)**

 

**(Dollarsin Millions)**

 
| ** **                                                                              | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                              | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Revenues:**                                                                           |       |                                       |       |                                      |       |   |   |   |   |
| Trade sales,  services and fees                                                         |       | $                                          | 2,807.9    |                                      | $          | 2,626.9 |   | $ | 8,782.3 |   | $ | 7,409.1 |   |
| Related party  sales                                                                    |       | 30.6                                       |       | 15.9                                      |       | 126.7 |   | 40.2 |   |
| **Total  revenues**                                                                     |       | 2,838.5                                    |       | 2,642.8                                   |       | 8,909.0 |   | 7,449.3 |   |
| **Cost of  goods sold**                                                                 |       | 2,511.5                                    |       | 2,334.0                                   |       | 7,624.4 |   | 6,645.0 |   |
| ** **                                                                              |       |                                       |       |                                      |       |   |   |   |   |
| **Gross  profit**                                                                       |       | 327.0                                      |       | 308.8                                     |       | 1,284.6 |   | 804.3 |   |
|                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Expenses:**                                                                           |       |                                       |       |                                      |       |   |   |   |   |
| Selling, general  and administrative                                                    |       | 132.8                                      |       | 117.2                                     |       | 392.5 |   | 369.5 |   |
| Research and  development                                                               |       | 13.5                                       |       | 13.9                                      |       | 46.5 |   | 46.3 |   |
| Other operating  expense                                                                |       | 4.7                                        |       | 8.4                                       |       | 32.7 |   | 22.8 |   |
| Restructuring,  impairment and plant closing costs                                      |       | 71.3                                       |       | 43.2                                      |       | 101.1 |   | 202.4 |   |
| Total expenses                                                                          |       | 222.3                                      |       | 182.7                                     |       | 572.8 |   | 641.0 |   |
| **Operating  income**                                                                   |       | 104.7                                      |       | 126.1                                     |       | 711.8 |   | 163.3 |   |
|                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Interest expense,  net                                                                  |       | (92.2                                      | )          | (138.0                                    | )          | (307.9 | ) | (415.5 | ) |
| Loss on accounts  receivable securitization program                                     |       | (3.3                                       | )          | (3.7                                      | )          | (8.9 | ) | (10.2 | ) |
| Equity in income  of investment in unconsolidated affiliates                            |       | 1.9                                        |       | 1.3                                       |       | 7.0 |   | 3.0 |   |
| Other (expense)  income                                                                 |       | (40.9                                      | )          | 3.1                                       |       | (118.5 | ) | (0.8 | ) |
|                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **(Loss)  income from continuing operations before income taxes and minority interest** |       | (29.8                                      | )          | (11.2                                     | )          | 283.5 |   | (260.2 | ) |
| Income tax  (expense) benefit                                                           |       | (3.1                                       | )          | 56.7                                      |       | (59.8 | ) | 49.2 |   |
| Minority interest                                                                       |       | (0.4                                       | )          | —                                    |       | (0.5 | ) | — |   |
| **(Loss)  income from continuing operations**                                           |       | (33.3                                      | )          | 45.5                                      |       | 223.2 |   | (211.0 | ) |
| Loss from  discontinued operations (including                                           |       |                                       |       |                                      |       |   |   |   |   |
| loss on disposal  of $36.4 in 2005), net of tax                                         |       | (0.6                                       | )          | (2.8                                      | )          | (43.6 | ) | (4.5 | ) |
|                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Net  (loss) income**                                                                  |       | (33.9                                      | )          | 42.7                                      |       | 179.6 |   | (215.5 | ) |
| Other  comprehensive (loss) income                                                      |       | (24.7                                      | )          | 9.5                                       |       | (169.4 | ) | (0.9 | ) |
|                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Comprehensive  (loss) income**                                                        |       | $                                          | (58.6      | )                                         | $          | 52.2 |   | $ | 10.2 |   | $ | (216.4 | ) |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

2

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’EQUITY (DEFICIT) (UNAUDITED)**

 

**(Dollarsin Millions)**

 
| ** **                        | ** ** | **Members’ equity** | ** ** | **Accumulated** | ** ** | **Accumulated other  comprehensive** | ** ** | ** **        | ** ** |
|-----------------------------------|------------|--------------------------|------------|-----------------|------------|--------------------------------------|------------|-------------------|------------|
| ** **                        | ** ** | **Units**                | ** ** | **Amount**      | ** ** | **deficit**                          | ** ** | **income (loss)** | ** ** | **Total** | ** ** |
| Balance, December 31,  2004  |       | 1,000                    |       | $               | 1,321.3    |                                 | $          | (1,548.5          | )          | $ | 150.1 |   | $ | (77.1 | ) |
| Net income                        |       | —                   |       | —          |       | 179.6                                |       | —            |       | 179.6 |   |
| Other  comprehensive loss         |       | —                   |       | —          |       | —                               |       | (169.4            | )          | (169.4 | ) |
| Contribution  from parent         |       | 443                      |       | 1,260.4         |       | —                               |       | —            |       | 1,260.4 |   |
| Balance, September 30,  2005 |       | 1,443                    |       | $               | 2,581.7    |                                 | $          | (1,368.9          | )          | $ | (19.3 | ) | $ | 1,193.5 |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

3

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)**

**(Dollarsin Millions)**

 
| ** **                                                                                | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
| **Operating Activities:**                                                                 |       |                                     |       |   |   |
| Net income (loss)                                                                         |       | $                                        | 179.6      |   | $ | (215.5 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                                     |       |   |   |
| Equity in income of  unconsolidated affiliates                                            |       | (7.0                                     | )          | (3.0 | ) |
| Depreciation and  amortization                                                            |       | 317.3                                    |       | 335.8 |   |
| Provision for losses on  accounts receivable                                              |       | 10.1                                     |       | 2.1 |   |
| Loss on disposal of assets                                                                |       | 3.0                                      |       | 2.0 |   |
| Loss on early  extinguishment of debt                                                     |       | 114.5                                    |       | 1.9 |   |
| Non-cash interest expense                                                                 |       | 37.9                                     |       | 103.7 |   |
| Non-cash restructuring,  impairment and plant closing costs                               |       | 46.3                                     |       | 109.0 |   |
| Deferred income taxes                                                                     |       | 58.8                                     |       | (73.6 | ) |
| Unrealized loss (gain) on  foreign currency transactions                                  |       | 38.8                                     |       | (20.4 | ) |
| Loss on disposal of  discontinued operations                                              |       | 36.4                                     |       | — |   |
| Changes in operating assets  and liabilities:                                             |       |                                     |       |   |   |
| Accounts and notes  receivable                                                            |       | 206.8                                    |       | (198.4 | ) |
| Change in receivables sold,  net                                                          |       | (79.7                                    | )          | (64.9 | ) |
| Inventories                                                                               |       | (83.5                                    | )          | (63.4 | ) |
| Prepaid expenses                                                                          |       | 24.4                                     |       | 12.9 |   |
| Other current assets                                                                      |       | (2.3                                     | )          | 45.6 |   |
| Other noncurrent assets                                                                   |       | (10.4                                    | )          | (25.6 | ) |
| Accounts payable                                                                          |       | (80.5                                    | )          | 99.4 |   |
| Accrued liabilities                                                                       |       | (93.3                                    | )          | (1.9 | ) |
| Other noncurrent  liabilities                                                             |       | (2.7                                     | )          | 17.4 |   |
| **Net cash provided by operating  activities**                                            |       | 714.5                                    |       | 63.1 |   |
|                                                                                      |       |                                     |       |   |   |
| **Investing Activities:**                                                                 |       |                                     |       |   |   |
| Capital expenditures                                                                      |       | (186.5                                   | )          | (137.7 | ) |
| Investment in  unconsolidated affiliates                                                  |       | (8.0                                     | )          | (11.8 | ) |
| Proceeds from sale of  assets                                                             |       | 5.1                                      |       | 0.1 |   |
| Net cash received from  unconsolidated affiliates                                         |       | 5.1                                      |       | 7.3 |   |
| Change in restricted cash                                                                 |       | 8.9                                      |       | (7.5 | ) |
| **Net cash used in investing  activities**                                                |       | (175.4                                   | )          | (149.6 | ) |
| ** **                                                                                |       |                                     |       |   |   |
| **Financing Activities:**                                                                 |       |                                     |       |   |   |
| Net (repayment) borrowings  under revolving loan facilities                               |       | (117.1                                   | )          | 70.8 |   |
| Repayment of long-term debt                                                               |       | (3,060.5                                 | )          | (1,729.3 | ) |
| Proceeds from long-term  debt                                                             |       | 1,873.1                                  |       | 1,827.5 |   |
| Payments on notes payable                                                                 |       | (24.0                                    | )          | (8.6 | ) |
| Net borrowings (repayments)  of overdraft facility                                        |       | 17.3                                     |       | (7.5 | ) |
| Contribution from minority  shareholder                                                   |       | 3.6                                      |       | 2.7 |   |
| Debt issuance costs paid                                                                  |       | (15.4                                    | )          | (25.5 | ) |
| Cost of early  extinguishment of debt                                                     |       | (64.1                                    | )          | — |   |
| Contribution from parent                                                                  |       | 837.6                                    |       | — |   |
| **Net cash (used in) provided by  financing activities**                                  |       | (549.5                                   | )          | 130.1 |   |
|                                                                                      |       |                                     |       |   |   |
| Effect of exchange rate  changes on cash                                                  |       | (2.0                                     | )          | 0.1 |   |
|                                                                                      |       |                                     |       |   |   |
| (Decrease) increase in cash  and cash equivalents                                         |       | (12.4                                    | )          | 43.7 |   |
| Cash and cash equivalents  at beginning of period                                         |       | 149.7                                    |       | 117.3 |   |
| Cash and cash equivalents  at end of period                                               |       | $                                        | 137.3      |   | $ | 161.0 |   |
|                                                                                      |       |                                     |       |   |   |
| **Supplemental cash flow  information:**                                                  |       |                                     |       |   |   |
| Cash paid for interest                                                                    |       | $                                        | 328.5      |   | $ | 332.3 |   |
| Cash paid for income taxes                                                                |       | $                                        | 14.1       |   | $ | 20.1 |   |

 

**Supplemental non-cash investing and financinginformation:**

 

On February 28, 2005, HMP Equity HoldingsCorporation contributed the HIH Senior Subordinated Discount Notes at anaccreted value of $422.8 million to us in exchange for equity.

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

4

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

 

**1.****                                      General**

 

***CertainDefinitions***

 

For convenience in this report, the terms “Company,”“our,” “us” or “we” may be used to refer to Huntsman International LLC and,unless the context otherwise requires, its subsidiaries. In this report, “HIH”refers to Huntsman International Holdings LLC and, unless the context otherwiserequires, its subsidiaries**.** “HuntsmanLLC” or “HLLC” refers to Huntsman LLC and, unless the context otherwiserequires, its subsidiaries, “Huntsman Corporation” refers to HuntsmanCorporation and its predecessors, and, unless the context otherwise requires,their subsidiaries, “AdMat” refers to Huntsman Advanced Materials LLC and,unless the context otherwise requires, its subsidiaries, and “ICI” refers toImperial Chemical Industries PLC, an unrelated third-party and, unless thecontext otherwise requires, its subsidiaries.

 

***Business***

 

We are among the world’s largest globalmanufacturers of differentiated and commodity chemical products. We manufacturea broad range of chemical products and formulations, which are marketedglobally to a diversified group of consumer and industrial customers. We are aleading global producer in many of our key product lines, including MDI,amines, surfactants, maleic anhydride and titanium dioxide. We operatemanufacturing facilities located around the world.  We manage our business through five operatingand reporting segments: Polyurethanes, Performance Products, Pigments, Polymersand Base Chemicals.

 

***Company***

 

We are a Delaware limited liability companyand all of our membership interests are owned directly or indirectly byHuntsman Corporation.

 

On February 16, 2005, HuntsmanCorporation, our parent corporation, completed an initial public offerings of (i) 55,681,819shares of its common stock sold by Huntsman Corporation and 13,579,546 sharesof its common stock sold by a selling stockholder, in each case at a price tothe public of $23 per share, and (ii) 5,750,000 shares of its 5% MandatoryConvertible Preferred Stock sold by Huntsman Corporation at a price to thepublic of $50 per share. Net proceeds to Huntsman Corporation from the offeringwere approximately $1,500 million, substantially all of which has beenused to repay outstanding indebtedness of certain of Huntsman Corporation’ssubsidiaries, including HMP Equity Holdings Corporation, Huntsman LLC and HIH.In connection with the offering, Huntsman Corporation and certain affiliatesengaged in a series of reorganization transactions. In connection with thesereorganization transactions, Huntsman LLC’s ownership of HIH was reduced to 42%effective February 16, 2005 from 60% as of December 31, 2004. Forfinancial reporting purposes, this was considered a reorganization of entitiesunder common control.

 

On August 16, 2005, Huntsman LLC and HIHmerged with and into our Company (the “Merger”), with our Company continuing inexistence as the surviving entity. Prior to the Merger, all of our membershipinterests were owned by HIH, and HIH was owned 58% by Huntsman Corporation and42% by Huntsman LLC. As a result of the Merger, all of our membership interestsare now owned directly or indirectly by Huntsman Corporation.  Our financial statements give effect to theMerger, which has been accounted for as an exchange of shares between entitiesunder common control in a manner similar to a pooling of interests.  As such, the results of operations of HIHhave been combined with our results of operations since our inception and theresults of operations of Huntsman LLC have been combined with our results ofoperations since May 2003, the date we and Huntsman LLC came under commoncontrol.  All prior periods have beenrestated to reflect our accounting for the Merger in a manner similar to apooling of interests.

 

5

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***Recent Developments***

 

**U.S. Gulf Coast Storms and PO/MTBE Restart**

 

FollowingHurricane Katrina, Huntsman Corporation, our parent, announced that none of ourmanufacturing facilities sustained serious structural damage and that all ofour impacted facilities were up and operating with minimal disruption.

 

On September 22,2005, prior to Hurricane Rita, Huntsman Corporation announced that we hadsuspended operations at our Gulf Coast facilities in Port Arthur, Port Neches,Conroe, Freeport, Chocolate Bayou and Dayton, Texas and in Lake Charles,Louisiana. Shortly after Hurricane Rita, Huntsman Corporation announced thatour facilities at Conroe, Freeport, Chocolate Bayou and Dayton, Texas commencedoperations and, on October 10, 2005, announced that our titanium dioxidefacility at Lake Charles, Louisiana and our butadiene plant at Port Neches,Texas restarted.

 

On October 13,2005, Huntsman Corporation announced that our major propylene oxide/MTBE unitin Port Neches, Texas (the “PO/MTBE Unit”) restarted. Unrelated to thehurricanes, on August 25, 2005, the PO/MTBE Unit was temporarily shut downfor unscheduled maintenance and repairs. We completed the maintenance and repair work prior to Hurricane Rita,but suspended the restart in response to the hurricane.

 

On October 23,2005, we restarted our smaller olefins unit at Port Neches, Texas, allowing usto resume full production of our surfactants and amines products.  On November 4, 2005, we restarted our largerolefins unit at Port Arthur, Texas.  Allof our principal operating units are now in operation.

 

Certain ofour products were temporarily negatively impacted by restrictions on theavailability of certain raw materials as well as logistics and transportationlimitations.  In addition, certain of oursuppliers and customers in the Gulf Coast region sustained damage to theiroperations, which temporarily impacted their ability to deliver and purchaseproducts.

 

The U.S.Gulf Coast storms, on top of an already high cost raw material environment,have generally resulted in increases in the cost of energy and many of our keyfeedstocks.  In response to higher rawmaterial and energy costs and because of improving market conditions in certainmarkets, we have recently announced price increases in many of our products.

 

These eventsnegatively affected our results of operations for the three months ended September 30,2005 and likely will have a negative effect on our operations in the fourthquarter of 2005.

 

**Merger with HuntsmanLLC and HIH**

 

As noted in the “—Company” section above, on August 16,2005, Huntsman LLC and HIH merged with and into our Company.  We are, andeach of Huntsman LLC and HIH was, a direct or indirect wholly owned subsidiaryof Huntsman Corporation.  Huntsman Corporation effected the Merger tosimplify the consolidated group’s financing and public reporting structure, toreduce its cost of financing and to facilitate other organizationalefficiencies.  As a result of the Merger, we succeeded to the assets, rightsand obligations of Huntsman LLC.  Inparticular, we entered into supplemental indentures under which we assumed theobligations of Huntsman LLC under its outstanding 11.625% senior secured notesdue 2010 ($296 million outstanding principal amount), 11.5% senior notes due2012 ($198 million outstanding principal amount) and senior floating rate notesdue 2011 ($100 million outstanding principal amount) (collectively, the “Former HLLCNotes”).  Our subsidiaries that previously guaranteed our outstanding debtsecurities have provided guarantees of the Former HLLC Notes, and allsubsidiaries of Huntsman LLC that guaranteed the Former HLLC Notes prior to theMerger executed supplemental indentures to guarantee all of our outstandingdebt securities.

 

 We did not pay anyconsideration for the equity of Huntsman LLC or HIH in connection with theMerger other than the issuance of additional membership interests to HuntsmanCorporation in exchange for its ownership interest in Huntsman LLC and HIH.

 

**New Credit Facilities**

 

On August 16, 2005, effective upon completion of theMerger, we repaid our existing secured credit facilities (the “Former HI CreditFacilities”), Huntsman LLC’s secured credit facilities (the “Former HLLC CreditFacilities”) and a subordinated note with an aggregate principal amount of$106.6 million (the “Huntsman Specialty Subordinated Note”) with

 

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availablecash on hand and the proceeds of facilities under a new senior secured creditagreement (the “New Credit Facilities”), consisting of (i) a $650 millionrevolving credit facility (the “Revolving Facility”) (of which $143 million wasdrawn upon completion of the Merger), (ii) a $1,730 million term loan (the“Dollar Term Facility”), and (iii) a €100 million (approximately $123.5million) term loan (the “Euro Term Facility”).  In addition, immediatelyprior to the Merger, Huntsman LLC funded the redemption of its outstanding 9.5%senior subordinated notes due 2007 and its senior subordinated floating ratenotes due 2007, which together had an aggregate outstanding principal amount ofapproximately $59 million. The redemption of such notes was completed onSeptember 1, 2005. In connection with the Merger and related financing, wetemporarily (through March 31, 2006) increased the capacity of ouraccounts receivable securitization program (the “A/R Securitization Program”)by $50 million to approximately $375 million U.S. dollar equivalents. Allof the initial borrowings under the Revolving Facility were repaid a few dayslater with proceeds provided under the expanded A/R Securitization Program.

 

***Principlesof Consolidation***

 

Our unaudited interim condensed consolidatedfinancial statements include the accounts of our wholly-owned and majority-ownedsubsidiaries and any variable interest entities for which we are the primarybeneficiary.  All intercompany accountsand transactions have been eliminated.

 

***InterimFinancial Statements***

 

Our unaudited interim condensed consolidatedfinancial statements were prepared in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP” or “U.S. GAAP”) andin management’s opinion, reflect all adjustments, consisting only of normalrecurring adjustments necessary for a fair presentation of results ofoperations, financial position and cash flows for the periods presented.Results for interim periods are not necessarily indicative of those to beexpected for the full year. These condensed consolidated financial statementsshould be read in conjunction with the audited consolidated financialstatements and notes to consolidated financial statements included in ourAnnual Report on Form 10-K for the year ended December 31, 2004, andin conjunction with the audited consolidated historical and unaudited pro formafinancial data included in our current report on Form 8-K/A filed on October 14,2005.

 

***Useof Estimates***

 

The preparation of financial statements inconformity with U.S. GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

 

**2.****                                      RecentlyIssued Accounting Pronouncements**

 

In January 2003, the FinancialAccounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”)46, “*Consolidation of Variable InterestEntities*.” FIN 46 addresses the requirements for businessenterprises to consolidate related entities, for which they do not havecontrolling interests through voting or other rights, if they are determined tobe the primary beneficiary as a result of variable economic interests. Transfersto a qualifying special purpose entity are not subject to this interpretation.In December 2003, the FASB issued a replacement of FIN 46 (FIN 46R) toclarify certain complexities. We were required to adopt this financialinterpretation on January 1, 2005. The adoption of the standard requiredus to consolidate our Rubicon LLC joint venture. Rubicon LLC manufacturesproducts for us and our joint venture partner, including aniline and DPA.Rubicon LLC borrows funds from us and a joint venture partner to financecapital requirements and receives reimbursement of costs incurred to operateits facilities.

 

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

 

In December 2004, the FASB issued SFAS No. 153,“*Exchanges of Nonmonetary Assets—anamendment of APB Opinion No. 29*.” SFAS No. 153 addressesthe measurement of exchanges of nonmonetary assets and eliminates the exceptionfrom fair value measurement for nonmonetary exchanges of similar productiveassets in APB Opinion No. 29 and replaces it with

 

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an exception for exchanges that do not have commercial substance. SFAS No. 153specifies that a nonmonetary exchange has commercial substance if the futurecash flows of the entity are expected to change significantly as a result ofthe exchange. We adopted SFAS No. 153 for nonmonetary exchanges occurringafter June 30, 2005.

 

In December 2004, the FASB issued SFAS No. 123R,“*Share Based Payment*.” SFAS No. 123Rrequires entities to measure the cost of employee services received in exchangefor an award of equity instruments based on the grant-date fair value of theaward. That cost will be recognized over the period during which the employeeis required to provide services in exchange for the award. This standardeliminates the alternative to use the intrinsic value method of accounting forshare-based payments as previously provided in APB Opinion No. 25, “*Accounting for Stock Issued to Employees*.”We adopted SFAS No. 123R effective January 1, 2005, and have appliedthis standard prospectively to share-based awards issued to our employees inconnection with Huntsman Corporation’s initial public offering. In connectionwith Huntsman Corporation’s initial public offering of common stock on February 16,2005, certain of our employees received Huntsman Corporation stock options andrestricted stock. Accordingly, we were allocated share-based compensation expenseof $2.5 million and $5.9 million during the three and nine monthsended September 30, 2005, respectively. We did not have share-based awardsprior to the awards issued in connection with Huntsman Corporation’s initialpublic offering.

 

In March 2005, the FASB issued FIN 47, *“Accounting for Conditional Asset RetirementObligations.”* FIN 47 clarifies the term *conditional asset retirement obligation* used in SFAS No. 143,*“Accounting for Asset RetirementObligations,”* and clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirementobligation. FIN 47 is effective no later than the end of December 2005. Weare reviewing FIN 47 to determine its impact on our consolidated financialstatements.

 

In May 2005, the FASB issued SFAS No. 154,*“Accounting Changes and Error Corrections—areplacement of APB Opinion No. 20 and FASB Statement No. 3”*SFAS No. 154 requires retrospective application to prior periods’financial statements of changes in accounting principle, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change or unless specific transition provisions are proscribed inthe accounting pronouncements. SFAS No. 154 does not change the accountingguidance for reporting a correction of an error in previously issued financialstatements or a change in accounting estimate. SFAS No. 154 is effectivefor accounting changes and error corrections made after December 31, 2005.We will apply this standard prospectively.

 

In September 2005, the Emerging IssuesTask Force reached a consensus on issue 04-13, “*Accounting for Purchase and Sales of Inventory with the SameCounterparty*,” that requires companies to recognize an exchange offinished goods for raw materials or work-in-process within the same line ofbusiness at fair value. All other exchanges of inventory should be reflected atthe recorded amount. This consensus is effective for transactions completedafter March 31, 2006.  We areevaluating the impact of this consensus to determine its impact on our resultsof operations.

 

**3.****                                      Inventories**

 

Inventories consisted of the following(dollars in millions):

 
| ** **                        | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                              |       |                         |       |                        |       |
| Raw  materials and supplies       |       | $                            | 369.2      |                        | $          | 297.3 |   |
| Work in  progress                 |       | 55.4                         |       | 62.1                        |       |
| Finished  goods                   |       | 825.6                        |       | 796.4                       |       |
| **Total**                         |       | 1,250.2                      |       | 1,155.8                     |       |
| ** **                        |       |                         |       |                        |       |
| LIFO  reserves                    |       | (109.5                       | )          | (81.0                       | )          |
| Lower of  cost or market reserves |       | —                       |       | (0.4                        | )          |
|                              |       |                         |       |                        |       |
| **Inventories,  net**             |       | $                            | 1,140.7    |                        | $          | 1,074.4 |   |

 

In the normal course of operations, weexchange raw materials with other companies. No gains or losses are recognizedon these exchanges, and the net open exchange positions are valued at our cost.The amount included in inventory under open exchange agreements receivable byus at September 30, 2005 was $4.8 million (13.3 million pounds offeedstock and products). The amount included in inventory under

 

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open exchange agreements receivable by us at December 31, 2004 was$5.3 million (8.7 million pounds of feedstock and products).

 

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

 

As of September 30, 2005 and December 31,2004, accrued restructuring, impairment and plant closing costs by type of costand initiative consisted of the following (dollars in millions):

 
| ** **                                         | ** ** | **Workforce  reductions****(1)** | ** ** | **Demolition and  decommissioning** | ** ** | **Non-cancelable  lease costs** | ** ** | **Other  restructuring  costs** | ** ** | **Total (2)** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------|------------|
|                                               |       |                             |       |                                |       |                            |       |                            |       |          |       |
| Accrued  liabilities as of December 31, 2004  |       | $                                | 93.9       |                                | $          | 7.3                             |       | $                               | 5.1        |          | $          | 13.8 |   | $ | 120.1 |   |
| 2005 charges  for 2003 initiatives                 |       | 7.9                              |       | —                              |       | 2.5                             |       | —                          |       | 10.4          |       |
| 2005 charges  for 2004 initiatives                 |       | 28.3                             |       | 0.1                                 |       | —                          |       | 10.5                            |       | 38.9          |       |
| 2005 charges  for 2005 initiatives                 |       | 5.3                              |       | —                              |       | —                          |       | 1.6                             |       | 6.9           |       |
| Reversal of  reserves no longer required           |       | —                           |       | —                              |       | (0.9                            | )          | (0.5                            | )          | (1.4          | )          |
| 2005  payments for 2003 initiatives                |       | (12.7                            | )          | —                              |       | (0.1                            | )          | —                          |       | (12.8         | )          |
| 2005  payments for 2004 initiatives                |       | (63.8                            | )          | (0.7                                | )          | (0.8                            | )          | (5.6                            | )          | (70.9         | )          |
| 2005  payments for 2005 initiatives                |       | (0.9                             | )          | —                              |       | —                          |       | (0.1                            | )          | (1.0          | )          |
| Foreign  currency effect on reserve balance        |       | (8.8                             | )          | (0.1                                | )          | (0.3                            | )          | (1.7                            | )          | (10.9         | )          |
|                                               |       |                             |       |                                |       |                            |       |                            |       |          |       |
| Accrued  liabilities as of September 30, 2005 |       | $                                | 49.2       |                                | $          | 6.6                             |       | $                               | 5.5        |          | $          | 18.0 |   | $ | 79.3 |   |

 

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

 

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

 
| ** **                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| 2001 initiatives                            |       | $                            | 2.8        |                        | $          | 2.8 |   |
| 2003 initiatives                            |       | 20.3                         |       | 22.6                        |       |
| 2004 initiatives                            |       | 56.8                         |       | 90.3                        |       |
| 2005 initiatives                            |       | 5.9                          |       | —                      |       |
| Foreign currency effect on  reserve balance |       | (6.5                         | )          | 4.4                         |       |
| Total                                       |       | $                            | 79.3       |                        | $          | 120.1 |   |

 

Details with respect to our reserves forrestructuring, impairment and plant closing costs are provided below by segmentand initiative (dollars in millions):

 

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| ** **                                                               | ** ** | **Polyurethanes** | ** ** | **Performance  Products** | ** ** | **Pigments** | ** ** | **Polymers** | ** ** | **Base  Chemicals** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|------------|---------------------------|------------|--------------|------------|--------------|------------|---------------------|------------|-----------|------------|
| Accrued  liabilities as of December 31, 2004                        |       | $                 | 19.0       |                      | $          | 58.2         |       | $            | 22.0       |                | $          | 5.8       |       | $ | 15.1 |   | $ | 120.1 |   |
| 2005 charges  for 2003 initiatives                                       |       | 3.7               |       | —                    |       | 6.7          |       | —       |       | —              |       | 10.4      |       |
| 2005 charges  for 2004 initiatives                                       |       | 2.2               |       | 4.9                       |       | 18.9         |       | 4.1          |       | 8.8                 |       | 38.9      |       |
| 2005 charges  for 2005 initiatives                                       |       | —            |       | 1.7                       |       | 2.7          |       | —       |       | 2.5                 |       | 6.9       |       |
| Reversal of  reserves no longer required                                 |       | —            |       | —                    |       | (1.4         | )          | —       |       | —              |       | (1.4      | )          |
| 2005  payments for 2003 initiatives                                      |       | (4.6              | )          | (0.8                      | )          | (7.4         | )          | —       |       | —              |       | (12.8     | )          |
| 2005  payments for 2004 initiatives                                      |       | (5.3              | )          | (26.6                     | )          | (18.2        | )          | (6.3         | )          | (14.5               | )          | (70.9     | )          |
| 2005  payments for 2005 initiatives                                      |       | —            |       | (0.1                      | )          | (0.9         | )          | —       |       | —              |       | (1.0      | )          |
| Foreign  currency effect on reserve balance                              |       | (1.5              | )          | (6.3                      | )          | (2.1         | )          | (0.5         | )          | (0.5                | )          | (10.9     | )          |
| Accrued  liabilities as of September 30, 2005                       |       | $                 | 13.5       |                      | $          | 31.0         |       | $            | 20.3       |                | $          | 3.1       |       | $ | 11.4 |   | $ | 79.3 |   |
|                                                                     |       |              |       |                      |       |         |       |         |       |                |       |      |       |
| Current  portion of restructuring reserve                                |       | $                 | 5.2        |                      | $          | 21.3         |       | $            | 17.6       |                | $          | 0.7       |       | $ | 9.9 |   | $ | 54.7 |   |
| Long term portion  of restructuring reserve                              |       | 8.3               |       | 9.7                       |       | 2.7          |       | 2.4          |       | 1.5                 |       | 24.6      |       |
| Estimated  additional future charges for current restructuring projects: |       |              |       |                      |       |         |       |         |       |                |       |      |       |
| Estimated  additional charges within one year                            |       | $                 | 0.6        |                      | $          | 2.0          |       | $            | 9.0        |                | $          | —    |       | $ | 6.6 |   | $ | 18.2 |   |
| Estimated  additional charges beyond one year                            |       | $                 | —     |                      | $          | —       |       | $            | —     |                | $          | —    |       | $ | — |   | $ | — |   |

 

As of September 30, 2005 and December 31,2004, we had reserves for restructuring, impairment and plant closing costs of$79.3 million and $120.1 million, respectively. During the nine monthsended September 30, 2005, we recorded additional net charges of$101.1 million (consisting of $54.8 million payable in cash and$46.3 million of non-cash charges) for workforce reductions, demolitionand decommissioning and other restructuring costs associated with closure orcurtailment of activities at our smaller, less efficient manufacturingfacilities, and for an impairment of long-lived assets. During the nine monthsended September 30, 2005, we made cash payments against these reserves of$84.7 million.

 

As of December 31, 2004, ourPolyurethanes segment reserve consisted of $19.0 million related tovarious restructuring programs, including the closure of our West Deptford, NewJersey site (as announced in 2004), restructuring initiatives at the Rozenburg,Netherlands site (as announced in 2003), workforce reductions throughout ourPolyurethanes segment (as announced in 2003), and the closure of our SheptonMallet, U.K. site (as announced in 2002). During the nine months ended September 30,2005, our Polyurethanes segment recorded restructuring charges of$5.9 million related to these initiatives, all of which is payable incash.  In addition, during the ninemonths ended September 30, 2005, our Polyurethanes segment made cash paymentsof $9.9 million. These restructuring initiatives are expected to result inadditional restructuring charges of approximately $0.6 million. During thenine months ended September 30, 2004, our Polyurethanes segment recordedrestructuring charges of $32.8 million.

 

As of December 31, 2004, our PerformanceProducts segment reserve consisted of $58.2 million related to variousrestructuring programs across our European surfactants business, including theclosure of substantially all of our Whitehaven, U.K. surfactants facility, aswell as the closure of our Guelph, Ontario, St. Louis, Missouri and Austin,Texas facilities. During the nine months ended September 30, 2005, ourPerformance Products segment recorded restructuring charges of$6.6 million, all of which is payable in cash, of which $4.9 millionrelated to 2004 activities.  Theadditional $1.7 million relates mainly to manpower reductions in PerformanceProducts as part of the realignment of our Jefferson County, Texas operationsannounced on August 30, 2005.  OurPerformance Products segment made cash payments of $27.5 million duringthe nine months ended September 30, 2005. These restructuring initiativesare expected to result in additional restructuring charges of approximately$2 million. During the nine months ended September 30, 2004, ourPerformance Products segment recorded restructuring charges of $41.2 million.

 

As of December 31, 2004, our Pigmentssegment reserve consisted of $22.0 million related to its global workforcereductions announced in 2003 and the reduction of its titanium dioxide (“TiO2”) production capacity announced in 2004. In July 2005,our Pigments and Base Chemicals segments announced that they would establish asingle U.K. headquarters in Teesside, U.K. This will result in the closure ofour Pigments segment’s Billingham, U.K. headquarters and the creation of a newsupport center for both businesses. During the nine months ended September 30,2005, our Pigments segment recorded restructuring charges of $26.9 millionrelated to these restructuring initiatives, all of which was payable in cash,and made cash payments of $26.5 million. These restructuring initiativesare expected to result in additional restructuring charges of

 

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approximately $9 million through 2006. During the nine months ended September 30,2004, our Pigments segment recorded restructuring charges of$111.7 million.

 

As of December 31, 2004, our Polymerssegment reserve consisted of $5.8 million related primarily to the closure ofour phenol manufacturing unit in Australia and restructuring initiatives at ourOdessa, Texas.  During the nine monthsended September 30, 2005, our Polymers segment recorded restructuringcharges of $51.3 million, $4.1 million of which is payable in cash, andmade cash payments of $6.3 million. During the third quarter of 2005, weconcluded that the long-lived assets of our Australian styrenics business wereimpaired as a result of disappointing performance and the lack of anticipatedstrengthening of the styrenics market. Accordingly, our Polymers segment recorded an impairment charge of $46.6million during the third quarter of 2005 related to the Australian styrenicsassets.  The fair value of the Australianstyrenics assets was determined based on estimated market prices. During thenine months ended September 30, 2004, our Polymers segment recordedrestructuring charges of $7.6 million.

 

As of December 31, 2004, our BaseChemicals segment reserve consisted of $15.1 million related primarily toworkforce reductions arising from the announced change in work shift schedulesand in the engineering and support functions at our Wilton and North Tees, U.K.facilities.  In July 2005, ourPigments and Base Chemicals segments announced that they would establish asingle U.K. headquarters in Teesside, U.K. In August 2005, our Base Chemicals segment announced therestructuring of its Jefferson County, Texas operations. During the nine monthsended September 30, 2005, our Base Chemicals segment recordedrestructuring charges of $11.3 million related to these initiatives, allof which was payable in cash, and made cash payments of $14.5 million.These restructuring initiatives are expected to result in additionalrestructuring charges of approximately $7 million through 2006. During thenine months ended September 30, 2004, our Base Chemicals segment recordedrestructuring charges of $9.1 million.

 

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**5.****                                      Debt**

 

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

 
| ** **                               | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                     |       |                         |       |                        |       |
| New Credit  Facilities:                  |       |                         |       |                        |       |
| Term Loan B                              |       | $                            | 1,800.5    |                        | $          | — |   |
| Former HI  Credit Facilities:            |       |                         |       |                        |       |
| Term Loan B                              |       | —                       |       | 1,314.1                     |       |
| Former HLLC  Credit Facilities:          |       |                         |       |                        |       |
| Term Loan B                              |       | —                       |       | 715.0                       |       |
| Revolving  Facility                      |       | —                       |       | 125.0                       |       |
| 2010 Secured  Notes                      |       | 293.5                        |       | 451.1                       |       |
| 2009 Senior  Notes                       |       | 455.0                        |       | 456.0                       |       |
| 2011 Senior  Floating Rate Notes         |       | 100.0                        |       | 100.0                       |       |
| 2012 Senior  Fixed Rate Notes            |       | 198.0                        |       | 300.0                       |       |
| Subordinated  Notes                      |       | 1,154.6                      |       | 1,242.0                     |       |
| HLLC  Subordinated Notes                 |       | —                       |       | 59.3                        |       |
| Huntsman  Specialty Subordinated Note    |       | —                       |       | 101.2                       |       |
| HIH Senior  Discount Notes               |       | —                       |       | 494.7                       |       |
| HIH Senior  Subordinated Discount Notes  |       | —                       |       | 413.7                       |       |
| Australian  Credit Facilities            |       | 65.7                         |       | 59.2                        |       |
| Consolidated  Chinese Splitting JV debt  |       | 30.6                         |       | 10.4                        |       |
| Subordinated  note - affiliate           |       | —                       |       | 40.9                        |       |
| Other                                    |       | 64.3                         |       | 58.7                        |       |
| Total debt                               |       | $                            | 4,162.2    |                        | $          | 5,941.3 |   |
|                                     |       |                         |       |                        |       |
| Current  portion                         |       | 40.2                         |       | 35.8                        |       |
| Long-term  portion - excluding affiliate |       | 4,122.0                      |       | 5,450.9                     |       |
|                                     |       |                         |       |                        |       |
| Long-term portion  - affiliate           |       | —                       |       | 454.6                       |       |
|                                     |       |                         |       |                        |       |
| Total debt                               |       | $                            | 4,162.2    |                        | $          | 5,941.3 |   |

 

***CreditFacilities***

 

On August 16, 2005, effective upon the completion ofthe Merger, we repaid the Former HI Credit Facilities, the Former HLLC CreditFacilities and the Huntsman Specialty Subordinated Note with available cash andwith the proceeds of our New Credit Facilities.

 

Our New Credit Facilities consist of (i) the $650million Revolving Facility (of which $143 million was drawn upon completion ofthe Merger), (ii) the $1,730 million Dollar Term Facility (of which$1,683.5 million remains outstanding after a voluntary prepayment of $46.5million was made on September 19, 2005), and (iii) the €100 million(approximately $123.5 million) Euro Term Facility (of which  €97.3 million remains outstanding after avoluntary prepayment of €2.7 million was made on September 19,2005).  All of the initial borrowings under the Revolving Facility wererepaid a few days later with proceeds received under our A/R SecuritizationProgram. The Dollar Term Loan and the Euro Term Loan each require amortizationpayments of 1% annually.

 

Borrowings under the Revolving Facility currently bearinterest at LIBOR plus 1.75% and mature in 2010.  The Dollar Term Facilityalso bears interest at LIBOR plus 1.75% and matures in 2012.  The EuroTerm Facility bears interest at LIBOR plus 2.00% and matures in 2012.  Asof September 30, 2005, the weighted average interest rate on the NewCredit Facilities was 5.4%, excluding the impact of interest rate hedges.  As of September 30, 2005, we had $22.2million in U.S. dollar equivalents of letters of credit issued and outstandingunder the Revolving Facility.

 

Our obligations under the New Credit Facilities areguaranteed by substantially all of our domestic subsidiaries and certainforeign subsidiaries (the “HI Guarantors”), and are secured by a first prioritylien (generally shared with the holders of our

 

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2010Secured Notes (as defined below)) on substantially all of our domesticproperty, plant and equipment, the stock of all of our material domesticsubsidiaries and certain foreign subsidiaries, and pledges of intercompanynotes between our various subsidiaries.

 

The credit agreements governing the New Credit Facilitiescontain financial covenants typical for these types of agreements, including aminimum interest coverage ratio, a maximum debt-to-EBITDA ratio and a limit oncapital expenditures.  The credit agreements also contain customaryrestrictions on our ability to incur liens, incur additional debt, merge orsell assets, pay dividends, prepay other indebtedness, make investments orengage in transactions with affiliates, and other customary restrictions anddefault provisions.  Under the creditagreements, the maturity of the New Credit Facilities will accelerate if we donot repay all but $100 million of any of our outstanding debt securities atleast three months prior to the maturity of those securities.

 

Prior to entering into the agreementsgoverning the New Credit Facilities on August 16, 2005, the Former HICredit Facilities consisted of a revolving loan facility of up to$375 million and a term loan B facility which consisted of a$1,082.5 million term portion and a €41.6 million term portion. The FormerHLLC Credit Facilities consisted of a $350 million revolving creditfacility and a $665 million term loan B facility.

 

***SecuredNotes***

 

On August 16, 2005, in connection withthe Merger, we entered into supplemental indentures under which we assumed theobligations of Huntsman LLC under its outstanding 11.625% senior secured notesdue 2010 (the “2010 Secured Notes”). For more information, see “Note 1.General—Recent Developments—Merger with Huntsman LLC and HIH.” As of September 30,2005, we had outstanding $296.0 million aggregate principal amount ($455.4million original aggregate principal amount) of the 2010 Secured Notes, whichare redeemable after October 15, 2007 at 105.813% of the principal amountthereof, declining ratably to par on and after October 15, 2009. Inconnection with the initial public offering of common and preferred stock ofour parent, Huntsman Corporation, proceeds were used to redeem $159.4 millionof aggregate principal amount of the 2010 Secured Notes. Interest on the 2010Secured Notes is payable semiannually in April and October of eachyear. The 2010 Secured Notes are secured by a first priority lien on allcollateral securing the New Credit Facilities as described above (other thancapital stock of our subsidiaries), shared equally with the lenders on the NewCredit Facilities, subject to certain intercreditor arrangements.

 

The 2010 Secured Notes contain covenantsrelating to the incurrence of debt and limitations on distributions, assetsales and affiliate transactions, among other things. The indentures governingthese notes also contain change of control provisions requiring us to offer torepurchase the notes upon a change of control.

 

***SeniorNotes***

 

As of September 30, 2005, we hadoutstanding $450.0 million aggregate principal amount 9.875% senior notes due2009 that were issued at a premium (the “2009 Senior Notes”). The 2009 SeniorNotes are unsecured obligations and interest is payable semiannually in March andSeptember. The 2009 Senior Notes are redeemable after March 1, 2006 at104.937% of the original aggregate principal amount thereof, declining ratablyto par on and after March 1, 2008.

 

In connection with the Merger, on August 16,2005, we entered into supplemental indentures under which we assumed theobligations of Huntsman LLC under its 11.5% senior notes due 2012 (the “2012Senior Fixed Rate Notes”) and its senior floating rate notes due 2011 (the “2011Senior Floating Rate Notes”). For more information, see “Note 1.General—Recent Developments—****Mergerwith Huntsman LLC and HIH.” As of September 30, 2005, we had outstanding$198.0 million ($300 million original aggregate principal amount) of 2012Senior Fixed Rate Notes and $100.0 million of 2011 Senior Floating RateNotes.  In connection with the initial publicoffering of common and preferred stock of our parent, Huntsman Corporation,proceeds were used to redeem $102.0 million of aggregate principal amount ofthe 2012 Senior Fixed Rate Notes. Interest on the 2012 Senior Fixed Rate Notes is payable semiannually in January andJuly of each year.  Interest on the2011 Senior Floating Rate Notes is at LIBOR plus 7.25 % (10.85% as of September 30,2005) and is payable quarterly in January, April, July and October ofeach year. The 2012 Senior Fixed Rate Notes are redeemable after July 15,2008 at 105.75% of the principal amount thereof, declining ratably to par onand after July 15, 2010. The 2011 Senior Floating Rate Notes areredeemable after July 15, 2006 at 104.0% of the principal amount thereof,declining ratably to par on and after July 15, 2008. At any time prior to July 15,2007, we may redeem up to 40% of the original aggregate principal amount of the2012 Senior Fixed Rate Notes at a redemption price of 111.5% with proceeds of aqualified equity offering. At any time prior to July 15, 2006, we mayredeem up to 40% of the original aggregate principal amount of the 2011 SeniorFloating Rate Notes with the proceeds of a qualified equity offering at a

 

13

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redemption price equal to the par value plus LIBOR plus 7.25%.  The 2009 Senior Note, the 2011 SeniorFloating Rate Notes and the 2012 Fixed Rate Notes are guaranteed by the HIGuarantors.

 

The indentures governing the 2009 SeniorNotes, the 2012 Senior Fixed Rate Notes and the 2011 Senior Floating Rate Notescontain covenants relating to the incurrence of debt and limitations ondistributions, asset sales and affiliate transactions, among other things. Theindentures governing these notes also contain change of control provisionsrequiring us to offer to repurchase the notes upon a change of control.

 

***SubordinatedNotes***

 

As of September 30, 2005, we hadoutstanding $175 million 7.375% senior 2015 subordinated notes and€135 million ($162.3 million) 7.5% senior 2015 subordinated notes (collectively,the “2015 Subordinated Notes”). The $175 million and €135 million2015 Subordinated Notes are redeemable on or after January 1, 2010 at103.688% and 103.750%, respectively, of the principal amount thereof, decliningratably to par on and after January 1, 2013. In addition, at any timeprior to January 1, 2008, we may redeem up to 40% of the originalaggregate principal amount of the $175 million and €135 million 2015Subordinated Notes at redemption prices of 107.375% and 107.5%, plus accruedand unpaid interest, respectively, with the proceeds of a qualified equityoffering.

 

As of September 30, 2005, we also hadoutstanding $366.1 million ($600 million original aggregate principal amount)and €372.0 million ($447.1 million) (€450 million original aggregate principalamount) 10.125% senior subordinated notes due 2009 (the “2009 SubordinatedNotes” and, together with the 2015 Subordinated Notes, the “Subordinated Notes”).The 2009 Subordinated Notes are redeemable at 103.375% of the principal amountthereof, which declines ratably to par on and after July 1, 2007.

 

As of September 30, 2005, we hadoutstanding a combined total of $541.1 million and €507.0 million($609.4 million U.S. dollar equivalents) Subordinated Notes, plus$4.1 million of unamortized premium. The Subordinated Notes are unsecuredand are guaranteed by the HI Guarantors. Interest on the Subordinated Notes is payable semiannually in January andJuly of each year.

 

The Subordinated Notes contain covenants relatingto the incurrence of debt and limitations on distributions, asset sales andaffiliate transactions, among other things. The indentures governing thesenotes also contain change of control provisions requiring us to offer torepurchase the notes upon a change of control.

 

Immediately prior to the Merger, Huntsman LLCfunded the redemption of its outstanding 9.5% senior subordinated notes due2007 and its senior subordinated floating rate notes due 2007 (the “HLLC SeniorSubordinated Notes”), which together had an aggregate outstanding principalamount of approximately $59 million. Such redemption was completed on September 1, 2005.

 

On August 16, 2005, in connection withthe Merger, we repaid in full the Huntsman Specialty Subordinated Note whichhad an aggregate principal amount of $106.6 million.

 

***HIHSenior Discount Notes***

 

On June 30, 1999, HIH issued seniordiscount notes (“HIH Senior Discount Notes”) and senior subordinated discountnotes (the “HIH Senior Subordinated Discount Notes” and, collectively with theHIH Senior Discount Notes, the “HIH Discount Notes”) to ICI with initial statedvalues of $242.7 million and $265.3 million, respectively.  The HIH Discount Notes were due December 31,2009.

 

Interest on the HIH Senior Discount Notesaccrued at 13.375% per annum and was paid in kind.  The HIH Senior Discount Notes were redeemableafter July 1, 2004 at 106.688% of the principal amount thereof, decliningratably to par on and after July 1, 2007. As a result of Huntsman Corporation’s initial public offering, duringthe first quarter of 2005, HIH redeemed approximately $505.6 million ofaccreted value and paid call premiums of approximately $33.8 million.  In order to make this redemption, HIHreceived contributions from Huntsman Corporation resulting from proceeds of itsinitial public offering in the amount of $504.4 million and received $35.0million in dividends from us.

 

The HIH Senior Subordinated Discount Notesaccrued interest at a reset rate of 13.125% that was reset as of September 30,2004 in accordance with the terms of the indenture.  The HIH Senior Subordinated Discount Noteswere held by HMP Equity

 

14

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Holdings Corporation.  On February 28,2005, HMP Equity Holdings Corporation contributed the HIH Senior SubordinatedDiscount Notes at an accreted value of $422.8 million to HIH in exchange forequity in HIH.

 

***OtherDebt***

 

We maintain a $25 million multicurrencyoverdraft facility used for the working capital needs for our European subsidiaries(the “European Overdraft Facility”). As of September 30, 2005 and December 31,2004, there were $17.3 million in U.S. dollar equivalents and nil netborrowings outstanding under the European Overdraft Facility, respectively.

 

Huntsman Polyurethanes Shanghai Ltd.,one of our Chinese MDI joint ventures and our consolidated affiliate (our “ConsolidatedChinese Splitting JV”), has obtained secured loans for the construction of MDIproduction facilities near Shanghai, China. This debt consists of various committedloans in the aggregate amount of approximately $117 million. As of September 30,2005, our Consolidated Chinese Splitting JV had $15 million outstanding inU.S. dollar borrowings and 126 million in RMB borrowings($15 million) under these facilities. As of September 30, 2005, theinterest rate was approximately 5.0% for U.S. dollar borrowings and 5.5% forRMB borrowings. The loans are secured by substantially all the assets of theConsolidated Chinese Splitting JV and will be repaid in 16 semiannualinstallments beginning no later than June 30, 2007. The financing isnon-recourse to us, but is guaranteed during the construction phase byaffiliates of our Consolidated Chinese Splitting JV, including HuntsmanCorporation. Our Chinese MDI joint ventures are unrestricted subsidiaries underthe New Credit Facilities and under the indentures governing our outstandingnotes.

 

Our Australian subsidiaries maintain creditfacilities (the “Australian Credit Facilities”) that had an aggregateoutstanding balance of A$87.0 million ($65.7 million) as of September 30,2005.  These facilities are non-recourseto us.

 

We finance certain of our insurancepremiums.  As of September 30, 2005,we had $26.1 million in insurance premium financing, all of which is due in thenext 12 months.

 

On February 16, 2005, Huntsman LLC paidin full a 15% note payable to an affiliated entity in the amount of $41.6million.

 

***Compliancewith Covenants***

 

Our management believes that we are incompliance with the covenants contained in the agreements governing the NewCredit Facilities, the A/R Securitization Program and the indentures governingour notes.

 

***Maturities***

 

The scheduled maturities of our debt by yearas of September 30, 2005, were as follows (dollars in millions):

 
| **Year ended December 31:** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|------------|
| Remainder of  2005               |       | $          | 17.0       |       |
| 2006                             |       | 33.1       |       |
| 2007                             |       | 81.1       |       |
| 2008                             |       | 20.7       |       |
| 2009                             |       | 1,293.2    |       |
| Later Years                      |       | 2,717.1    |       |
|                             |       |       |       |
| Total                            |       | $          | 4,162.2    |       |

 

In connection with the repayment ofindebtedness, we recorded a loss on early extinguishment of debt of $38.5million and $114.5 million in the three and nine months ended September 30,2005, respectively.

 

**6.****                                      DerivativeInstruments and Hedging Activities**

 

We are exposed to market risks, such aschanges in interest rates, foreign exchange rates, and commodity pricing risks.From time to time, we enter into transactions, including derivativeinstruments, to manage exposures. We manage interest rate exposure through aprogram designed to reduce the impact of fluctuations in variable interestrates and to meet the requirements of certain financing agreements.

 

15

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***InterestRate Hedging***

 

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

 

As of September 30, 2005 and December 31,2004, we had entered into various types of interest rate contracts to manageour exposure to interest rate risk on our variable-rate LIBOR-based long-termdebt as indicated below (dollars in millions):

 
| ** **                 | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------|------------|-----------------------------|------------|----------------------------|------------|
|                       |       |                        |       |                       |       |
| **Pay fixed swaps**        |       |                        |       |                       |       |
| Notional  amount           |       | $                           | 183.5      |                       | $          | 184.3 |   |
| Fair value                 |       | (0.2                        | )          | (3.2                       | )          |
| Weighted  average pay rate |       | 4.43                        | %          | 4.44                       | %          |
| Maturing                   |       | 2005-2007                   |       | 2005-2007                  |       |
|                            |            |                             |            |                            |            |  |  |

 

We purchase interest rate swaps to reduce theimpact of changes in interest rates on our floating-rate long-term debt. Underinterest rate swaps, we agree with other parties to exchange, at specifiedintervals, the difference between fixed-rate and floating-rate interest amountscalculated by reference to an agreed notional principal amount.

 

Interest rate contracts with a fair valueloss of $0.2 million and $3.2 million were recorded as a component ofother noncurrent liabilities as of September 30, 2005 and December 31,2004, respectively. The fair value of cash flow hedges and interest ratecontracts not designated as hedges were as follows (dollars in millions):

 
| ** **               | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                     |       |                         |       |                        |       |
| Cash flow  hedges        |       | $                            | (0.4       | )                           | $          | (2.0 | ) |
| Interest  rate contracts |       | 0.2                          |       | (1.2                        | )          |
|                          |            |                              |            |                             |            |  |  |

 

The changes in the fair values of cash flowhedges and interest rate contracts not designated as hedges resulted inincreases (decreases) as follows (dollars in millions):

 
| ** **                  | ** ** | **Three Months Ended   September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                  | ** ** | **2005**                                    | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash flow  hedges:          |       |                                        |       |                                      |       |   |   |   |   |
| Interest  expense           |       | $                                           | 0.2        |                                      | $          | 0.9 |   | $ | 0.8 |   | $ | 0.5 |   |
| Other  comprehensive income |       | (0.5                                        | )          | (1.2                                      | )          | (2.4 | ) | (4.0 | ) |
| Interest  rate contracts:   |       |                                        |       |                                      |       |   |   |   |   |
| Interest  expense           |       | $                                           | (1.9       | )                                         | $          | 0.6 |   | $ | (1.3 | ) | $ | (0.9 | ) |

 

We are exposed to credit losses in the eventof nonperformance by a counterparty to the derivative financial instruments. Weanticipate, however, that the counterparties will be able to fully satisfyobligations under the contracts. Market risk arises from changes in interestrates.

 

***CommodityPrice Hedging***

 

As of September 30, 2005, there were nocash flow commodity price hedging contracts recorded in other current assets,accrued liabilities or other comprehensive income. As of December 31, 2004,there was $0.1 million included in other current assets and accrued liabilitiesrelating to cash flow commodity price hedging contracts.

 

16

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As of September 30, 2005 there were nocommodity price hedging contracts designated as fair value hedges included inthe balance sheet.  As of December 31,2004, commodity price hedging contracts designated as fair value hedges areincluded in the balance sheet as a $1.5 million increase in other currentassets and $1.8 million decrease in inventory.

 

Commodity price contracts not designated ashedges as defined by SFAS No. 133 are reflected in the balance sheetas  $3.5 million in other current assetsand $2.3 million in accrued liabilities as of September  30, 2005,and as $5.6 million in other current assets and $1.8 million in accruedliabilities as of December 31, 2004.

 

During the three months ended September 30,2005 and the three months ended September 30, 2004, we recorded a decreaseof $1.1 million and of $0.8 million respectively, in cost of goods soldrelated to net gains and losses from settled contracts, net gains and losses infair value price hedges, and the change in fair value on commodity price hedgesnot designated as hedges as defined in SFAS No. 133.

 

During the nine months ended September 30,2005 and the nine months ended September 30, 2004, we recorded an increaseof $10.2 million and of $2.5 million, respectively, in cost of goods soldrelated to net gains and losses from settled contracts, net gains and losses infair value price hedges, and the change in fair value on commodity price hedgesnot designated as hedges as defined in SFAS No. 133.

 

***ForeignCurrency Rate Hedging***

 

We may enter into foreign currency derivativeinstruments to minimize the short-term impact of movements in foreign currencyrates. These contracts are not designated as hedges for financial reportingpurposes and are recorded at fair value. As of September 30, 2005 and December 31,2004 and for the nine months ended September 30, 2005 and 2004, the changein fair value and realized gains (losses) of outstanding foreign currency ratehedging contracts was not material.

 

***NetInvestment Hedging***

 

As of September 30, 2005, excluding thecross-currency interest rate swap discussed in the following paragraph, we havedesignated €332.3 million of our euro-denominated debt as a hedge of ournet investment in foreign operations. Currency effects on net investment hedgesfor the three months ended September 30, 2005 and 2004 produced a gain of$3.2 million and a loss of $9.4 million, respectively, and for thenine months ended September 30, 2005 and 2004, respectively, a gain of$49.0 million and a gain of $9.6 million in other comprehensive loss(foreign currency translation adjustments). As of September 30, 2005 and December 31,2004, we recorded a cumulative net loss in accumulated other comprehensiveincome (loss) of approximately $139.5 million and $188.5 million,respectively.

 

We have outstanding a cross-currency interestrate swap that requires us to pay euros and receive U.S. dollars at thematurity date of January 1, 2010. The U.S. dollar notional amount is$175 million and bears interest at a fixed rate of approximately 7.4%,payable semiannually on January 1 and July 1. The euro notionalamount is approximately €132 million and bears interest at a blended fixedrate of approximately 6.6%, payable semiannually on January 1 and July 1.We have designated this cross-currency swap as a hedge of our net investment ineuro-denominated operations.

 

**7.****                                      Securitizationof Accounts Receivable**

 

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

 

As of September 30, 2005 and December 31,2004, the Receivables Trust had approximately $193.8 million and$208.4 million, respectively, in U.S. dollar equivalents in medium-termnotes outstanding and approximately $94.3 million in U.S. dollarequivalents and nil, respectively in commercial paper outstanding. The medium-termnotes have a scheduled maturity date of September 15, 2006 with thescheduled amortization period commencing June 30, 2005. Our commercialpaper facility has a maturity date of June 30, 2007 and provides for theissuance of both euro- and U.S. dollar-denominated commercial paper up to aU.S. dollar equivalent of $125 million. In connection with the Merger and the related financing, we temporarily(through March 31, 2006) increased our commercial paper facility from $125million to $175 million.

 

17

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As of September 30, 2005 and December 31,2004, our retained interest in receivables (including servicing assets) subjectto the program was approximately $217.5 million and $327.6 million,respectively. The value of the retained interest is subject to credit andinterest rate risk. For the nine months ended September 30, 2005 and 2004,new sales of accounts receivable sold into the program totaled approximately$4,245.3 million and $3,669.1 million, respectively, and cash collectionsfrom receivables sold into the program that were reinvested totaled$4,238.3 million and $3,635.5 million, respectively. Servicing feesreceived during the nine months ended September 30, 2005 and 2004 wereapproximately $4.6 million and $4.0 million, respectively.

 

We incur losses on the A/R SecuritizationProgram for the discount on receivables sold into the program and fees andexpenses associated with the program. We also retain responsibility for theeconomic gains and losses on forward contracts mandated by the terms of theprogram to hedge the currency exposures on the collateral supporting theoff-balance sheet debt issued. Gains and losses on forward contracts includedas a component of the loss on the A/R Securitization Program were nil and aloss of $1.0 million for the nine months ended September 30, 2005 and2004, respectively. As of each of September 30, 2005 and December 31,2004, the fair value of the open forward currency contracts was nil.

 

The key economic assumptions used in valuingthe residual interest are presented below:

 
| ** **                            | ** ** | **September 30, 2005** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|
| Weighted average life (in months)     |       | Approx. 1.5                 |       |
| Credit losses (annual rate)           |       | Less than 1%                |       |
| Discount rate (weighted average life) |       | Less than 1%                |       |

 

A 10% and 20% adverse change in any of thekey economic assumptions would not have a material impact on the fair value ofthe retained interest. Total receivables over 60 days past due as of September 30,2005 and December 31, 2004 were $14.9 million and $12.1 million,respectively.

 

**8.****                                      EmployeeBenefit Plans**

 

Components of the net periodic benefit costsfor the three and nine months ended September 30, 2005 and 2004 were asfollows (dollars in millions): 

 
| ** **                            | ** ** | ** **                | ** ** | ** **             | ** ** | **Other Postretirement** | ** ** |
|---------------------------------------|------------|---------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                            | ** ** | **Defined Benefit Plans** | ** ** | **Benefit Plans**      | ** ** |
| ** **                            | ** ** | **Three months ended**    | ** ** | **Three months ended** | ** ** |
| ** **                            | ** ** | **September 30,**    | ** ** | **September 30,** | ** ** |
| ** **                            | ** ** | **2005**                  | ** ** | **2004**               | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Service cost                          |       | $                         | 17.7       |                   | $          | 13.5                     |       | $ | 0.9 |   | $ | 0.8 |   |
| Interest cost                         |       | 29.5                      |       | 24.3                   |       | 1.9                      |       | 1.7 |   |
| Expected return on assets             |       | (32.8                     | )          | (24.6                  | )          | —                   |       | — |   |
| Amortization of transition obligation |       | 0.7                       |       | 0.4                    |       | —                   |       | — |   |
| Amortization of prior service cost    |       | (0.9                      | )          | 0.4                    |       | (0.4                     | )          | (0.4 | ) |
| Amortization of actuarial cost        |       | 8.2                       |       | 5.7                    |       | 0.9                      |       | 0.9 |   |
| **Net  periodic benefit cost**        |       | $                         | 22.4       |                   | $          | 19.7                     |       | $ | 3.3 |   | $ | 3.0 |   |
|                                  |       |                      |       |                   |       |                     |       |   |   |

 
| ** **                            | ** ** | ** **                | ** ** | ** **             | ** ** | **Other Postretirement** | ** ** |
|---------------------------------------|------------|---------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                            | ** ** | **Defined Benefit Plans** | ** ** | **Benefit Plans**      | ** ** |
| ** **                            | ** ** | **Nine months ended**     | ** ** | **Nine months ended**  | ** ** |
| ** **                            | ** ** | **September 30,**    | ** ** | **September 30,** | ** ** |
| ** **                            | ** ** | **2005**                  | ** ** | **2004**               | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Service cost                          |       | $                         | 50.7       |                   | $          | 40.5                     |       | $ | 2.3 |   | $ | 2.3 |   |
| Interest cost                         |       | 83.1                      |       | 72.9                   |       | 5.3                      |       | 5.1 |   |
| Expected return on assets             |       | (91.6                     | )          | (73.8                  | )          | —                   |       | — |   |
| Amortization of transition obligation |       | 1.3                       |       | 1.2                    |       | —                   |       | — |   |
| Amortization of prior service cost    |       | (2.3                      | )          | 1.1                    |       | (1.4                     | )          | (1.2 | ) |
| Amortization of actuarial cost        |       | 23.0                      |       | 17.1                   |       | 2.7                      |       | 2.6 |   |
| **Net  periodic benefit cost**        |       | $                         | 64.2       |                   | $          | 59.0                     |       | $ | 8.9 |   | $ | 8.8 |   |

 

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During the nine months ended September 30,2005 and 2004, we made contributions to our pension plans of $30.5 million and$19.9 million, respectively.

 

During the fourth quarter of 2005, we expectto accelerate the date for actuarial measurement of our pension andpostretirement benefit obligations from December 31 to November 30.We believe the one-month acceleration of the measurement date is a preferredchange as it improves internal control procedures by allowing more time toreview the completeness and accuracy of the actuarial benefit obligationmeasurements. The effect of the change in measurement date on the respectiveobligations and assets of the plans is not expected to have a materialcumulative effect on annual expense or accrued benefit costs.

 

**9.****                                      OtherComprehensive (Loss) Income**

 

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

 
| ** **                                                                                                                                             | ** ** | **Accumulated other comprehensive  (loss) income** | ** ** | **Other comprehensive (loss)  income** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                             | ** ** | ** **                                         | ** ** | ** **                             | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
| ** **                                                                                                                                             | ** ** | **September 30,**                             | ** ** | **December 31,**                  | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                                             | ** ** | **2005**                                           | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Foreign  currency translation adjustments, net of deferred tax of $4.3 and nil as of September 30,  2005 and December 31, 2004, respectively |       | $                                                  | 99.9       |                                   | $          | 295.6 |   | $ | (26.5 | ) | $ | 9.3 |   | $ | (195.7 | ) | $ | (9.5 | ) |
| Unrealized  gain (loss) on nonqualified plan investments                                                                                               |       | 0.9                                                |       | 0.9                                    |       | 0.1 |   | (0.1 | ) | — |   | — |   |
| Unrealized  gain (loss) on derivative instruments                                                                                                      |       | 13.0                                               |       | (10.5                                  | )          | 2.1 |   | 2.2 |   | 23.5 |   | 10.0 |   |
| Minimum  pension liability, net of deferred tax of $35.6 and $29.3 as of September 30,  2005 and December 31, 2004, respectively             |       | (140.3                                             | )          | (135.3                                 | )          | — |   | — |   | (5.0 | ) | — |   |
| Minimum  pension liability of unconsolidated affiliate                                                                                                 |       | (0.8                                               | )          | (8.8                                   | )          | — |   | — |   | 8.0 |   | — |   |
| Unrealized  gain (loss) on securities                                                                                                                  |       | 0.7                                                |       | 0.1                                    |       | 0.4 |   | (0.2 | ) | 0.6 |   | (0.3 | ) |
| Other  comprehensive income (loss) of unconsolidated affiliates                                                                                        |       | 7.3                                                |       | 8.1                                    |       | (0.8 | ) | (1.7 | ) | (0.8 | ) | (1.1 | ) |
| Total                                                                                                                                                  |       | $                                                  | (19.3      | )                                      | $          | 150.1 |   | $ | (24.7 | ) | $ | 9.5 |   | $ | (169.4 | ) | $ | (0.9 | ) |

 

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

 

**10.****                               Commitmentsand Contingencies**

 

***LegalMatters***

 

Certain claims have been filed against usrelating to discoloration of unplasticized polyvinyl chloride productsallegedly caused by our titanium dioxide (“Discoloration Claims”).Substantially all of the titanium dioxide that is the subject of these claimswas manufactured prior to our acquisition of our titanium dioxide business fromICI in 1999. Net of amounts we have received from insurers and pursuant tocontracts of indemnity, we have paid approximately $15.8 million in costsand settlement amounts for Discoloration Claims as of September 30, 2005.

 

The following table presents informationabout the number of Discoloration Claims for the period indicated. Claimsinclude all claims for which service has been received by us, and each suchclaim represents a plaintiff who is pursuing a claim against us.

 

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| ** **                         | ** ** | **Nine months ended  September 30, 2005** | ** ** |
|------------------------------------|------------|------------------------------------------------|------------|
| Claims filed during period         |       | 0                                              |       |
| Claims resolved during period      |       | 1                                              |       |
| Claims unresolved at end of period |       | 2                                              |       |

 

During the nine months ended September 30,2005, we settled a claim for approximately $0.9 million, all of which isindemnified and for which we have been reimbursed. The two Discoloration Claimsunresolved as of September 30, 2005 asserted aggregate damages ofapproximately $63.8 million. A liability has been accrued for theseclaims. Based on our understanding of the merits of these claims and our rightsunder contracts of indemnity and insurance, we do not believe that the netimpact on our financial condition, results of operations or liquidity will bematerial.

 

While additional Discoloration Claims may bemade in the future, we cannot reasonably estimate the amount of loss related tosuch claims. Although we may incur additional costs as a result of futureclaims (including settlement costs), based on our history with DiscolorationClaims to date, the fact that substantially all of the titanium dioxide thathas been the subject of these Discoloration Claims was manufactured and soldmore than five years ago, and the fact that we have rights under contract toindemnity, including from ICI, we do not believe that any unasserted possibleDiscoloration Claims, if any, will have a material impact on our financialcondition, results of operations, or liquidity. Based on this conclusion andour inability to reasonably estimate our expected costs with respect to theseunasserted possible claims, we have made no accruals in our financialstatements as of September 30, 2005 for costs associated with unassertedpossible Discoloration Claims, if any.

 

Certain insurers have denied coverage withrespect to certain Discoloration Claims. We brought suit against these insurersto recover the amounts we believe are due to us. The court found in favor ofthe insurers. That decision was appealed to the Court of Appeal, which alsofound in favor of the insurers. We do not intend to apply for leave to appealto the House of Lords.  We do not believethat the net impact on our financial condition, results of operations or liquidityof our inability to recover these amounts will be material.

 

We have been a party to various lawsuitsbrought by persons alleging personal injuries and/or property damage based uponalleged exposure to toxic air emissions. For example, since June 2003, anumber of lawsuits have been filed in state district court in Jefferson County,Texas against several local chemical plants and refineries, including oursubsidiary, Huntsman Petrochemical Corporation. Generally, these lawsuits havealleged that the refineries and chemical plants located in the vicinity of theplaintiffs’ homes discharged chemicals into the air that interfere with use andenjoyment of property and cause health problems and/or property damages. Noneof these lawsuits have included the amount of damages being sought. The followingtable presents information about the number of claims asserting damages basedupon alleged exposure to toxic air emissions for the period indicated. Claimsinclude all claims for which service has been received by us, and each suchclaim represents a plaintiff who is pursuing a claim against us.

 
| ** **                         | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|------------------------------------|------------|------------------------------------------------|------------|
| Claims filed during period         |       | 2,104                                          |       |
| Claims resolved during period      |       | 2,988                                          |       |
| Claims unresolved at end of period |       | 0                                              |       |

 

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

 

In addition, we have been named as a “premisesdefendant” in a number of asbestos exposure cases, typically a claim by anon-employee of exposure to asbestos while at a facility. These cases typicallyinvolve multiple plaintiffs bringing actions against multiple defendants, andthe complaint does not indicate which plaintiffs are making claims againstwhich defendants, where or how the alleged injuries occurred, or what injurieseach plaintiff claims. These facts, which are central to any estimate ofprobable loss, can be learned only through discovery.

 

Where the alleged exposure occurred prior toour ownership or operation of the relevant “premises,” the prior owners andoperators generally have contractually agreed to retain liability for, and toindemnify us against, asbestos exposure claims. This indemnification is notsubject to any time or dollar amount limitations. Upon service of a complaintin one of these cases, we tender it to the prior owner or operator. None of thecomplaints in these cases state the amount of damages being sought. The priorowner or operator accepts responsibility for the conduct of the defense of thecases and payment of any amounts due to the claimants. In our ten-year experiencewith tendering these cases, we have not made any payment with respect to anytendered 

 

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asbestos cases. We believe that the prior owners or operators have theintention and ability to continue to honor their indemnities, although wecannot assure you that they will continue to do so or that we will not beliable for these cases if they do not.

 

The following table presents for the periodindicated certain information about cases for which service has been receivedthat we have tendered to the prior owner or operator, all of which have beenaccepted.

 
| ** **                  | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|-----------------------------|------------|------------------------------------------------|------------|
| Tendered during period      |       | 107                                            |       |
| Resolved during period      |       | 67                                             |       |
| Unresolved at end of period |       | 438                                            |       |

 

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

 

Certain cases in which we are a “premisesdefendant” are not subject to indemnification by prior owners or operators. Thefollowing table presents for the period indicated certain information aboutthese cases. Cases include all cases for which service has been received by us.

 
| ** **                  | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|-----------------------------|------------|------------------------------------------------|------------|
| Filed during period         |       | 47                                             |       |
| Resolved during period      |       | 8                                              |       |
| Unresolved at end of period |       | 68                                             |       |

 

We paid gross settlement costs for asbestosexposure cases that are not subject to indemnification of approximately $20,000during the nine months ended September 30, 2005.

 

As of September 30, 2005, we had an accruedliability of $1.2 million relating to these cases. We cannot assure youthat our liability will not exceed our accruals or that our liabilityassociated with these cases would not be material to our financial condition,results of operations or liquidity.

 

We are a party to various other proceedingsinstituted by private plaintiffs, governmental authorities, and others arisingunder provisions of applicable laws, including various environmental, productsliability and other laws. Except as otherwise disclosed in this report, we donot believe that the outcome of any of these matters will have a materialadverse effect on our financial condition, results of operations or liquidity.See “Note 11—Environmental, Health and Safety Matters.”

 

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

 

***General***

 

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

 

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

 

We are committed to achieving and maintainingcompliance with all applicable environmental, health and safety (“EHS”) legalrequirements, and we have developed policies and management systems that areintended to identify the 

 

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multitude of EHS legal requirements applicable to our operations,enhance compliance with applicable legal requirements, ensure the safety of ouremployees, contractors, community neighbors and customers and minimize theproduction and emission of wastes and other pollutants. Although EHS legalrequirements are constantly changing and are frequently difficult to complywith, these EHS management systems are designed to assist us in our compliancegoals while also fostering efficiency and improvement and minimizing overallrisk to us.

 

***EHSCapital Expenditures***

 

We may incur future costs for capitalimprovements and general compliance under EHS laws, including costs to acquire,maintain and repair pollution control equipment. For the nine months ended September 30,2005 and 2004, our capital expenditures for EHS matters totaled$23.5 million and $36.1 million, respectively.  Since capital expenditures for these mattersare subject to evolving regulatory requirements and depend, in part, on thetiming, promulgation and enforcement of specific requirements, we cannotprovide assurance that our recent expenditures will be indicative of futureamounts required under EHS laws.

 

***GovernmentalEnforcement Proceedings***

 

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

 

In May 2003, the State of Texas settledan air enforcement case with us relating to our Port Arthur plant. Under thesettlement, we are required to pay a civil penalty of $7.5 million over morethan four years, undertake environmental monitoring projects totaling about$1.5 million in costs, and pay $0.4 million in attorneys’ fees to the TexasAttorney General. As of September 30, 2005, we have paid $3.5 milliontoward the penalty and $0.4 million for the attorneys’ fees. The monitoringprojects are underway and on schedule. We do not anticipate that thissettlement will have a material adverse effect on our results of operations,financial position or liquidity.

 

Beginning in the third quarter of 2004 andextending through August 2005, we have received approximately eightseparate notifications from the Texas Commission on Environmental Quality (“TCEQ”)for alleged violations related to air emissions at our Port Neches or our PortArthur plant. These alleged violations primarily relate to specific upsetemissions, emissions from cooling towers, or flare operations occurring atparticular times and at particular operating units during 2004 and 2005. Thesenotices of violation appear to be part of a larger enforcement initiative bythe TCEQ regional office focused on upset emissions at chemical and refiningindustry plants located within the Beaumont/Port Arthur region. TCEQ has madeindividual proposals to us to resolve five of the notices of alleged violationfor approximately $0.1 million each. TCEQ has also made a proposal to resolveone of the remaining notices, addressing upset emissions at Port Neches, for$0.2 million. TCEQ has not made a penalty proposal for two other notices. Finalresolution of these matters is subject to negotiation between us and TCEQ. Wedo not believe that the resolution of these matters will result in theimposition of costs material to our results of operations, financial positionor liquidity.

 

See Note 10“Commitments and Contingencies — Legal Matters” for a discussion ofenvironmental lawsuits brought by private party plaintiffs.

 

***RemediationLiabilities***

 

We have incurred, and we may in the futureincur, liability to investigate and clean up waste or contamination at ourcurrent or former facilities or facilities operated by third parties at whichwe may have disposed of waste or other materials. Similarly, we may incur costsfor the cleanup of wastes that were disposed of prior to the purchase of ourbusinesses. Under some circumstances, the scope of our liability may extend todamages to natural resources. Specifically, under the U.S. ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”),and similar state laws, a current or former owner or operator of real propertymay be liable for remediation costs regardless of whether the release ordisposal of hazardous substances was in compliance with law at the time itoccurred, and a current owner or operator may be liable regardless of whetherit owned or operated the facility at the time of the release. In addition,under the U.S. Resource Conservation and Recovery Act of 1976, as amended (“RCRA”),and similar state laws, we may be required to remediate contaminationoriginating from our properties as a condition to our hazardous waste permit.For example, our Odessa, Port Arthur, and Port Neches facilities in Texas arethe subject of ongoing remediation requirements under RCRA authority. In manycases, our potential liability arising from historical contamination is basedon operations and other events 

 

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occurring prior to our ownership of the relevant facility. In thesesituations, we frequently obtained an indemnity agreement from the prior owneraddressing remediation liabilities arising from preclosing conditions. We havesuccessfully exercised our rights under these contractual covenants for anumber of sites, and where applicable, mitigated our ultimate remediationliability. We cannot assure you, however, that all of such matters will besubject to indemnity or that our existing indemnities will be sufficient tocover our liabilities for such matters.

 

We have been notified by third parties ofclaims against us or our subsidiaries for cleanup liabilities at approximately12 former facilities and other third party sites, including but not limited tosites listed under CERCLA. Based on current information and past experience atother CERCLA sites, we do not expect any of these third party claims to resultin a material liability to us.

 

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

 

***EnvironmentalReserves***

 

We have established financial reservesrelating to anticipated environmental cleanup obligations, site reclamation andclosure costs and known penalties. Liabilities are recorded when potentialliabilities are either known or considered probable and can be reasonablyestimated. Our liability estimates are based upon available facts, existingtechnology and past experience. On a consolidated basis, we have accruedapproximately $27 million and $35 million for environmental liabilities as of September 30,2005 and December 31, 2004, respectively. Of these amounts, approximately$7.5 million and $8 million are classified as accrued liabilities on ourconsolidated balance sheets as of September 30, 2005 and December 31,2004, respectively, and approximately $19.5 million and $27 million areclassified as other noncurrent liabilities on our consolidated balance sheetsas of September 30, 2005 and December 31, 2004, respectively. Incertain cases, our remediation liabilities are payable over periods of up to 30years. We may incur losses for environmental remediation in excess of theamounts accrued; however, we are not able to estimate the amount or range ofsuch potential excess.

 

***RegulatoryDevelopments***

 

Under the European Union (“EU”) IntegratedPollution Prevention and Control Directive (“IPPC”), EU member governments areto adopt rules and implement a cross media (air, water and waste)environmental permitting program for individual facilities. While the EUcountries are at varying stages in their respective implementation of the IPPCpermit program, we have submitted all necessary IPPC permit applicationsrequired to date, and, in some cases, received completed permits from theapplicable government agency. We expect to submit all other IPPC applicationsand related documents on a timely basis as the various countries implement theIPPC permit program. Although we do not know with certainty what each 

 

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IPPC permit will require, we believe, based upon our experience withthe permits received to date, that the costs of compliance with the IPPC permitprogram will not be material to our results of operations, financial positionor liquidity.

 

In October 2003, the European Commissionadopted a proposal for a new EU regulatory framework for chemicals. Under thisproposed new system called “REACH” (Registration, Evaluation and Authorizationof Chemicals), companies that manufacture or import more than one ton of achemical substance per year would be required to register such manufacture orimport in a central database. The REACH initiative, as proposed, would requirerisk assessment of chemicals, preparations (e.g., soaps and paints) andarticles (e.g., consumer products) before those materials could be manufacturedor imported into EU countries. Where warranted by a risk assessment, hazardoussubstances would require authorizations for their use. This regulation couldimpose risk control strategies that would require capital expenditures by us.As proposed, REACH would take effect in three primary stages over the elevenyears following the final effective date (assuming final approval). The impactsof REACH on the chemical industry and on us are unclear at this time becausethe parameters of the program are still being actively debated.

 

***MTBEDevelopments***

 

We produce MTBE, an oxygenate that is blendedwith gasoline to reduce vehicle air emissions and to enhance the octane ratingof gasoline. Existing or future litigation or legislative initiativesrestricting the use of MTBE in gasoline may subject us or our products toenvironmental liability or materially adversely affect our sales and costs. Theuse of MTBE is controversial in the U.S. and elsewhere and may be substantiallycurtailed or eliminated in the future by legislation or regulatory action. Forexample, about 16 states, including California, New York and Connecticut, haveadopted rules that prohibit or restrict the use of MTBE in gasoline soldin those states. The 16 states account for a substantial portion of the “pre-ban”U.S. MTBE market. Additional phase-outs or other future regulation of MTBE mayresult in a significant reduction in demand for our MTBE, a material loss inrevenues or material increase in compliance costs or expenditures.

 

We currently market approximately 95% of ourMTBE to customers located in the U.S. for use as a gasoline additive. If theuse of MTBE in gasoline in the U.S. is further curtailed or eliminated in thefuture, although we can make no assurances, we believe that we will be able toexport MTBE to Europe, Asia or South America, although this may produce a lowerlevel of cash flow than the sale of MTBE in the U.S. We may also elect to useall or a portion of our precursor TBA to produce saleable products other thanMTBE. If we opt to produce products other than MTBE, necessary modifications toour facilities will require us to make significant capital expenditures and thesale of such other products may produce a lower level of cash flow than thesale of MTBE. In addition, the Energy Policy Act of 2005 was signed into law inAugust 2005. The new law will likely have an adverse impact on our MTBEbusiness in the U.S., since it mandates increased use of renewable fuels andeliminates the oxygenate requirement for reformulated gasoline established bythe 1990 Clean Air Act Amendments. Although the extent of the potential impactof the new law is still unclear, a significant loss in demand for our MTBEcould result in a material loss in revenues or material costs or expenditures.

 

A number of lawsuits have been filed,primarily against gasoline manufacturers, marketers and distributors, bypersons seeking to recover damages allegedly arising from the presence of MTBEin groundwater. While we have not been named as a defendant in any litigationconcerning the environmental effects of MTBE, we cannot provide assurances thatwe will not be involved in any such litigation or that such litigation will nothave a material adverse effect on our business, results of operations andfinancial condition.

 

**12.****                               OtherOperating Expense**

 

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

 
| ** **                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                          | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Foreign exchange (gains) losses     |       | $                      | (4.1       | )                      | $          | (7.3 | ) | $ | 12.4 |   | $ | (16.1 | ) |
| Legal and contract settlements, net |       | —                 |       | —                 |       | — |   | 14.9 |   |
| Bad debt                            |       | 6.0                    |       | 1.6                    |       | 10.1 |   | 9.5 |   |
| Other, net                          |       | 2.8                    |       | 14.1                   |       | 10.2 |   | 14.5 |   |
| Total other  operating expense      |       | $                      | 4.7        |                   | $          | 8.4 |   | $ | 32.7 |   | $ | 22.8 |   |

 

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**13.****                               Other(Expense) Income**

 

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

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| (Loss) gain on early extinguishment of debt |       | $                      | (38.5      | )                      | $          | 2.3 |   | $ | (114.5 | ) | $ | (1.9 | ) |
| Other, net                                  |       | (2.4                   | )          | 0.8                    |       | (4.0 | ) | 1.1 |   |
| Total other  (expense) income               |       | $                      | (40.9      | )                      | $          | 3.1 |   | $ | (118.5 | ) | $ | (0.8 | ) |

 

**14.****                               IncomeTaxes**

 

Income tax expense was $3.1 million and $59.8million for the three and nine months ended September 30, 2005,respectively, and income tax benefit was $56.7 million and $49.2 million forthe same periods in 2004, respectively. Excluding the impact for early extinguishment of debt of $38.5 millionand $114.5 million and excluding the impact of the impairment of Australia styrenicsassets of $46.6 million, which were not benefited for tax purposes because ofvaluation allowances on deferred tax assets, our effective income tax rateswould have been 6% and 13% for the three and nine months ended September 30,2005, respectively.

 

Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate. We use theasset and liability method of accounting for income taxes. Deferred incometaxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial and tax reporting purposes. Weevaluate deferred tax assets to determine whether it is more likely than notthat they will be realized.  Valuationallowances have been established against certain of the non-U.S. net deferredtax assets due to the uncertainty of realization.  Valuation allowances are reviewed each periodon a tax jurisdiction by tax jurisdiction basis to analyze whether there issufficient positive or negative evidence to support a change in judgment aboutthe realizability of the related deferred tax asset in future years.

 

Prior to August 16, 2005, we were wastreated as a partnership for U.S. tax purposes and, therefore, were generallynot subject to U.S. income tax, but rather such income was taxed directly to ourowners.   On August 16, 2005,Huntsman LLC and HIH merged with and into our company, and we made an electionto be taxed as a corporation and are subject to U.S. income tax from that dateforward.  Income tax expense reflects theactivity of Huntsman LLC, HIH and our company for the three and nine monthsended September 30, 2005 and 2004.

 

**15.****                               DiscontinuedOperations**

 

On July 6, 2005, we sold our toluenedi-isocyanate (“TDI”) business to BASF. The sale involved the transfer of ourTDI customer list and sales contracts. We further agreed to discontinue the useof our remaining TDI assets, including our Geismar, Louisiana TDI manufacturingequipment. TDI has been accounted for as a discontinued operation under SFAS No. 144,“*Accounting for the Impairment or Disposalof Long-Lived Assets*.” Accordingly, the following results of TDIhave been presented as discontinued operations in the accompanying unauditedcondensed consolidated statement of operations (dollars in millions):

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                     | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                       |       | $                      | 1.0        |                   | $          | 11.9 |   | $ | 24.4 |   | $ | 48.1 |   |
| Costs and expenses                             |       | (1.6                   | )          | (14.7                  | )          | (31.6 | ) | (52.6 | ) |
| Loss on disposal                               |       | —                 |       | —                 |       | (36.4 | ) | — |   |
|                                           |       |                   |       |                   |       |   |   |   |   |
| Operating loss                                 |       | (0.6                   | )          | (2.8                   | )          | (43.6 | ) | (4.5 | ) |
| Income tax expense                             |       | —                 |       | —                 |       | — |   | — |   |
|                                           |       |                   |       |                   |       |   |   |   |   |
| Loss from discontinued operations, net of  tax |       | $                      | (0.6       | )                      | $          | (2.8 | ) | $ | (43.6 | ) | $ | (4.5 | ) |

 

The loss on disposal of $36.4 millionfor the nine months ended September 30, 2005 includes an impairment oflong-lived assets. We expect to incur approximately $2 million ofadditional costs related to the TDI transaction by the end of the secondquarter of 2006. The TDI business is reported in our Polyurethanes operatingsegment.

 

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**16.****                               OperatingSegment Information**

 

We derive our revenues, earnings and cashflows from the manufacture and sale of a wide variety of differentiated andcommodity chemical products. We have five reportable operating segments:Polyurethanes, Performance Products, Pigments, Polymers and Base Chemicals.Sales between segments are generally recognized at external market prices andare eliminated in consolidation.

 

The major products of each reportableoperating segment are as follows:

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

 

We use EBITDA to measure the financialperformance of our global business units and for reporting the results of ouroperating segments. This measure includes all operating items relating to thebusinesses. The EBITDA of operating segments excludes items that principallyapply to our company as a whole. The revenues and EBITDA for each of ourreportable operating segments are as follows (dollars in millions):

 
| ** **                    | ** ** | **Three months ended September  30,** | ** ** | **Nine months ended September  30,** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                    | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Net Sales:**                |       |                                  |       |                                 |       |   |   |   |   |
| Polyurethanes                 |       | $                                     | 835.3      |                                 | $          | 732.0 |   | $ | 2,609.9 |   | $ | 2,069.3 |   |
| Performance  Products         |       | 462.4                                 |       | 493.7                                |       | 1,517.4 |   | 1,399.7 |   |
| Pigments                      |       | 256.6                                 |       | 261.6                                |       | 787.5 |   | 794.7 |   |
| Polymers                      |       | 427.6                                 |       | 380.9                                |       | 1,249.3 |   | 1,019.6 |   |
| Base  Chemicals               |       | 1,046.5                               |       | 985.5                                |       | 3,344.4 |   | 2,755.8 |   |
| Eliminations                  |       | (189.9                                | )          | (210.9                               | )          | (599.5 | ) | (589.8 | ) |
| Total                         |       | $                                     | 2,838.5    |                                 | $          | 2,642.8 |   | $ | 8,909.0 |   | $ | 7,449.3 |   |
|                          |       |                                  |       |                                 |       |   |   |   |   |
| **Segment EBITDA****(1):**    |       |                                  |       |                                 |       |   |   |   |   |
| Polyurethanes                 |       | $                                     | 193.7      |                                 | $          | 97.9 |   | $ | 535.0 |   | $ | 270.7 |   |
| Performance  Products         |       | 25.5                                  |       | 31.5                                 |       | 158.0 |   | 82.9 |   |
| Pigments                      |       | 22.6                                  |       | 22.2                                 |       | 86.5 |   | (53.6 | ) |
| Polymers                      |       | (5.8                                  | )          | 26.5                                 |       | 71.6 |   | 45.6 |   |
| Base  Chemicals               |       | 8.9                                   |       | 70.3                                 |       | 252.0 |   | 204.8 |   |
| Corporate  and other (2)      |       | (78.3                                 | )          | (13.1                                | )          | (238.5 | ) | (63.8 | ) |
| Total                         |       | $                                     | 166.6      |                                 | $          | 235.3 |   | $ | 864.6 |   | $ | 486.6 |   |
|                          |       |                                  |       |                                 |       |   |   |   |   |
| Segment EBITDA (1)            |       | $                                     | 166.6      |                                 | $          | 235.3 |   | $ | 864.6 |   | $ | 486.6 |   |
| Interest expense, net         |       | (92.2                                 | )          | (138.0                               | )          | (307.9 | ) | (415.5 | ) |
| Income tax (expense) benefit  |       | (3.1                                  | )          | 56.7                                 |       | (59.8 | ) | 49.2 |   |
| Depreciation and amortization |       | (105.2                                | )          | (111.3                               | )          | (317.3 | ) | (335.8 | ) |
| Net (loss)  income            |       | $                                     | (33.9      | )                                    | $          | 42.7 |   | $ | 179.6 |   | $ | (215.5 | ) |

 

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(1)                                  Segment EBITDA is defined as netincome (loss) before interest, depreciation and amortization and income taxes.

 

(2)                                  Corporateand other includes unallocated corporate overhead, loss on sale of accountsreceivable, foreign exchange gains or losses and other non-operating income(expense).

 

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**17.****          CondensedConsolidating Financial Statements**

 

The following unaudited condensed consolidating financialstatements present, in separate columns, financial information for thefollowing:  Huntsman International LLC(on a parent only basis), with our investment in subsidiaries recorded underthe equity method; the guarantors of our debt on a combined, and whereappropriate, consolidated basis; and non-guarantor subsidiaries on a combined,and where appropriate, consolidated basis. Additional columns presenteliminating adjustments and consolidated totals as of September 30, 2005and December 31, 2004 and for the three and nine months ended September 30,2005 and 2004. There are no contractual restrictions limiting transfers of cashfrom our guarantors to us. Each of our guarantors is 100% owned by us and hasfully and unconditionally guaranteed our notes on a joint and several basis.

 

27

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING BALANCE SHEETS(UNAUDITED)**

 

**AS OF SEPTEMBER 30, 2005**

 

**(Dollars in Millions)**

 
| ** **                                      | ** ** | **Parent Company** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| **Current assets:**                             |       |               |       |           |       |               |       |             |       |                                           |       |
| Cash and cash  equivalents                      |       | $                  | 19.9       |           | $          | 19.0               |       | $                | 98.4       |                                           | $          | — |   | $ | 137.3 |   |
| Accounts and  notes receivables, net            |       | 79.2               |       | 410.5          |       | 704.5              |       | 0.2              |       | 1,194.4                                        |       |
| Accounts  receivable from affiliates            |       | 451.5              |       | 993.6          |       | 374.1              |       | (1,807.3         | )          | 11.9                                           |       |
| Inventories, net                                |       | 114.5              |       | 383.0          |       | 643.2              |       | —           |       | 1,140.7                                        |       |
| Prepaid expenses                                |       | 3.9                |       | 45.2           |       | 31.4               |       | (19.7            | )          | 60.8                                           |       |
| Deferred income  taxes                          |       | (76.8              | )          | (0.3           | )          | 11.2               |       | 76.8             |       | 10.9                                           |       |
| Other current  assets                           |       | —             |       | —         |       | 29.8               |       | (8.8             | )          | 21.0                                           |       |
| **Total  current assets**                       |       | 592.2              |       | 1,851.0        |       | 1,892.6            |       | (1,758.8         | )          | 2,577.0                                        |       |
|                                            |       |               |       |           |       |               |       |             |       |                                           |       |
| Property, plant and equipment, net              |       | 572.6              |       | 1,302.9        |       | 2,176.8            |       | —           |       | 4,052.3                                        |       |
| Investment in unconsolidated affiliates         |       | 3,105.0            |       | 1,188.0        |       | 64.2               |       | (4,182.7         | )          | 174.5                                          |       |
| Intangible assets, net                          |       | 176.6              |       | 11.2           |       | 32.7               |       | (0.1             | )          | 220.4                                          |       |
| Goodwill                                        |       | —             |       | —         |       | 3.3                |       | —           |       | 3.3                                            |       |
| Deferred income taxes                           |       | 0.4                |       | 7.8            |       | 22.0               |       | —           |       | 30.2                                           |       |
| Receivables from affiliates                     |       | 2,196.5            |       | 1,733.7        |       | 5.2                |       | (3,930.2         | )          | 5.2                                            |       |
| Other noncurrent assets                         |       | 79.7               |       | 143.6          |       | 377.6              |       | —           |       | 600.9                                          |       |
|                                            |       |               |       |           |       |               |       |             |       |                                           |       |
| **Total  assets**                               |       | $                  | 6,723.0    |           | $          | 6,238.2            |       | $                | 4,574.4    |                                           | $          | (9,871.8 | ) | $ | 7,663.8 |   |
|                                            |       |               |       |           |       |               |       |             |       |                                           |       |
| **LIABILITIES  AND MEMBERS’ EQUITY**       |       |               |       |           |       |               |       |             |       |                                           |       |
| **Current liabilities:**                        |       |               |       |           |       |               |       |             |       |                                           |       |
| Accounts payable                                |       | $                  | 68.3       |           | $          | 321.0              |       | $                | 528.9      |                                           | $          | — |   | $ | 918.2 |   |
| Accounts payable  to affiliates                 |       | 1,153.0            |       | 252.9          |       | 415.2              |       | (1,807.1         | )          | 14.0                                           |       |
| Accrued  liabilities                            |       | 74.2               |       | 154.1          |       | 302.9              |       | 51.6             |       | 582.8                                          |       |
| Deferred income  taxes                          |       | 32.1               |       | (20.6          | )          | (0.4               | )          | (3.3             | )          | 7.8                                            |       |
| Current portion  of long-term debt              |       | 26.5               |       | 1.1            |       | 12.6               |       | —           |       | 40.2                                           |       |
| **Total  current liabilities**                  |       | 1,354.1            |       | 708.5          |       | 1,259.2            |       | (1,758.8         | )          | 1,563.0                                        |       |
|                                            |       |               |       |           |       |               |       |             |       |                                           |       |
| Long-term debt                                  |       | 4,001.6            |       | 10.8           |       | 109.6              |       | —           |       | 4,122.0                                        |       |
| Long-term debt to affiliates                    |       | 67.5               |       | 2,123.3        |       | 1,739.3            |       | (3,930.1         | )          | —                                         |       |
| Deferred income taxes                           |       | (23.6              | )          | 20.4           |       | 211.8              |       | —           |       | 208.6                                          |       |
| Other noncurrent liabilities                    |       | 129.9              |       | 170.9          |       | 254.2              |       | 3.2              |       | 558.2                                          |       |
| **Total  liabilities**                          |       | 5,529.5            |       | 3,033.9        |       | 3,574.1            |       | (5,685.7         | )          | 6,451.8                                        |       |
|                                            |       |               |       |           |       |               |       |             |       |                                           |       |
| **Minority interests**                          |       | —             |       | 92.9           |       | 12.6               |       | (87.0            | )          | 18.5                                           |       |
| **Members’ equity:**                       |       |               |       |           |       |               |       |             |       |                                           |       |
| Members’ equity                            |       | 2,581.7            |       | 2,370.7        |       | 1,137.8            |       | (3,508.5         | )          | 2,581.7                                        |       |
| Subsidiary  preferred stock                     |       | —             |       | 73.4           |       | 1.4                |       | (74.8            | )          | —                                         |       |
| Accumulated  deficit                            |       | (1,368.9           | )          | 525.7          |       | (62.3              | )          | (463.4           | )          | (1,368.9                                       | )          |
| Accumulated other  comprehensive (loss) income  |       | (19.3              | )          | 141.6          |       | (89.2              | )          | (52.4            | )          | (19.3                                          | )          |
| **Total  members’ equity**                 |       | 1,193.5            |       | 3,111.4        |       | 987.7              |       | (4,099.1         | )          | 1,193.5                                        |       |
|                                            |       |               |       |           |       |               |       |             |       |                                           |       |
| **Total  liabilities and members’ equity** |       | $                  | 6,723.0    |           | $          | 6,238.2            |       | $                | 4,574.4    |                                           | $          | (9,871.8 | ) | $ | 7,663.8 |   |

 

28

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING BALANCE SHEETS(UNAUDITED)**

 

**AS OF DECEMBER 31, 2004**

 

**(Dollars in Millions)**

 
| ** **                                                | ** ** | **Parent Company** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------|------------|--------------------|------------|----------------|------------|--------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                                |       |               |       |           |       |               |       |             |       |                                           |       |
| **Current assets:**                                       |       |               |       |           |       |               |       |             |       |                                           |       |
| Cash and cash  equivalents                                |       | $                  | 7.3        |           | $          | 3.1                |       | $                | 139.3      |                                           | $          | — |   | $ | 149.7 |   |
| Restricted cash                                           |       | 0.3                |       | 8.6            |       |               |       | —           |       | 8.9                                            |       |
| Accounts and  notes receivables, net                      |       | 77.8               |       | 455.6          |       | 817.6              |       | —           |       | 1,351.0                                        |       |
| Accounts  receivable from affiliates                      |       | 93.1               |       | 207.2          |       | 28.7               |       | (319.2           | )          | 9.8                                            |       |
| Inventories, net                                          |       | 122.4              |       | 303.9          |       | 648.1              |       | —           |       | 1,074.4                                        |       |
| Prepaid expenses                                          |       | 3.9                |       | 29.1           |       | 27.8               |       | (15.0            | )          | 45.8                                           |       |
| Deferred income  taxes                                    |       | (76.8              | )          | 76.8           |       | 10.9               |       | —           |       | 10.9                                           |       |
| Other current  assets                                     |       | 57.6               |       | 400.8          |       | 35.2               |       | (482.1           | )          | 11.5                                           |       |
| **Total  current assets**                                 |       | 285.6              |       | 1,485.1        |       | 1,707.6            |       | (816.3           | )          | 2,662.0                                        |       |
|                                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| Property, plant and equipment, net                        |       | 612.4              |       | 1,339.7        |       | 2,483.5            |       | —           |       | 4,435.6                                        |       |
| Investment in unconsolidated affiliates                   |       | 3,144.1            |       | 1,072.2        |       | 61.9               |       | (4,107.3         | )          | 170.9                                          |       |
| Intangible assets, net                                    |       | 198.6              |       | 10.9           |       | 45.3               |       | (2.4             | )          | 252.4                                          |       |
| Goodwill                                                  |       | —             |       | —         |       | 3.3                |       | —           |       | 3.3                                            |       |
| Deferred income taxes                                     |       | 0.4                |       | 7.8            |       | —             |       | —           |       | 8.2                                            |       |
| Receivables from affiliates                               |       | 2,219.6            |       | 1,963.7        |       | 27.2               |       | (4,186.9         | )          | 23.6                                           |       |
| Other noncurrent assets                                   |       | 115.9              |       | 152.5          |       | 399.7              |       | (6.5             | )          | 661.6                                          |       |
|                                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| **Total  assets**                                         |       | $                  | 6,576.6    |           | $          | 6,031.9            |       | $                | 4,728.5    |                                           | $          | (9,119.4 | ) | $ | 8,217.6 |   |
|                                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| **LIABILITIES  AND MEMBERS’ (DEFICIT) EQUITY**       |       |               |       |           |       |               |       |             |       |                                           |       |
| **Current liabilities:**                                  |       |               |       |           |       |               |       |             |       |                                           |       |
| Accounts payable                                          |       | $                  | 48.6       |           | $          | 281.0              |       | $                | 553.3      |                                           | $          | — |   | $ | 882.9 |   |
| Accounts payable  to affiliates                           |       | 57.7               |       | 157.8          |       | 134.0              |       | (319.2           | )          | 30.3                                           |       |
| Accrued  liabilities                                      |       | 476.9              |       | 246.9          |       | 445.0              |       | (495.9           | )          | 672.9                                          |       |
| Deferred income  taxes                                    |       | 45.6               |       | (37.4          | )          | —             |       | —           |       | 8.2                                            |       |
| Current portion  of long-term debt                        |       | 22.3               |       | 1.2            |       | 12.3               |       | —           |       | 35.8                                           |       |
| **Total  current liabilities**                            |       | 651.1              |       | 649.5          |       | 1,144.6            |       | (815.1           | )          | 1,630.1                                        |       |
|                                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| Long-term debt                                            |       | 5,359.1            |       | 43.2           |       | 48.6               |       | —           |       | 5,450.9                                        |       |
| Long-term debt to affiliates                              |       | 518.0              |       | 2,078.4        |       | 2,045.1            |       | (4,186.9         | )          | 454.6                                          |       |
| Deferred income taxes                                     |       | (34.2              | )          | 33.8           |       | 180.6              |       | —           |       | 180.2                                          |       |
| Other noncurrent liabilities                              |       | 159.7              |       | 170.6          |       | 241.6              |       | (1.8             | )          | 570.1                                          |       |
| **Total  liabilities**                                    |       | 6,653.7            |       | 2,975.5        |       | 3,660.5            |       | (5,003.8         | )          | 8,285.9                                        |       |
|                                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| **Minority interests**                                    |       | —             |       | 65.8           |       | 8.8                |       | (65.8            | )          | 8.8                                            |       |
| **Members’ (deficit) equity :**                      |       |               |       |           |       |               |       |             |       |                                           |       |
| Subsidiary  preferred stock                               |       | —             |       | 70.6           |       | 1.4                |       | (72.0            | )          | —                                         |       |
| Members’ equity                                      |       | 1,321.3            |       | 2,252.4        |       | 1,205.2            |       | (3,457.6         | )          | 1,321.3                                        |       |
| Additional paid  in capital                               |       | —             |       | 223.2          |       | 39.1               |       | (262.3           | )          | —                                         |       |
| Accumulated deficit                                       |       | (1,548.5           | )          | 97.0           |       | (182.5             | )          | 85.5             |       | (1,548.5                                       | )          |
| Accumulated other  comprehensive income (loss)            |       | 150.1              |       | 347.4          |       | (4.0               | )          | (343.4           | )          | 150.1                                          |       |
| **Total  members’ (deficit) equity**                 |       | (77.1              | )          | 2,990.6        |       | 1,059.2            |       | (4,049.8         | )          | (77.1                                          | )          |
|                                                      |       |               |       |           |       |               |       |             |       |                                           |       |
| **Total  liabilities and members’ (deficit) equity** |       | $                  | 6,576.6    |           | $          | 6,031.9            |       | $                | 4,728.5    |                                           | $          | (9,119.4 | ) | $ | 8,217.6 |   |

 

29

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING STATEMENTS OFOPERATIONS (UNAUDITED)**

 

**THREE MONTHS ENDED SEPTEMBER 30, 2005**

 

**(Dollars in Millions)**

 
| ** **                                                                              | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Revenues:**                                                                           |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                         |       | $                   | 304.5      |           | $          | 1,093.5              |       | $                | 1,409.9    |                                           | $          | — |   | $ | 2,807.9 |   |
| Related party  sales                                                                    |       | 45.3                |       | 54.8           |       | 193.2                |       | (262.7           | )          | 30.6                                           |       |
| Expense billed to  subsidiaries                                                         |       | 10.8                |       | (9.4           | )          | (1.4                 | )          | —           |       | —                                         |       |
| **Total revenues**                                                                      |       | 360.6               |       | 1,138.9        |       | 1,601.7              |       | (262.7           | )          | 2,838.5                                        |       |
| **Cost of goods sold**                                                                  |       | 271.0               |       | 1,021.3        |       | 1,480.9              |       | (261.7           | )          | 2,511.5                                        |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross profit**                                                                        |       | 89.6                |       | 117.6          |       | 120.8                |       | (1.0             | )          | 327.0                                          |       |
| Selling, general and administrative                                                     |       | 58.0                |       | 21.3           |       | 53.5                 |       | —           |       | 132.8                                          |       |
| Research and development                                                                |       | 5.6                 |       | 4.7            |       | 3.2                  |       | —           |       | 13.5                                           |       |
| Other operating (income) expense                                                        |       | (48.2               | )          | (7.0           | )          | 60.1                 |       | (0.2             | )          | 4.7                                            |       |
| Restructuring,  impairment and plant closing costs                                      |       | 1.6                 |       | 12.4           |       | 57.3                 |       | —           |       | 71.3                                           |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income (loss)**                                                            |       | 72.6                |       | 86.2           |       | (53.3                | )          | (0.8             | )          | 104.7                                          |       |
| Interest expense,  net                                                                  |       | (51.2               | )          | (4.7           | )          | (36.3                | )          | —           |       | (92.2                                          | )          |
| Gain (loss) on  accounts receivable securitization program                              |       | 2.4                 |       | (1.2           | )          | (4.5                 | )          | —           |       | (3.3                                           | )          |
| Equity in (loss)  income of investment in unconsolidated affiliates and subsidiaries    |       | (16.2               | )          | 29.8           |       | 1.9                  |       | (13.6            | )          | 1.9                                            |       |
| Dividend income -  affiliates                                                           |       | 4.6                 |       | —         |       | —               |       | (4.6             | )          | —                                         |       |
| Other (expense)  income                                                                 |       | (44.9               | )          | 4.7            |       | (2.5                 | )          | 1.8              |       | (40.9                                          | )          |
| **(Loss)  income from continuing operations before income taxes and minority interest** |       | (32.7               | )          | 114.8          |       | (94.7                | )          | (17.2            | )          | (29.8                                          | )          |
| Income tax  expense                                                                     |       | (0.7                | )          | (0.5           | )          | (1.9                 | )          | —           |       | (3.1                                           | )          |
| Minority interest                                                                       |       | 0.1                 |       | (1.2           | )          | (0.1                 | )          | 0.8              |       | (0.4                                           | )          |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **(Loss)  income from continuing operations**                                           |       | (33.3               | )          | 113.1          |       | (96.7                | )          | (16.4            | )          | (33.3                                          | )          |
| Loss from  discontinued operations, net of tax                                          |       | (0.6                | )          | —         |       | —               |       | —           |       | (0.6                                           | )          |
| **Net (loss) income**                                                                   |       | $                   | (33.9      | )              | $          | 113.1                |       | $                | (96.7      | )                                              | $          | (16.4 | ) | $ | (33.9 | ) |

 

30

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING STATEMENTS OFOPERATIONS (UNAUDITED)**

 

**THREE MONTHS ENDED SEPTEMBER 30, 2004**

 

**(Dollars in Millions)**

 
| ** **                                                                              | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Revenues:**                                                                           |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                         |       | $                   | 332.9      |           | $          | 1,004.5              |       | $                | 1,290.5    |                                           | $          | (1.0 | ) | $ | 2,626.9 |   |
| Related party  sales                                                                    |       | 41.6                |       | 54.4           |       | 24.1                 |       | (104.2           | )          | 15.9                                           |       |
| Expense billed to  subsidiaries                                                         |       | (3.9                | )          | 5.4            |       | (1.5                 | )          | —           |       | —                                         |       |
| **Total revenues**                                                                      |       | 370.6               |       | 1,064.3        |       | 1,313.1              |       | (105.2           | )          | 2,642.8                                        |       |
| **Cost of goods sold**                                                                  |       | 311.6               |       | 969.7          |       | 1,154.7              |       | (102.0           | )          | 2,334.0                                        |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross profit**                                                                        |       | 59.0                |       | 94.6           |       | 158.4                |       | (3.2             | )          | 308.8                                          |       |
| Selling, general and administrative                                                     |       | 35.2                |       | 13.4           |       | 71.5                 |       | (2.9             | )          | 117.2                                          |       |
| Research and development                                                                |       | 8.2                 |       | 5.1            |       | 0.6                  |       | —           |       | 13.9                                           |       |
| Other operating expense (income)                                                        |       | 5.4                 |       | (2.8           | )          | 5.8                  |       | —           |       | 8.4                                            |       |
| Restructuring,  impairment and plant closing costs                                      |       | 0.2                 |       | 5.0            |       | 38.0                 |       | —           |       | 43.2                                           |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income**                                                                   |       | 10.0                |       | 73.9           |       | 42.5                 |       | (0.3             | )          | 126.1                                          |       |
| Interest expense,  net                                                                  |       | (92.7               | )          | (6.2           | )          | (39.1                | )          | —           |       | (138.0                                         | )          |
| Gain (loss) on  accounts receivable securitization program                              |       | 1.6                 |       | (1.2           | )          | (4.1                 | )          | —           |       | (3.7                                           | )          |
| Equity in income  of investment in unconsolidated affiliates and subsidiaries           |       | 159.2               |       | 71.4           |       | 1.3                  |       | (230.6           | )          | 1.3                                            |       |
| Other (expense)  income                                                                 |       | (2.3                | )          | 4.7            |       | 3.1                  |       | (2.4             | )          | 3.1                                            |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Income  (loss) from continuing operations before income taxes and minority interest** |       | 75.8                |       | 142.6          |       | 3.7                  |       | (233.3           | )          | (11.2                                          | )          |
| Income tax  (expense) benefit                                                           |       | (30.3               | )          | 30.4           |       | 56.6                 |       | —           |       | 56.7                                           |       |
| Minority interest                                                                       |       | —              |       | 1.9            |       | —               |       | (1.9             | )          | —                                         |       |
| **Income  from continuing operations**                                                  |       | 45.5                |       | 174.9          |       | 60.3                 |       | (235.2           | )          | 45.5                                           |       |
| Loss from  discontinued operations, net of tax                                          |       | (2.8                | )          | —         |       | —               |       | —           |       | (2.8                                           | )          |
| **Net income**                                                                          |       | $                   | 42.7       |           | $          | 174.9                |       | $                | 60.3       |                                           | $          | (235.2 | ) | $ | 42.7 |   |

 

31

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING STATEMENTS OFOPERATIONS (UNAUDITED)**

 

**NINE MONTHS ENDED SEPTEMBER 30, 2005**

 

**(Dollars in Millions)**

 
| ** **                                                                           | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
|                                                                                 |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Revenues:**                                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                      |       | $                   | 1,013.5    |           | $          | 3,351.4              |       | $                | 4,417.4    |                                           | $          | — |   | $ | 8,782.3 |   |
| Related party  sales                                                                 |       | 205.2               |       | 198.1          |       | 719.2                |       | (995.8           | )          | 126.7                                          |       |
| Expense billed to  subsidiaries                                                      |       | 30.4                |       | (28.1          | )          | (2.3                 | )          | —           |       | —                                         |       |
| **Total  revenues**                                                                  |       | 1,249.1             |       | 3,521.4        |       | 5,134.3              |       | (995.8           | )          | 8,909.0                                        |       |
| **Cost of  goods sold**                                                              |       | 967.4               |       | 3,104.3        |       | 4,546.0              |       | (993.3           | )          | 7,624.4                                        |       |
|                                                                                 |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross profit**                                                                     |       | 281.7               |       | 417.1          |       | 588.3                |       | (2.5             | )          | 1,284.6                                        |       |
| Selling, general  and administrative                                                 |       | 150.9               |       | 67.8           |       | 174.4                |       | (0.6             | )          | 392.5                                          |       |
| Research and  development                                                            |       | 24.1                |       | 14.7           |       | 7.7                  |       | —           |       | 46.5                                           |       |
| Other operating  (income) expense                                                    |       | (23.7               | )          | 18.7           |       | 37.7                 |       | —           |       | 32.7                                           |       |
| Restructuring,  impairment and plant closing costs                                   |       | 1.4                 |       | 16.8           |       | 82.9                 |       | —           |       | 101.1                                          |       |
|                                                                                 |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income**                                                                |       | 129.0               |       | 299.1          |       | 285.6                |       | (1.9             | )          | 711.8                                          |       |
| Interest expense,  net                                                               |       | (179.1              | )          | (17.3          | )          | (111.5               | )          | —           |       | (307.9                                         | )          |
| Gain (loss) on  accounts receivable securitization program                           |       | 12.1                |       | (2.8           | )          | (18.2                | )          | —           |       | (8.9                                           | )          |
| Equity in income  of investment in unconsolidated affiliates and subsidiaries        |       | 378.6               |       | 203.3          |       | 7.0                  |       | (581.9           | )          | 7.0                                            |       |
| Dividend income -  affiliates                                                        |       | 4.6                 |       | —         |       | —               |       | (4.6             | )          | —                                         |       |
| Other (expense)  income                                                              |       | (120.8              | )          | 4.7            |       | (4.2                 | )          | 1.8              |       | (118.5                                         | )          |
| **Income  from continuing operations before income taxes and minority interest**     |       | 224.4               |       | 487.0          |       | 158.7                |       | (586.6           | )          | 283.5                                          |       |
| Income tax  expense                                                                  |       | (1.2                | )          | (0.5           | )          | (58.1                | )          | —           |       | (59.8                                          | )          |
| Minority interest                                                                    |       | —              |       | (27.3          | )          | (0.1                 | )          | 26.9             |       | (0.5                                           | )          |
|                                                                                 |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Income  from continuing operations**                                               |       | 223.2               |       | 459.2          |       | 100.5                |       | (559.7           | )          | 223.2                                          |       |
| Loss from  discontinued operations (including loss on disposal of $36.4), net of tax |       | (43.6               | )          | —         |       | —               |       | —           |       | (43.6                                          | )          |
| **Net  income**                                                                      |       | $                   | 179.6      |           | $          | 459.2                |       | $                | 100.5      |                                           | $          | (559.7 | ) | $ | 179.6 |   |

 

32

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING STATEMENTS OFOPERATIONS (UNAUDITED)**

 

**NINE MONTHS ENDED SEPTEMBER 30, 2004**

 

**(Dollars in Millions)**

 
| ** **                                                                              | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Revenues:**                                                                           |       |                |       |           |       |                 |       |             |       |                                           |       |
| Trade sales,  services and fees                                                         |       | $                   | 890.1      |           | $          | 2,757.4              |       | $                | 3,762.6    |                                           | $          | (1.0 | ) | $ | 7,409.1 |   |
| Related party  sales                                                                    |       | 138.2               |       | 165.0          |       | 75.5                 |       | (338.5           | )          | 40.2                                           |       |
| Expense billed to  subsidiaries                                                         |       | (8.7                | )          | 10.4           |       | (1.7                 | )          | —           |       | —                                         |       |
| **Total  revenues**                                                                     |       | 1,019.6             |       | 2,932.8        |       | 3,836.4              |       | (339.5           | )          | 7,449.3                                        |       |
| **Cost of  goods sold**                                                                 |       | 831.3               |       | 2,728.9        |       | 3,414.8              |       | (330.0           | )          | 6,645.0                                        |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross profit**                                                                        |       | 188.3               |       | 203.9          |       | 421.6                |       | (9.5             | )          | 804.3                                          |       |
| Selling, general  and administrative                                                    |       | 118.5               |       | 75.5           |       | 184.8                |       | (9.3             | )          | 369.5                                          |       |
| Research and  development                                                               |       | 23.6                |       | 15.3           |       | 7.4                  |       | —           |       | 46.3                                           |       |
| Other operating  expense (income)                                                       |       | 12.2                |       | (4.3           | )          | 14.9                 |       | —           |       | 22.8                                           |       |
| Restructuring,  impairment and plant closing costs                                      |       | 0.2                 |       | 5.2            |       | 197.0                |       | —           |       | 202.4                                          |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Operating  income**                                                                   |       | 33.8                |       | 112.2          |       | 17.5                 |       | (0.2             | )          | 163.3                                          |       |
| Interest expense,  net                                                                  |       | (280.9              | )          | (14.0          | )          | (120.6               | )          | —           |       | (415.5                                         | )          |
| Gain (loss) on  accounts receivable securitization program                              |       | 3.6                 |       | (2.2           | )          | (11.6                | )          | —           |       | (10.2                                          | )          |
| Equity in income (loss)  of investment in unconsolidated affiliates and subsidiaries    |       | 28.0                |       | (50.9          | )          | 3.0                  |       | 22.9             |       | 3.0                                            |       |
| Other (expense)  income                                                                 |       | (10.4               | )          | 5.1            |       | 6.9                  |       | (2.4             | )          | (0.8                                           | )          |
| **(Loss) income  from continuing operations before income taxes and minority interest** |       | (225.9              | )          | 50.2           |       | (104.8               | )          | 20.3             |       | (260.2                                         | )          |
| Income tax benefit  (expense)                                                           |       | 14.9                |       | (12.7          | )          | 47.0                 |       | —           |       | 49.2                                           |       |
| Minority interest                                                                       |       | —              |       | 3.4            |       | —               |       | (3.4             | )          | —                                         |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **(Loss) income  from continuing operations**                                           |       | (211.0              | )          | 40.9           |       | (57.8                | )          | 16.9             |       | (211.0                                         | )          |
| Loss from  discontinued operations, net of tax                                          |       | (4.5                | )          | —         |       | —               |       | —           |       | (4.5                                           | )          |
| **Net (loss) income**                                                                   |       | $                   | (215.5     | )              | $          | 40.9                 |       | $                | (57.8      | )                                              | $          | 16.9 |   | $ | (215.5 | ) |

 

33

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING STATEMENTS OF CASHFLOWS (UNAUDITED)**

 

**NINE MONTHS ENDED SEPTEMBER 30, 2005**

 

**(Dollars in Millions)**

 
| ** **                                                  | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash provided by operating activities**               |       | $                   | 353.7      |           | $          | 179.5                |       | $                | 185.3      |                                           | $          | (4.0 | ) | $ | 714.5 |   |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing activities:**                                   |       |                |       |           |       |                 |       |             |       |                                           |       |
| Capital expenditures                                        |       | (18.1               | )          | (42.9          | )          | (125.5               | )          | —           |       | (186.5                                         | )          |
| Investment in unconsolidated affiliates                     |       | —              |       | —         |       | (8.0                 | )          | —           |       | (8.0                                           | )          |
| Proceeds from sale of assets                                |       | 4.5                 |       | 0.1            |       | 0.5                  |       | —           |       | 5.1                                            |       |
| Net cash received from unconsolidated affiliates            |       | —              |       | 5.1            |       | —               |       | —           |       | 5.1                                            |       |
| Change in restricted cash                                   |       | 0.3                 |       | 8.6            |       | —               |       | —           |       | 8.9                                            |       |
| **Net cash used in investing activities**                   |       | (13.3               | )          | (29.1          | )          | (133.0               | )          | —           |       | (175.4                                         | )          |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing activities:**                                   |       |                |       |           |       |                 |       |             |       |                                           |       |
| Net (repayment) borrowings under revolving loan  facilities |       | (125.0              | )          | —         |       | 7.9                  |       | —           |       | (117.1                                         | )          |
| Repayment of long-term debt                                 |       | (3,057.4            | )          | (0.9           | )          | (2.2                 | )          | —           |       | (3,060.5                                       | )          |
| Proceeds from long-term debt                                |       | 1,853.6             |       | —         |       | 19.5                 |       | —           |       | 1,873.1                                        |       |
| Payments on notes payable                                   |       | (24.0               | )          | —         |       | —               |       | —           |       | (24.0                                          | )          |
| Dividends paid                                              |       | —              |       | (4.6           | )          | —               |       | 4.6              |       | —                                         |       |
| Net borrowings of overdraft facility                        |       | —              |       | —         |       | 19.2                 |       | (1.9             | )          | 17.3                                           |       |
| Contribution from minority shareholder                      |       | —              |       | —         |       | 3.6                  |       | —           |       | 3.6                                            |       |
| Debt issuance costs paid                                    |       | (15.4               | )          | —         |       | —               |       | —           |       | (15.4                                          | )          |
| Cost of early extinguishment of debt                        |       | (64.1               | )          | —         |       | —               |       | —           |       | (64.1                                          | )          |
| Intercompany advances – net of repayments              |       | 146.9               |       | (121.2         | )          | (27.0                | )          | 1.3              |       | —                                         |       |
| Contribution from (distribution to) affiliate, net          |       | 120.5               |       | (8.1           | )          | (112.4               | )          | —           |       | —                                         |       |
| Contribution from parent                                    |       | 837.6               |       | —         |       | —               |       | —           |       | 837.6                                          |       |
| **Net cash used in financing activities**                   |       | (327.3              | )          | (134.8         | )          | (91.4                | )          | 4.0              |       | (549.5                                         | )          |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of exchange rate changes on cash                     |       | (0.5                | )          | 0.3            |       | (1.8                 | )          | —           |       | (2.0                                           | )          |
|                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| Increase (decrease) in cash and cash equivalents            |       | 12.6                |       | 15.9           |       | (40.9                | )          | —           |       | (12.4                                          | )          |
| Cash and cash equivalents at beginning of period            |       | 7.3                 |       | 3.1            |       | 139.3                |       | —           |       | 149.7                                          |       |
| Cash and cash equivalents at end of period                  |       | $                   | 19.9       |           | $          | 19.0                 |       | $                | 98.4       |                                           | $          | — |   | $ | 137.3 |   |

 

34

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATING STATEMENTS OF CASHFLOWS (UNAUDITED)**

 

**NINE MONTHS ENDED SEPTEMBER 30, 2004**

 

**(Dollars in Millions)**

 
| ** **                                               | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net cash (used in) provided by operating  activities** |       | $                   | (163.7     | )              | $          | 194.0                |       | $                | 30.4       |                                           | $          | 2.4 |   | $ | 63.1 |   |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing activities:**                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Capital expenditures                                     |       | (8.2                | )          | (40.6          | )          | (88.9                | )          | —           |       | (137.7                                         | )          |
| Investment in unconsolidated affiliates                  |       | —              |       | —         |       | (11.8                | )          | —           |       | (11.8                                          | )          |
| Proceeds from sale of assets                             |       | 0.1                 |       | —         |       | —               |       | —           |       | 0.1                                            |       |
| Net cash received from unconsolidated affiliates         |       | —              |       | 7.3            |       | —               |       | —           |       | 7.3                                            |       |
| Change in restricted cash                                |       | —              |       | (7.5           | )          | —               |       | —           |       | (7.5                                           | )          |
| **Net cash used in investing activities**                |       | (8.1                | )          | (40.8          | )          | (100.7               | )          | —           |       | (149.6                                         | )          |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing activities:**                                |       |                |       |           |       |                 |       |             |       |                                           |       |
| Net borrowings under revolving loan facilities           |       | 70.8                |       | —         |       | —               |       | —           |       | 70.8                                           |       |
| Repayment of long-term debt                              |       | (1,606.3            | )          | (37.4          | )          | (85.6                | )          | —           |       | (1,729.3                                       | )          |
| Proceeds from long-term debt                             |       | 1,769.6             |       | —         |       | 57.9                 |       | —           |       | 1,827.5                                        |       |
| Payments on notes payable                                |       | (8.6                | )          | —         |       | —               |       | —           |       | (8.6                                           | )          |
| Dividends (paid) received                                |       | (4.9                | )          | 7.3            |       | —               |       | (2.4             | )          | —                                         |       |
| Net repayments of overdraft facility                     |       | (7.5                | )          | —         |       | —               |       | —           |       | (7.5                                           | )     |
| Contribution from minority shareholder                   |       | —              |       | —         |       | 2.7                  |       | —           |       | 2.7                                            |       |
| Debt issuance costs paid                                 |       | (25.5               | )          | —         |       | —               |       | —           |       | (25.5                                          | )          |
| Intercompany advances - net of repayments                |       | (26.5               | )          | (120.7         | )          | 147.2                |       | —           |       | —                                         |       |
| **Net cash provided by (used in) financing  activities** |       | 161.1               |       | (150.8         | )          | 122.2                |       | (2.4             | )          | 130.1                                          |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of exchange rate changes on cash                  |       | (1.2                | )          | (1.9           | )          | 3.2                  |       | —           |       | 0.1                                            |       |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| (Decrease) increase in cash and cash equivalents         |       | (11.9               | )          | 0.5            |       | 55.1                 |       | —           |       | 43.7                                           |       |
| Cash and cash equivalents at beginning of period         |       | 18.3                |       | (0.8           | )          | 99.8                 |       | —           |       | 117.3                                          |       |
| Cash and cash equivalents at end of period               |       | $                   | 6.4        |           | $          | (0.3                 | )          | $                | 154.9      |                                           | $          | — |   | $ | 161.0 |   |

 

35

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**ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OFRESULTS OF OPERATIONS**

 

This Management’s Narrative Analysis ofResults of Operations is included in lieu of Management’s Discussion andAnalysis of Financial Condition and Results of Operations pursuant to GeneralInstruction H of Form 10-Q.

 

**Forward-looking Statements**

 

Some of the statements contained in thisreport are forward-looking in nature. In some cases, you can identify forward-lookingstatements 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 andoperations are subject to a variety of risks and uncertainties, and,consequently, our actual results may materially differ from those projected byany forward-looking statements. Some of the risks and uncertainties arediscussed below in “—Cautionary Statement for Forward Looking Information” andelsewhere in this report.

 

**Certain Defined Terms**

 

For convenience in this report, the terms “Company,”“our,” “us” or “we” may be used to refer to Huntsman International LLC and,unless the context otherwise requires, its subsidiaries. In this report, “HIH”refers to Huntsman International Holdings LLC, “Huntsman LLC” or “HLLC” refersto Huntsman LLC and, unless the context otherwise requires, its subsidiaries, “HuntsmanCorporation” refers to Huntsman Corporation and its predecessors, and, unlessthe context otherwise requires, their subsidiaries, “AdMat” refers to HuntsmanAdvanced Materials LLC and, unless the context otherwise requires, itssubsidiaries and “ICI” refers to Imperial Chemical Industries PLC and, unlessthe context otherwise requires, its subsidiaries.

 

36

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** **

**Overview**

 

We are among the world’s largest globalmanufacturers of differentiated and commodity chemical products. We manufacturea broad range of chemical products and formulations, which are marketedglobally to a diversified group of consumer and industrial customers. We are aleading global producer in many of our key product lines, including MDI,amines, surfactants, maleic anhydride and titanium dioxide. We operatemanufacturing facilities located around the world. Our business is organizedaround our five operating and reporting segments: Polyurethanes, PerformanceProducts, Pigments, Polymers and Base Chemicals. The major products of eachreportable operating segment are as follows:

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

 

Our products are divided into two broad categories—differentiated andcommodity chemicals. Our Polyurethanes and Performance Products segmentsproduce differentiated products, and our Pigments, Polymers and Base Chemicalssegments produce commodity chemicals. Among our commodity products, ourPigments business, while cyclical, is influenced largely by seasonal demandpatterns in the coatings industry. Certain products in our Polymers segmentalso follow different trends than petrochemical commodities as a result of ourniche marketing strategy for such products that focuses on supplying customizedformulations. Nevertheless, each of our five operating segments is impacted tosome degree by economic conditions, prices of raw materials and global supplyand demand pressures.

 

Growth in our Polyurethanes segment has been driven by the continuedsubstitution of our products for other materials across a broad range ofapplications as well as the level of global economic activity. Historically,demand for many of these products has grown at rates in excess of grossdomestic product (“GDP”) growth. For the nine months ended September 30,2005, the profitability of our Polyurethanes segment improved due to strongdemand in several of our key industrial end markets. This has allowed us toincrease selling prices, which has more than offset increases in the cost ofour primary raw materials, including benzene, natural gas, propylene andchlorine.

 

The global PO market is influenced by supply and demandimbalances. PO demand is largely driven by growth in the polyurethaneindustry, and, as a result, growth rates for PO have generally exceededGDP growth rates. As a co-product of our PO manufacturing process, we alsoproduce MTBE. MTBE is an oxygenate that is blended with gasoline to reduceharmful vehicle emissions and to enhance the octane rating of gasoline. See “Note11. Environmental, Health and Safety Matters—MTBE Developments” to ourcondensed consolidated financial statements (unaudited) for more information onthe legal and regulatory developments that may curtail or eliminate the use ofMTBE in gasoline in the U.S.

 

In our Performance Products segment, demand for our performancespecialties has generally grown at rates in excess of GDP growth rates asoverall demand is significantly influenced by new product and applicationdevelopment. Overall demand for most of our performance intermediates hasgenerally been stable. On average, maleic anhydride demand grows at a slightlyhigher rate than GDP; however, given its dependence on the construction market,maleic anhydride growth rates can be cyclical.

 

Historically, demand for titanium dioxide pigments has grown at ratesapproximately equal to global GDP growth. Pigment prices have historicallyreflected industry-wide operating rates but have typically lagged behindmovements in these rates by up to twelve months due to the effects of productstocking and destocking by customers and producers, contract arrangements andseasonality. The industry experiences some seasonality in its sales becausesales of paints, the largest end use for titanium dioxide, generally peak duringthe spring and summer months in the northern hemisphere. This results ingreater sales volumes in the second and third quarters of the year.

 

The profitability of our Polymers and Base Chemicals commodity productshas historically been cyclical in nature. Down cycles typically result from significant capacity additions, weakdemand resulting from soft economic conditions and may also be significantlyimpacted by high crude oil and natural gas-based raw material costs. Theprofitability of our Polymers and Base Chemicals segments increased during 2004and during the first quarter of 2005, but declined during the second and thirdquarters of 2005, as average selling prices and profit margins fell in most ofour product lines and raw material costs increased.

 

37

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**Recent Developments**

 

**U.S. Gulf Coast Storms and PO/MTBE Restart**

 

Following Hurricane Katrina, HuntsmanCorporation, our parent, announced that none of our manufacturing facilitiessustained serious structural damage and that all of our impacted facilitieswere up and operating with minimal disruption.

 

On September 22, 2005, prior toHurricane Rita, Huntsman Corporation announced that we had suspended operationsat our Gulf Coast facilities in Port Arthur, Conroe, Freeport, Chocolate Bayouand Dayton, Texas and in Lake Charles, Louisiana. Shortly after Hurricane Rita,Huntsman Corporation announced that our facilities at Conroe, Freeport,Chocolate Bayou and Dayton, Texas commenced operations and, on October 10,2005, announced that our titanium dioxide facility at Lake Charles, Louisianaand our butadiene plant at Port Neches, Texas restarted.

 

On October 13, 2005, HuntsmanCorporation announced that our major propylene oxide/MTBE unit in Port Neches,Texas (the “PO/MTBE Unit”) restarted. Unrelated to the hurricanes, on August 25,2005, the PO/MTBE Unit was temporarily shut down for unscheduled maintenanceand repairs.  We completed themaintenance and repair work prior to Hurricane Rita, but suspended the restartin response to the hurricane.  Weestimate that the unplanned maintenance at our PO/MTBE unit negatively impactedour third quarter 2005 EBITDA by approximately $32 million.

 

On October 23, 2005, we restarted oursmaller olefins unit at Port Neches, Texas, allowing us to resume fullproduction of our surfactants and amines products, and we have since restartedour larger olefins unit at Port Arthur, Texas. All of our principal operating units are now in operation.

 

Certain of our products were temporarilynegatively impacted by restrictions on the availability of certain rawmaterials as well as logistics and transportation limitations.  In addition, certain of our suppliers andcustomers in the Gulf Coast region sustained damage to their operations, whichtemporarily impacted their ability to deliver and purchase products.

 

The U.S. Gulf Coast storms, on top of analready high cost raw material environment, have generally resulted inincreases in the cost of energy and many of our key feedstocks.  Because of higher raw material and energycosts and in response to increasingly tighter supplies in certain markets, wehave recently announced price increases in many of our primary products. Weestimate the negative impact of  the U.S.Gulf Coast storms on our third quarter 2005 EBITDA was approximately $27million.

 

While we cannot yet determine the full effecton our operations going forward, we estimate that the negative impact of theU.S. Gulf Coast storms on our fourth quarter 2005 EBITDA will be approximately$130 million.

 

**Merger with Huntsman LLC and HIH**

 

OnAugust 16, 2005, Huntsman LLC and HIH merged with and into our Company(the “Merger”).  We are, and each of Huntsman LLC and HIH was, a direct orindirect wholly owned subsidiary of Huntsman Corporation.  HuntsmanCorporation effected the Merger to simplify the consolidated group’s financingand public reporting structure, to reduce its cost of financing and tofacilitate other organizational efficiencies.  As a result of the Merger,we succeeded to the assets, rights and obligations of Huntsman LLC.  In particular, we entered into supplementalindentures under which we assumed the obligations of Huntsman LLC under itsoutstanding 11.625% senior secured notes due 2010 ($296 million outstandingprincipal amount), 11.5% senior notes due 2012 ($198 million outstandingprincipal amount) and senior floating rate notes due 2011 ($100 millionoutstanding principal amount) (collectively, the “Former HLLCNotes”).  Our subsidiaries that previously guaranteed our outstanding debtsecurities have provided guarantees of the Former HLLC Notes, and allsubsidiaries of Huntsman LLC that guaranteed the Former HLLC Notes prior to theMerger executed supplemental indentures to guarantee all of our outstandingdebt securities.

 

 We did not pay any consideration for theequity of Huntsman LLC or HIH in connection with the Merger other than theissuance of additional membership interests to Huntsman Corporation in exchangefor its ownership interest in Huntsman LLC and HIH.

 

**New Credit Facilities**

 

OnAugust 16, 2005, effective upon completion of the Merger, we repaid ourexisting secured credit facilities (the “Former HI Credit Facilities”),Huntsman LLC’s secured credit facilities (the “Former HLLC Credit Facilities”)and a subordinated note with an aggregate principal amount of $106.6 million(the “Huntsman Specialty Subordinated Note”) with available cash on hand andthe proceeds of facilities under a new senior secured credit agreement (the“New Credit Facilities”), consisting of (i) a $650 million revolving creditfacility (the “Revolving Facility”) (of which $143 million was drawn uponcompletion of the Merger), (ii) a $1,730 million term loan (the “DollarTerm Facility”), and (iii) a €100 million (approximately $123.5 million)term loan (the “Euro Term Facility”).  In addition, immediately prior tothe Merger, Huntsman LLC funded the redemption of its outstanding 9.5% seniorsubordinated notes due 2007 and its senior subordinated floating rate notes due2007, which together had an aggregate outstanding principal amount ofapproximately $59 million.  Theredemption of such notes was completed on September 1, 2005.  In connection with the Merger and relatedfinancing, we temporarily (through March 31, 2006) increased the capacityof our accounts receivable securitization program (the “A/R SecuritizationProgram”) by $50 million to approximately $375 million U.S. dollarequivalents. All of the initial borrowings under the Revolving Facilitywere repaid a few days later with proceeds provided under the expanded A/RSecuritization Program.

 

38

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**Results ofOperations**

 

The following sets forth the unauditedcondensed consolidated results of operations for the three and nine monthsended September 30, 2005 and 2004 (dollars in millions).

 
| ** **                                                                              | ** ** | **Three months ended** | ** ** | ** **  | ** ** | **Nine months ended**  | ** ** | ** **  | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------|------------|-------------|------------|------------------------|------------|-------------|------------|
| ** **                                                                              | ** ** | **September 30,** | ** ** | **Percent** | ** ** | **September 30,** | ** ** | **Percent** | ** ** |
| ** **                                                                              | ** ** | **2005**               | ** ** | **2004**    | ** ** | **Change**             | ** ** | **2005**    | ** ** | **2004** | ** ** | **Change** | ** ** |
|                                                                                    |       |                   |       |        |       |                   |       |        |       |   |   |   |   |
| **Revenues**                                                                            |       | $                      | 2,838.5    |        | $          | 2,642.8                |       | 7           | %          | $ | 8,909.0 |   | $ | 7,449.3 |   | 20 | % |
| **Cost of goods sold**                                                                  |       | 2,511.5                |       | 2,334.0     |       | 8                      | %          | 7,624.4     |       | 6,645.0 |   | 15 | % |
| **Gross profit**                                                                        |       | 327.0                  |       | 308.8       |       | 6                      | %          | 1,284.6     |       | 804.3 |   | 60 | % |
| Operating  expenses                                                                     |       | 151.0                  |       | 139.5       |       | 8                      | %          | 471.7       |       | 438.6 |   | 8 | % |
| Restructuring,  impairment and plant closing costs                                      |       | 71.3                   |       | 43.2        |       | 65                     | %          | 101.1       |       | 202.4 |   | (50 | )% |
| **Operating income**                                                                    |       | 104.7                  |       | 126.1       |       | (17                    | )%         | 711.8       |       | 163.3 |   | 336 | % |
|                                                                                    |       |                   |       |        |       |                   |       |        |       |   |   |   |   |
| Interest expense,  net                                                                  |       | (92.2                  | )          | (138.0      | )          | (33                    | )%         | (307.9      | )          | (415.5 | ) | (26 | )% |
| Loss on accounts  receivable securitization program                                     |       | (3.3                   | )          | (3.7        | )          | (11                    | )%         | (8.9        | )          | (10.2 | ) | (13 | )% |
| Equity in income  of unconsolidated affiliates                                          |       | 1.9                    |       | 1.3         |       | 46                     | %          | 7.0         |       | 3.0 |   | 133 | % |
| Other (expense)  income                                                                 |       | (40.9                  | )          | 3.1         |       | NM                     |       | (118.5      | )          | (0.8 | ) | NM |   |
|                                                                                    |       |                   |       |        |       |                   |       |        |       |   |   |   |   |
| **(Loss) income from continuing operations before income taxes and  minority interest** |       | (29.8                  | )          | (11.2       | )          | 166                    | %          | 283.5       |       | (260.2 | ) | NM |   |
| Income tax  (expense) benefit                                                           |       | (3.1                   | )          | 56.7        |       | NM                     |       | (59.8       | )          | 49.2 |   | NM |   |
| Minority interest                                                                       |       | (0.4                   | )          | —      |       | NM                     |       | (0.5        | )          | — |   | NM |   |
| Loss from  discontinued operations, net of tax                                          |       | (0.6                   | )          | (2.8        | )          | (79                    | )%         | (43.6       | )          | (4.5 | ) | 869 | % |
| **Net (loss) income**                                                                   |       | (33.9                  | )          | 42.7        |       | NM                     |       | 179.6       |       | (215.5 | ) | NM |   |
|                                                                                    |       |                   |       |        |       |                   |       |        |       |   |   |   |   |
| Interest expense,  net                                                                  |       | 92.2                   |       | 138.0       |       | (33                    | )%         | 307.9       |       | 415.5 |   | (26 | )% |
| Income tax  expense (benefit)                                                           |       | 3.1                    |       | (56.7       | )          | NM                     |       | 59.8        |       | (49.2 | ) | NM |   |
| Depreciation and  amortization                                                          |       | 105.2                  |       | 111.3       |       | (5                     | )%         | 317.3       |       | 335.8 |   | (6 | )% |
|                                                                                    |       |                   |       |        |       |                   |       |        |       |   |   |   |   |
| **EBITDA (1)**                                                                          |       | $                      | 166.6      |        | $          | 235.3                  |       | (29         | )%         | $ | 864.6 |   | $ | 486.6 |   | 78 | % |

 

----

NM- Not Meaningful

 

39

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Included in EBITDA are the following items ofexpense (dollars in millions):

 
| ** **                                               | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                               | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                     |       |                                       |       |                                      |       |   |   |   |   |
| Loss on accounts  receivable securitization program      |       | $                                          | (3.3       | )                                         | $          | (3.7 | ) | $ | (8.9 | ) | $ | (10.2 | ) |
| Loss from  discontinued operations, net                  |       | (0.6                                       | )          | (2.8                                      | )          | (43.6 | ) | (4.5 | ) |
| Legal  settlements, net of recoveries                    |       | —                                     |       | —                                    |       | — |   | (14.9 | ) |
| (Loss) gain on  early extinguishment of debt             |       | (38.5                                      | )          | 2.3                                       |       | (114.5 | ) | (1.9 | ) |
|                                                     |       |                                       |       |                                      |       |   |   |   |   |
| Restructuring,  impairment and plant closing costs:      |       |                                       |       |                                      |       |   |   |   |   |
| Polyurethanes                                            |       | $                                          | (0.9       | )                                         | $          | (9.9 | ) | $ | (5.0 | ) | $ | (32.8 | ) |
| Performance  Products                                    |       | (5.3                                       | )          | (20.3                                     | )          | (6.6 | ) | (41.2 | ) |
| Pigments                                                 |       | (9.6                                       | )          | (3.6                                      | )          | (26.9 | ) | (111.7 | ) |
| Polymers                                                 |       | (48.4                                      | )          | (2.5                                      | )          | (51.3 | ) | (7.6 | ) |
| Base Chemicals                                           |       | (7.1                                       | )          | (6.9                                      | )          | (11.3 | ) | (9.1 | ) |
| Total  restructuring, impairment and plant closing costs |       | (71.3                                      | )          | (43.2                                     | )          | (101.1 | ) | (202.4 | ) |
| **Total**                                                |       | $                                          | (113.7     | )                                         | $          | (47.4 | ) | $ | (268.1 | ) | $ | (233.9 | ) |

 

----

 (1)                               EBITDA is defined as net income (loss) beforeinterest, income taxes, depreciation and amortization. We believe that EBITDAenhances an investor’s understanding of our financial performance and ourability to satisfy principal and interest obligations with respect to ourindebtedness. However, EBITDA should not be considered in isolation or viewedas a substitute for net income, cash flow from operations or other measures ofperformance as defined by generally accepted accounting principles in the U.S.(“GAAP”). Moreover, EBITDA as used herein is not necessarily comparable toother similarly titled measures of other companies due to potentialinconsistencies in the method of calculation. Our management uses EBITDA toassess financial performance and debt service capabilities. In assessing financialperformance, our management reviews EBITDA as a general indicator of economicperformance compared to prior periods. Because EBITDA excludes interest, incometaxes, depreciation and amortization, EBITDA provides an indicator of generaleconomic performance that is not affected by debt restructurings, fluctuationsin interest rates or effective tax rates, or levels of depreciation andamortization. Accordingly, our management believes this type of measurement isuseful for comparing general operating performance from period to period andmaking certain related management decisions. EBITDA is also used by securitiesanalysts, lenders and others in their evaluation of different companies becauseit excludes certain items that can vary widely across different industries oramong companies within the same industry. For example, interest expense can behighly dependent on a company’s capital structure, debt levels, and creditratings. Therefore, the impact of interest expense on earnings can varysignificantly among companies. In addition, the tax positions of companies canvary because of their differing abilities to take advantage of tax benefits andbecause of the tax policies of the various jurisdictions in which they operate.As a result, effective tax rates and tax expense can vary considerably amongcompanies. Finally, companies employ productive assets of different ages andutilize different methods of acquiring and depreciating such assets. This canresult in considerable variability in the relative costs of productive assetsand the depreciation and amortization expense among companies. Our managementalso believes that our investors use EBITDA as a measure of our ability toservice indebtedness as well as to fund capital expenditures and working capitalrequirements. Nevertheless, our management recognizes that there are materiallimitations associated with the use of EBITDA in the evaluation of our Companyas compared to net income, which reflects overall financial performance,including the effects of interest, income taxes, depreciation and amortization.EBITDA excludes interest expense. Because we have borrowed money in order tofinance our operations, interest expense is a necessary element of our costsand ability to generate revenue. Therefore, any measure that excludes interestexpense has material limitations. EBITDA also excludes taxes. Because thepayment of taxes is a necessary element of our operations, any measure thatexcludes tax expense has material limitations. Finally, EBITDA excludesdepreciation and amortization expense. Because we use capital assets,depreciation and amortization expense is a necessary element of our costs andability to generate revenue. Therefore, any measure that excludes depreciationand amortization expense has material limitations. Our management compensatesfor the limitations of using EBITDA by using it to supplement GAAP results toprovide a more complete understanding of the factors and trends affecting thebusiness than GAAP results alone. Our management also uses other metrics toevaluate capital structure, tax planning and capital investment decisions. Forexample, our management uses credit ratings and net debt ratios to evaluatecapital

 

40

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structure, effective tax rate by jurisdictionto evaluate tax planning, and payback period and internal rate of return toevaluate capital investments. Our management also uses trade working capital toevaluate its investment in accounts receivable and inventory, net of accountspayable.

 

We believe that net income (loss) is theperformance measure calculated and presented in accordance with GAAP that ismost directly comparable to EBITDA and that cash provided by (used in)operating activities is the liquidity measure calculated and presented inaccordance with GAAP that is most directly comparable to EBITDA. The followingtable reconciles EBITDA to our net income (loss) and to our cash provided byoperations (dollars in millions):

 
| ** **                                                  | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|-------------|------------|
| ** **                                                  | ** ** | **2005**                                  | ** ** | **2004**    | ** ** | **change** | ** ** |
|                                                        |       |                                      |       |        |       |   |   |
| **EBITDA**                                                  |       | $                                         | 864.6      |        | $          | 486.6 |   | 78 | % |
| Depreciation and  amortization                              |       | (317.3                                    | )          | (335.8      | )          | (6 | )% |
| Interest expense,  net                                      |       | (307.9                                    | )          | (415.5      | )          | (26 | )% |
| Income tax  (expense) benefit                               |       | (59.8                                     | )          | 49.2        |       | NM |   |
| Net income (loss)                                           |       | 179.6                                     |       | (215.5      | )          | NM |   |
|                                                        |       |                                      |       |        |       |   |   |
| Non-cash  restructuring, impairment and plant closing costs |       | 46.3                                      |       | 109.0       |       | (58 | )% |
| Depreciation and  amortization                              |       | 317.3                                     |       | 335.8       |       | (6 | )% |
| Non-cash interest  expense                                  |       | 37.9                                      |       | 103.7       |       | (63 | )% |
| Deferred income  tax                                        |       | 58.8                                      |       | (73.6       | )          | NM |   |
| Loss on early  extinguishment of debt                       |       | 114.5                                     |       | 1.9         |       | NM |   |
| Unrealized loss  (gain) on foreign currency transactions    |       | 38.8                                      |       | (20.4       | )          | NM |   |
| Loss on disposal  of discontinued operations                |       | 36.4                                      |       | —      |       | NM |   |
| Other, net                                                  |       | 6.1                                       |       | 1.1         |       | 455 | % |
| Changes in  operating assets and liabilities                |       | (121.2                                    | )          | (178.9      | )          | (33 | )% |
| Net cash provided  by operating activites                   |       | $                                         | 714.5      |        | $          | 63.1 |   | NM |   |

 

**Three Months Ended September 30,2005 Compared to the Three Months Ended September 30, 2004**

 

For the three months ended September 30,2005, we had a net loss of $33.9 million on revenues of $2,838.5 million ascompared to net income of $42.7 million on revenues of $2,642.8 million for thesame period in 2004. The decrease of $76.6 million in net income was the resultof the following items:

 

•                  Revenues for the three months ended September 30,2005 increased by $195.7 million, or 7%, as compared to the same period in 2004due principally to higher average selling prices in all segments, offset bylower sales volumes. For further information regarding our changes in sellingprices and sales volumes from the prior period, see the discussion by operatingsegment below.

 

•                  Gross profit for the three months ended September 30,2005 increased by $18.2 million, or 6%, as compared to the same period in 2004.This increase in gross profit was mainly due to higher margins in ourPolyurethanes and Polymers segments as average selling prices in these segmentsincreased more than raw material and energy costs, offset somewhat by lowermargins in our Base Chemicals segment as raw materials and energy costsincreased more than average selling prices.

 

•                  Operating expenses for the three months ended September 30,2005 increased by $11.5 million, or 8%, as compared to the same period in 2004,primarily resulting from an increase in incentive compensation accruals andprofessional fees.

 

•                  Restructuring, impairment and plant closing costsfor the three months ended September 30, 2005 increased by $28.1 millionto $71.3 million from $43.2 million in the same period in 2004. For furtherinformation regarding restructuring, impairment and plant closing costs, see “—Restructuring,Impairment and Plant Closing Costs” below.

 

•                  Net interest expense for the three months ended September 30,2005 decreased by $45.8 million, or 33%, when compared to the same period in2004 primarily due to lower average debt balances resulting from the repaymentof debt from the proceeds from Huntsman Corporation’s initial public offering

 

41

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on February 16, 2005 and operating cash flows, and from loweraverage interest rates despite higher underlying LIBOR rates on variable rateborrowings.

 

•                  Other expense for the three months ended September 30,2005 was $40.9 million as compared to other income of $3.1 million for the sameperiod in 2004.  The increase in otherexpense of $44.0 million was due primarily to a $40.8 million increase in losson early extinguishment of debt.

 

•                  Income tax expense increased by $59.8 million to$3.1 million for the three months ended September 30, 2005 as compared toa benefit of $56.7 million for the same period in 2004.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate. The changein income tax expense reflects changes in our mix of income and losses, as wellas non-recurring benefits recognized in the prior year.  Our effective income tax rate was (10.4)% forthe three months ended September 30, 2005 as compared to (506.3)% for thesame period in 2004.  Excluding theimpact of the charge for loss on early extinguishment of debt of $38.5 millionand the impairment of Australia styrenics assets of $46.6 million, which werenot benefited for tax purposes because of valuation allowances on deferred taxassets, our effective income tax rate would have been 6% for the three monthsended September 30, 2005. Tax expense below the U.S. Statutory rate of 35%was a result of income in jurisdictions with lower statutory rates and thebenefits of the release of valuation allowances. Prior to August 16, 2005,we were treated as a partnership for U.S. tax purposes.  On August 16, 2005, Huntsman LLC and HIHmerged with and into our Company, and we made an election to be taxed as acorporation for U.S. tax purposes from that date forward.  Income tax expense reflects the activity ofHuntsman LLC, HIH and our Company for the three months ended September 30,2005 and 2004.

 

•                  The loss from discontinued operations represents theoperating results and loss on disposal of our TDI business that was sold on July 6,2005.

 

The following table sets forth the revenuesand segment EBITDA for each of our operating segments (dollars in millions).

 
| ** **            | ** ** | **Three months ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|--------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2005**                                   | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues:             |       |                                       |       |        |       |   |   |
| Polyurethanes         |       | $                                          | 835.3      |        | $          | 732.0 |   | 14 | % |
| Performance  Products |       | 462.4                                      |       | 493.7       |       | (6 | )% |
| Pigments              |       | 256.6                                      |       | 261.6       |       | (2 | )% |
| Polymers              |       | 427.6                                      |       | 380.9       |       | 12 | % |
| Base Chemicals        |       | 1,046.5                                    |       | 985.5       |       | 6 | % |
| Eliminations          |       | (189.9                                     | )          | (210.9      | )          | (10 | )% |
| Total                 |       | $                                          | 2,838.5    |        | $          | 2,642.8 |   | 7 | % |
|                  |       |                                       |       |        |       |   |   |
| Segment EBITDA        |       |                                       |       |        |       |   |   |
| Polyurethanes         |       | $                                          | 193.7      |        | $          | 97.9 |   | 98 | % |
| Performance  Products |       | 25.5                                       |       | 31.5        |       | (19 | )% |
| Pigments              |       | 22.6                                       |       | 22.2        |       | 2 | % |
| Polymers              |       | (5.8                                       | )          | 26.5        |       | NM |   |
| Base Chemicals        |       | 8.9                                        |       | 70.3        |       | (87 | )% |
| Corporate and  other  |       | (78.3                                      | )          | (13.1       | )          | 498 | % |
| Total                 |       | $                                          | 166.6      |        | $          | 235.3 |   | (29 | )% |

 

----

NM—Not meaningful

 

***Polyurethanes***

 

For the three months ended September 30,2005, Polyurethanes segment revenues increased by $103.3 million, or 14%, ascompared to the same period in 2004, primarily as a result of increased MDIrevenues. MDI revenues increased 8% as a result of 26% higher average sellingprices, partially offset by 14% lower MDI sales volumes. The increase in MDIaverage selling prices was due primarily to improved market conditions, stronggrowth in higher value applications, and also to respond to higher raw materialand energy costs. MDI sales volumes were lower due to some customer destockingand the effects of unplanned

 

42

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outages related to the U.S. Gulf Coaststorms.  MTBE average selling pricesincreased by 69% due primarily to strong demand and tight supplies, while MTBEvolumes decreased by 26% due to loss of production related to an unplanned maintenanceoutage.

 

For the three months ended September 30,2005, Polyurethanes segment EBITDA increased by $95.8 million, or 98%, ascompared to the same period in 2004. Segment EBITDA increased primarily as aresult of higher contribution margins, as average selling prices more thanoffset increases in raw material and energy costs. In addition, ourPolyurethanes segment recorded restructuring, impairment and plant closingcosts of $0.9 million in the three months ended September 30, 2005 ascompared to $9.9 million in the same period in 2004. For furtherdiscussion of restructuring activities, see “—Restructuring, Impairment andPlant Closing Costs” below. During the three months ended September 30,2005 and 2004, our Polyurethanes segment included a loss from our discontinuedTDI business of $0.6 million and $2.8 million, respectively.

 

***PerformanceProducts***

 

For the three months ended September 30,2005, Performance Products revenues decreased by $31.3 million, or 6%, ascompared to the same period in 2004, primarily as a result of lower salesvolumes, offset somewhat by higher average selling prices for all majorproducts lines except ethylene glycol. Overall, average selling pricesincreased by 14% in response to higher raw material and energy costs. Salesvolumes declined by 18% principally due to the combination of lower sales ofglycols and certain surfactants, continued weak market conditions for LAB, andloss of production volume in the U.S. related to the Gulf Coast storms and theunplanned outage at our PO facility.

 

For the three months ended September 30,2005, Performance Products segment EBITDA decreased by $6.0 million, or19%, as compared to the same period in 2004, resulting primarily from lowersales volumes and higher raw materials and energy costs, partially offset byhigher average selling prices, reductions in operating expenses and lowerrestructuring, impairment and plant closing costs. During the three monthsended September 30, 2005 and 2004, our Performance Products segmentrecorded restructuring and plant closing charges of $5.3 million and$20.3 million, respectively. For further discussion of restructuringactivities, see “—Restructuring, Impairment and Plant Closing Costs” below.

 

***Pigments***

 

For the three months ended September 30,2005, Pigments revenues decreased by $5.0 million, or 2%, as compared tothe same period in 2004, resulting principally from a 6% reduction in salesvolumes, offset in part by a 5% increase in average selling prices. Salesvolumes were lower due primarily to the restructuring of our Grimsby, U.K.facility during the second half of 2004 and due to lower customer demand,particularly in Europe. Average selling prices increased in all regions andbenefited from price increase initiatives implemented during the second half of2004 and early 2005.

 

Pigments segment EBITDA for the three monthsended September 30, 2005 of $22.6 million remained relatively unchanged ascompared to $22.2 million for the same period in 2004. During the threemonths ended September 30, 2005 and 2004, our Pigments segment recordedrestructuring and plant closing charges of $9.6 million and$3.6 million, respectively. For further discussion of restructuringactivities, see “—Restructuring, Impairment and Plant Closing Costs” below.

 

***Polymers***

 

For the three months ended September 30,2005, Polymers revenues increased by $46.7 million, or 12%, as compared tothe same period in 2004, due mainly to 14% higher average selling prices.Average selling prices were higher primarily due to tighter market conditionsand in response to higher raw material and energy costs. Sales volumesdecreased by 1%.

 

For the three months ended September 30,2005, Polymers segment EBITDA decreased by $32.3 million to a loss of$5.8 million from earnings of $26.5 million for the same period in2004. During the three months ended September 30, 2005 and 2004, ourPolymers segment recorded restructuring, impairment and plant closing costs of$48.4 million and $2.5 million, respectively. For further discussionof restructuring activities, see  “—Restructuring,Impairment and Plant Closing Costs” below. This decrease in EBITDA resulted from higher restructuring, impairmentand plant closing costs, partially offset by higher contribution margins, asaverage selling prices increased more than raw material and energy costs.

 

43

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***BaseChemicals***

 

For the three months ended September 30,2005, Base Chemicals revenues increased by $61.0 million, or 6%, ascompared to the same period in 2004. This increase was due mainly to a 13%increase in average selling prices, partially offset by a 6% decrease in salesvolumes. Higher average selling prices were primarily due to improved marketconditions and in response to higher raw material and energy costs. Salesvolume decreases were driven by a loss of production volume in the U.S. relatedto the Gulf Coast storms.

 

For the three months ended September 30,2005, Base Chemicals segment EBITDA decreased by $61.4 million, or 87%, ascompared to the same period in 2004. The decrease in segment EBITDA was dueprimarily to lower contribution margins, as increases in raw material andenergy costs more than offset higher average selling prices, particularly inEurope.  The increase in raw materialsand energy costs during 2005 were caused principally by decreased supplies ofmaterials and energy sources related to the Gulf Coast storms.  During the three months ended September 30,2005 and 2004, our Base Chemicals segment recorded restructuring charges of$7.1 million and $6.9 million, respectively. For further discussionof restructuring activities, see “—Restructuring, Impairment and Plant ClosingCosts” below.

 

***Corporateand Other***

 

Corporate and other items include unallocatedcorporate overhead, loss on our A/R Securitization Program and foreign exchangegains and losses. For the three months ended September 30, 2005, EBITDAfrom corporate and other items decreased by $65.2 million to a loss of $78.3million from a loss of $13.1 million in the same period in 2004. The decreasein EBITDA resulted primarily from an increase in loss on early extinguishmentof debt of $40.8 million and an increase in unallocated foreign currencytransaction losses of $8.3 million.

 

**Nine Months Ended September 30,2005 Compared to the Nine Months Ended September 30, 2004**

 

For the nine months ended September 30,2005, we had net income of $179.6 million on revenues of $8,909.0 millionas compared to a net loss of $215.5 million on revenues of $7,449.3 million forthe same period in 2004. The increase of $395.1 million was the result of thefollowing items:

 

•                  Revenues for the nine months ended September 30,2005 increased by $1,459.7 million, or 20%, as compared to the same period in2004 due principally to higher average selling prices in all segments, partiallyoffset by lower sales volumes. For further information regarding changes inselling prices and sales volumes from the prior period, see the discussion byoperating segment below.

 

•                  Gross profit for the nine months ended September 30,2005 increased by $480.3 million, or 60%, as compared to the same period in2004. This increase in gross profit, which occurred in all our segments, wasmainly due to higher margins as average selling prices increased more than rawmaterial and energy costs in the 2005 period as compared to the 2004 period.

 

•                  Operating expenses for the nine months ended September 30,2005 increased by $33.1 million, or 8%, as compared to the same period in 2004,primarily resulting from higher foreign currency transaction losses and anincrease in incentive compensation accruals and professional fees.

 

•                  Restructuring, impairment and plant closing costsfor the nine months ended September 30, 2005 decreased by $101.3 millionto $101.1 million from $202.4 million in the same period in 2004. For furtherinformation regarding restructuring, impairment and plant closing costs, see “—Restructuring,Impairment and Plant Closing Costs” below.

 

•                  Net interest expense for the nine months ended September 30,2005 decreased by $107.6 million, or 26%, when compared to the same period in2004 primarily due to lower average debt balances resulting from the repaymentof debt from the proceeds from Huntsman Corporation’s initial public offeringon February 16, 2005 and operating cash flows, and from lower averageinterest rates despite higher underlying LIBOR rates on variable rateborrowings.

 

44

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•                  Other expense for the nine months ended September 30,2005 increased by $117.7 million to $118.5 million from $0.8 million for thesame period of 2004.  The increase wasdue to a $112.6 million increase in loss on early extinguishment of debt.

 

•                  Income tax expense increased by $109.0 million to$59.8 million for the nine months ended September 30, 2005 as compared to abenefit of $49.2 million for the same period in 2004.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate. The changein income tax expense reflects changes in our mix of income and losses, as wellas non-recurring benefits recognized in the prior year. Our effective incometax rate was 21.1% for the nine months ended September 30, 2005 ascompared to (18.9) % for the same period in 2004.  Excluding the impact for early extinguishmentof debt of $114.5 million and the impairment of Australia styrenics assets of$46.6 million, which were not benefited for tax purposes because of valuationallowances on deferred tax assets, our effective income tax rate would havebeen 13%.  Tax expense below the U.S.statutory rate of 35% was a result of income in jurisdictions with lowerstatutory rates and the benefits of the release of valuation allowances. Priorto August 16, 2005, we were treated as a partnership for U.S. taxpurposes.  On August 16, 2005, HuntsmanLLC and HIH merged with and into our Company, and we made an election to betaxed as a corporation for U.S. tax purposes from that date forward.  Income tax expense reflects the activity ofHuntsman LLC, HIH and our Company for the nine months ended September 30,2005 and 2004.

 

•                  The loss from discontinued operations represents theoperating results and loss on disposal of our TDI business. The loss fromdiscontinued operations of $43.6 million for the nine months ended September 30,2005 includes a loss on disposal of $36.4 million recorded in the secondquarter of 2005.

 

The following table sets forth the revenuesand segment EBITDA for each of our operating segments (dollars in millions).

 
| ** **            | ** ** | **Nine months ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2005**                                  | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues:             |       |                                      |       |        |       |   |   |
| Polyurethanes         |       | $                                         | 2,609.9    |        | $          | 2,069.3 |   | 26 | % |
| Performance  Products |       | 1,517.4                                   |       | 1,399.7     |       | 8 | % |
| Pigments              |       | 787.5                                     |       | 794.7       |       | (1 | )% |
| Polymers              |       | 1,249.3                                   |       | 1,019.6     |       | 23 | % |
| Base Chemicals        |       | 3,344.4                                   |       | 2,755.8     |       | 21 | % |
| Eliminations          |       | (599.5                                    | )          | (589.8      | )          | 2 | % |
| Total                 |       | $                                         | 8,909.0    |        | $          | 7,449.3 |   | 20 | % |
|                  |       |                                      |       |        |       |   |   |
| Segment EBITDA        |       |                                      |       |        |       |   |   |
| Polyurethanes         |       | $                                         | 535.0      |        | $          | 270.7 |   | 98 | % |
| Performance  Products |       | 158.0                                     |       | 82.9        |       | 91 | % |
| Pigments              |       | 86.5                                      |       | (53.6       | )          | NM |   |
| Polymers              |       | 71.6                                      |       | 45.6        |       | 57 | % |
| Base Chemicals        |       | 252.0                                     |       | 204.8       |       | 23 | % |
| Corporate and  other  |       | (238.5                                    | )          | (63.8       | )          | 274 | % |
| Total                 |       | $                                         | 864.6      |        | $          | 486.6 |   | 78 | % |

 

----

NM = Not Meaningful

 

***Polyurethanes***

 

For the nine months ended September 30,2005, Polyurethanes segment revenues increased by $540.6 million, or 26%, ascompared to the same period in 2004, primarily as a result of increased MDIrevenues. MDI revenues increased 30% as a result of 37% higher average sellingprices. The increase in MDI prices was due primarily to improved marketconditions, stronger growth in higher value applications, and to respond tohigher raw material and energy costs. MDI sales volumes were 5% lowerprincipally due to some customer destocking and the effects of unplannedoutages related to the U.S. Gulf Coast storms. MTBE average selling prices were 39% higher on a strong demand and tightsupplies in the market.

 

45

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For the nine months ended September 30,2005, Polyurethanes segment EBITDA increased by $264.3 million, or 98%, ascompared to the same period in 2004. Segment EBITDA increased primarily as aresult of higher contribution margins, as average selling prices more thanoffset increases in raw material and energy costs. In addition, ourPolyurethanes segment recorded restructuring, impairment and plant closingcosts of $5.0 million in the nine months ended September 30, 2005 ascompared to $32.8 million in the same period in 2004. For furtherdiscussion of restructuring activities, see “—Restructuring, Impairment andPlant Closing Costs” below. During the nine months ended September 30,2005 and 2004, our Polyurethanes segment recorded a loss from discontinuedoperations of its TDI business of $43.6 million and $4.5 million, respectively.

 

***PerformanceProducts***

 

For the nine months ended September 30,2005, Performance Products revenues increased by $117.7 million, or 8%, ascompared to the same period in 2004 primarily as a result of higher averageselling prices for all major product lines, offset somewhat by lower salesvolumes in certain product lines. Overall, average selling prices increased by20% in response to higher raw material and energy costs, improved marketconditions and the strength of the major European currencies versus the U.S.dollar. Sales volumes declined by 10% principally due to the combination oflower sales of glycols and certain surfactants, continued weak marketconditions for LAB, and loss of production volume in the U.S. related to theGulf Coast storms and the unplanned outage at our PO facility.

 

For the nine months ended September 30,2005, Performance Products segment EBITDA increased by $75.1 million, or91%, as compared to the same period in 2004, resulting primarily from highermargins, as average selling prices increased more than raw material and energycosts, and from lower restructuring, impairment and plant closing costs. Duringthe nine months ended September 30, 2005 and 2004, the PerformanceProducts segment recorded restructuring and plant closing charges of$6.6 million and $41.2 million, respectively. For further discussionof restructuring activities, see “—Restructuring, Impairment and Plant ClosingCosts” below.

 

***Pigments***

 

For the nine months ended September 30,2005, Pigments revenues decreased by $7.2 million, or 1%, as compared tothe same period in 2004, resulting principally from a 10% reduction in salesvolumes, offset in part by a 10% increase in average selling prices. Salesvolumes were lower due to the restructuring of our Grimsby, U.K. andUmbogintwini, South Africa facilities during 2004 and due to lower end-usedemand, particularly in Europe. Average selling prices increased in all regionsand benefited from price increase initiatives implemented during the secondhalf of 2004 and early 2005.

 

Pigments segment EBITDA for the nine monthsended September 30, 2005 increased by $140.1 million to income of$86.5 million from a loss of $53.6 million for the same period in2004. During the nine months ended September 30, 2005 and 2004, ourPigments segment recorded restructuring and plant closing charges of$26.9 million and $111.7 million, respectively. For furtherdiscussion of restructuring activities, see “—Restructuring, Impairment andPlant Closing Costs” below. This increase in segment EBITDA was due to thecombination of lower restructuring, impairment and plant closing costs, loweroperating costs and higher margins during the 2005 period.

 

***Polymers***

 

For the nine months ended September 30,2005, Polymers revenues increased by $229.7 million, or 23%, as comparedto the same period in 2004, due mainly to 25% higher average selling prices.Average selling prices were higher primarily due to tighter market conditionsand in response to higher raw material and energy costs. Sales volumesdecreased by 2%.

 

For the nine months ended September 30,2005, Polymers segment EBITDA increased by $26.0 million, or 57%, ascompared to the same period in 2004. This increase in segment EBITDA resultedfrom higher contribution margins, as average selling prices increased more thanraw material and energy costs, and was partially offset in part by higherrestructuring, impairment and plant closing costs. During the nine months endedSeptember 30, 2005 and 2004, our Polymers segment recorded restructuring,impairment and plant closing charges of $51.3 million and$7.6 million, respectively. For further discussion of restructuringactivities, see “—Restructuring, Impairment and Plant Closing Costs”.

 

46

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***BaseChemicals***

 

For the nine months ended September 30,2005, Base Chemicals revenues increased by $588.6 million, or 21%, ascompared to the same period in 2004. This increase was due mainly to a 26%increase in average selling prices, partially offset by a 2% decrease in salesvolumes. Higher average selling prices were primarily due to improved marketconditions and in response to higher raw material and energy costs. Salesvolume decreases were driven by lower internal consumption due to plannedmaintenance outages at certain of our downstream derivative business units andby a loss of production volume in the U.S. related to the Gulf Coast storms.

 

For the nine months ended September 30,2005, Base Chemicals segment EBITDA increased by $47.2 million, or 23%, ascompared to the same period in 2004. This increase in segment EBITDA is due primarily to higher contributionmargins, as higher average selling prices more than offset increases in rawmaterial and energy costs. The increase in raw materials and energy costsduring 2005 were caused principally by decreased supplies of materials andenergy sources related to the U.S. Gulf Coast storms.  During the nine months ended September 30,2005 and 2004, our Base Chemicals segment recorded restructuring charges of$11.3 million and $9.1 million, respectively. For further discussionof restructuring activities, see “—Restructuring, Impairment and Plant ClosingCosts”.

 

***Corporateand Other***

 

Corporate and other items include unallocatedcorporate overhead, loss on our A/R Securitization Program and foreign exchangegains and losses. For the nine months ended September 30, 2005, EBITDAfrom corporate and other items decreased by $174.7 million to a loss of $238.5million from a loss of $63.8 million in the same period in 2004. The decreasein EBITDA resulted primarily from an increase in loss on early extinguishmentof debt of $112.6 million and an increase in unallocated foreign currencytransaction losses of $26.1 million.

 

**Liquidity, CapitalSpending and Compliance with Covenants**

 

We depend upon our Revolving Facility and ourA/R Securitization Program to provide liquidity for our operations and workingcapital needs. As of September 30, 2005, we had no outstanding borrowingsand approximately $22.2 million of outstanding letters of credit under ourRevolving Facility, and we had $137.3 million in cash and cashequivalents. We also maintain $25.0 million of short-term overdraftfacilities, of which $7.7 million was available at September 30,2005. Furthermore, as of September 30, 2005, we had available capacity ofapproximately $80.7 million under the A/R Securitization Program. Ourtotal cash and unused borrowing capacity as of September 30, 2005 wasapproximately $853.5 million.

 

During 2005, we expect to spend approximately$325 million on capital projects, including capital expenditures ofapproximately $40 million on our LDPE facility at Wilton, U.K., andapproximately $60 million in capital expenditures associated with ourConsolidated Chinese Splitting JV.

 

Of the $60 million of capitalexpenditures expected in our Consolidated Chinese Splitting JV, we havefunded approximately $8 million as equity and the remaining funding of theConsolidated Chinese Splitting JV’s capital expenditures will be financedthrough equity investments by the other joint venture partners and loans fromlocal Chinese lenders. During 2005, we invested, as equity, approximately$8 million in the Unconsolidated Chinese Manufacturing JV. We expect thatour total equity investment in the Chinese joint ventures will be approximately$85 million, of which approximately $42 million will be in theUnconsolidated Chinese Manufacturing JV and approximately $43 million inthe Consolidated Chinese Splitting JV. We expect that the total project capitalexpenditures by the Consolidated Chinese Splitting JV will be approximately$125 million, of which approximately $43 million will be funded fromour equity investment and the remainder from equity investments by jointventure partners and loans from local Chinese lenders. We expect completion ofour spending on the Chinese MDI joint ventures in 2006. Our Chinese MDI jointventures are unrestricted subsidiaries under the New Credit Facilities andunder the indentures governing our outstanding notes.

 

We believe that the cost position of ourWilton, U.K. olefins facility uniquely positions it to be the site of apolyethylene production facility. While we export approximately one-third ofour ethylene production each year to continental Europe, incurring significantshipping and handling costs, the U.K. annually imports approximately1.9 billion pounds of polyethylene. We believe this provides anopportunity to capitalize on the low-cost operating environment and extensivepetrochemical infrastructure and logistics at Wilton, as supported by afeasibility study that was conducted with respect to the construction of aworld-scale LDPE facility at our Wilton site. The LDPE facility will have thecapacity to produce approximately 900 million pounds of LDPE annually andis estimated to cost approximately $300 million to construct, net of anygrant proceeds obtained.

 

47

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We have been awarded a grant of£16.5 million (approximately $30 million) from the U.K. government’sDepartment of Trade and Industry to finance a portion of the construction ofthe LDPE facility.  We expectconstruction of the LDPE facility to be complete in late 2007. During 2005, weexpect to spend approximately $40 million in capital expendituresassociated with the LDPE facility at Wilton, U.K.

 

We expect to finance our capital expenditurecommitments through a combination of our financing arrangements and cash flowfrom operations.

 

Our management believes that we are incompliance with the covenants contained in the agreements governing the NewCredit Facilities, the A/R Securitization Program and the indentures governingour notes.

 

**ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Quantitative and Qualitative DisclosuresAbout Market Risk have been omitted pursuant to General Instruction H of Form 10-Q.

 

**ITEM 4. CONTROLS ANDPROCEDURES**

 

Our management, with the participation of ourchief executive officer and chief financial officer, has evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”))as of September 30, 2005. Based on this evaluation, our chief executiveofficer and chief financial officer have concluded that, as of September 30,2005, our disclosure controls and procedures were effective, in that theyensure that information required to be disclosed by us in the reports that wefile or submit under the Exchange Act is (1) recorded, processed,summarized and reported within the time periods specified in the Commission’s rules andforms, and (2) accumulated and communicated to our management, includingour chief executive officer and chief financial officer, as appropriate toallow timely decisions regarding required disclosure.

 

No changes to our internal control overfinancial reporting occurred during the three months ended September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act). Huntsman Corporation and itssubsidiaries, including our Company, have engaged Ernst & Young LLP toassist management in its documentation and evaluation of our internal controlsin preparation for the periodic management evaluations and annual auditorattestation reports regarding the effectiveness of our “internal control overfinancial reporting” that will be required when the SEC’s rules under Section 404of the Sarbanes-Oxley Act of 2002 become applicable to Huntsman Corporation beginningwith its Annual Report on form 10-K for the year ending December 31, 2006to be filed in the first quarter of 2007 and to us beginning with our AnnualReport on Form 10-K for the year ending December 31, 2007 to be filedin the first quarter of 2008. We cannot give any assurance, however, that ourinternal controls over financial reporting will be effective when Section 404becomes applicable. Ineffective internal controls over financial reportingcould cause investors to lose confidence in our reported financial informationand could result in a lower trading price for our securities.

 

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**PART II.OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

See Note 10 “Commitments and Contingencies—Legal Matters” andNote 11 “Environmental, Health and Safety Matters” to our CondensedConsolidated Financial Statements (unaudited), which are incorporated herein byreference, for a discussion of legal proceedings.

 

**ITEM 6. EXHIBITS**

 
| 2.1    |   | Agreement and Plan of Merger dated August 16, 2005  relating to our merger with HLLC (incorporated by reference to Exhibit 2.1  to our current report on Form 8-K filed August 22, 2005).                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1    |   | Supplemental Indenture dated August 16, 2005 to  Indenture dated as of June 30, 1999, as amended, among the Company, the  guarantors named therein, and Wells Fargo Bank, National Association (as  successor by consolidation to Wells Fargo Bank Minnesota, National  Association), as trustee, relating to the Company’s dollar and euro  denominated 10 1/8% senior subordinated notes due 2009 (incorporated by  reference to Exhibit 4.1 to our current report on Form 8-K filed August 22,  2005).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.2    |   | Supplemental Indenture dated August 16, 2005 to  Indenture dated as of March 13, 2001, as amended, among the Company, the  guarantors named therein, and The Bank of New York, as trustee, relating to  the Company’s euro denominated 10 1/8% senior subordinated notes due 2009  (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K  filed August 22, 2005).                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.3    |   | Supplemental Indenture dated August 16, 2005 to  Indenture dated as of March 21, 2002 among the Company, the guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to the Company’s 9 7/8% senior notes due 2009  (incorporated by reference to Exhibit 4.3 to our current report on Form 8-K  filed August 22, 2005).                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4    |   | Supplemental Indenture dated August 16,  2005 to Indenture dated as of December 17, 2004 among the Company, the  guarantors named therein, and Wells Fargo Bank, National Association (as  successor by consolidation to Wells Fargo Bank Minnesota, National  Association), as trustee, relating to the Company’s dollar denominated 7 3/8%  senior subordinated notes due 2015 and euro denominated 7 1/2% senior  subordinated notes due 2015 (incorporated by reference to Exhibit 4.4  to our current report on Form 8-K filed August 22, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5    |   | Indenture dated September 30, 2003 among HLLC, the  guarantors named therein, and HSBC Bank USA, National Association, as  trustee, relating to the Company’s 11 5/8% senior secured notes due 2010,  originally issued by HLLC (incorporated by reference to Exhibit 4.36 to  HLLC’s registration statement on Form S-4 (File No. 333-112279)).                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.6    |   | Supplemental Indenture dated July 13, 2005 to  Indenture dated September 30, 2003 among HLLC, the guarantors named  therein and HSBC Bank USA, National Association, as trustee, relating to the  Company’s 11 5/8% senior secured notes due 2010, originally issued by  HLLC (incorporated by reference to Exhibit 4.2 to the current report on Form 8-K  of HLLC filed July 15, 2005).                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.7    |   | Supplemental Indenture dated August 16, 2005 to  Indenture dated September 30, 2003 among the Company, the guarantors  named therein and HSBC Bank USA, National Association, as trustee, relating  to the Company’s 11 5/8% senior secured notes due 2010, originally issued by  HLLC (incorporated by reference to Exhibit 4.7 to our current report on Form 8-K  filed August 22, 2005).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.8    |   | Indenture dated June 22, 2004 among HLLC, the  guarantors named therein, and HSBC Bank USA, National Association, as  trustee, relating to the 11 1/2% senior notes due 2012 and senior floating  rate notes due 2011, originally issued by HLLC (incorporated by reference to Exhibit 4.1  to the quarterly report on Form 10-Q of HLLC for the quarter ended June 30,  2004).                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.9    |   | Supplemental Indenture dated July 11, 2005 to  Indenture dated June 22, 2004 among HLLC, the guarantors named therein  and HSBC Bank USA, National Association, as trustee, relating to the Company’s  11 1/2% senior notes due 2012 and senior floating rate notes due 2011  (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K  of HLLC filed July 15, 2005).                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.10   |   | Supplemental Indenture dated August 16, 2005 to  Indenture dated June 22, 2004 among the Company, the guarantors named  therein and HSBC Bank USA, National Association, as trustee, relating to the  Company’s 11 1/2%                                                                                                                                                                                                                                                                                                                                              |

 

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|   |   | senior notes due 2012 and senior floating rate notes due  2011, originally issued by HLLC (incorporated by reference to Exhibit 4.10  to our current report on Form 8-K filed August 22, 2005).                                                                                                                                                                                                                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1   |   | Credit Agreement dated August 16, 2005 among the  Company, Deutsche Bank AG New York Branch as Administrative Agent and the  other financial institutions named therein (incorporated by reference to Exhibit 10.1  to our current report on Form 8-K filed August 22, 2005).                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2   |   | Intercreditor Agreement dated August 16, 2005 among  Deutsche Bank AG New York Branch as collateral agent and administrative agent  under the above referenced credit agreement, and HSBC Bank USA, National  Association as trustee under the indenture governing the Company’s 11 5/8%  senior secured notes (incorporated by reference to Exhibit 10.2 to our  current report on Form 8-K filed August 22, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.3   |   | Collateral Security Agreement dated August 16, 2005  among the Company, Deutsche Bank AG New York Branch and other financial  institutions named therein (incorporated by reference to Exhibit 10.3 to  our current report on Form 8-K filed August 22, 2005).                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.4   |   | Second Amendment to Amended and Restated Pooling  Agreement dated August 16, 2005 among Huntsman Receivables France LLC,  Huntsman (Europe), BVBA and J.P. Morgan Bank (incorporated by reference to Exhibit 10.4  to our current report on Form 8-K filed August 22, 2005).                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5   |   | Fourth Amendment to 2000-1 Supplement dated August 16,  2005 among Huntsman Receivables France LLC, Huntsman (Europe), BVBA and J.P.  Morgan (Ireland) Plc (incorporated by reference to Exhibit 10.5 to our  current report on Form 8-K filed August 22, 2005).                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1   |   | Certification of Chief Executive Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.2   |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.1   |   | Certification of Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.2   |   | Certification of Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                      |

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: November 14, 2005

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

 

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**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1        |       | Agreement and Plan of Merger dated August 16, 2005  relating to our merger with HLLC (incorporated by reference to Exhibit 2.1  to our current report on Form 8-K filed August 22, 2005).                                                                                                                                                                                                                                                                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1        |       | Supplemental Indenture dated August 16, 2005 to  Indenture dated as of June 30, 1999, as amended, among the Company, the  guarantors named therein, and Wells Fargo Bank, National Association (as  successor by consolidation to Wells Fargo Bank Minnesota, National  Association), as trustee, relating to the Company’s dollar and euro  denominated 10 1/8% senior subordinated notes due 2009 (incorporated by  reference to Exhibit 4.1 to our current report on Form 8-K filed August 22,  2005).                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.2        |       | Supplemental Indenture dated August 16, 2005 to  Indenture dated as of March 13, 2001, as amended, among the Company, the  guarantors named therein, and The Bank of New York, as trustee, relating to  the Company’s euro denominated 10 1/8% senior subordinated notes due 2009  (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K  filed August 22, 2005).                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.3        |       | Supplemental Indenture dated August 16, 2005 to  Indenture dated as of March 21, 2002 among the Company, the guarantors  named therein, and Wells Fargo Bank, National Association (as successor by  consolidation to Wells Fargo Bank Minnesota, National Association), as  trustee, relating to the Company’s 9 7/8% senior notes due 2009  (incorporated by reference to Exhibit 4.3 to our current report on Form 8-K  filed August 22, 2005).                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4        |       | Supplemental Indenture dated August 16,  2005 to Indenture dated as of December 17, 2004 among the Company, the  guarantors named therein, and Wells Fargo Bank, National Association (as  successor by consolidation to Wells Fargo Bank Minnesota, National  Association), as trustee, relating to the Company’s dollar denominated 7 3/8%  senior subordinated notes due 2015 and euro denominated 7 1/2% senior  subordinated notes due 2015 (incorporated by reference to Exhibit 4.4  to our current report on Form 8-K filed August 22, 2005). |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5        |       | Indenture dated September 30, 2003 among HLLC, the  guarantors named therein, and HSBC Bank USA, National Association, as  trustee, relating to the Company’s 11 5/8% senior secured notes due 2010,  originally issued by HLLC (incorporated by reference to Exhibit 4.36 to  HLLC’s registration statement on Form S-4 (File No. 333-112279)).                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.6        |       | Supplemental Indenture dated July 13, 2005 to  Indenture dated September 30, 2003 among HLLC, the guarantors named  therein and HSBC Bank USA, National Association, as trustee, relating to the  Company’s 11 5/8% senior secured notes due 2010, originally issued by  HLLC (incorporated by reference to Exhibit 4.2 to the current report on Form 8-K  of HLLC filed July 15, 2005).                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.7        |       | Supplemental Indenture dated August 16, 2005 to  Indenture dated September 30, 2003 among the Company, the guarantors  named therein and HSBC Bank USA, National Association, as trustee, relating  to the Company’s 11 5/8% senior secured notes due 2010, originally issued by  HLLC (incorporated by reference to Exhibit 4.7 to our current report on Form 8-K  filed August 22, 2005).                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.8        |       | Indenture dated June 22, 2004 among HLLC, the  guarantors named therein, and HSBC Bank USA, National Association, as  trustee, relating to the 11 1/2% senior notes due 2012 and senior floating  rate notes due 2011, originally issued by HLLC (incorporated by reference to Exhibit 4.1  to the quarterly report on Form 10-Q of HLLC for the quarter ended June 30,  2004).                                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.9        |       | Supplemental Indenture dated July 11, 2005 to  Indenture dated June 22, 2004 among HLLC, the guarantors named therein  and HSBC Bank USA, National Association, as trustee, relating to the Company’s  11 1/2% senior notes due 2012 and senior floating rate notes due 2011  (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K  of HLLC filed July 15, 2005).                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.10       |       | Supplemental Indenture dated August 16, 2005 to  Indenture dated June 22, 2004 among the Company, the guarantors named  therein and HSBC Bank USA, National Association, as trustee, relating to the  Company’s 11 1/2% senior notes due 2012 and senior floating rate notes due  2011, originally issued by HLLC (incorporated by reference to Exhibit 4.10  to our current report on Form 8-K filed August 22, 2005).                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.1       |       | Credit Agreement dated August 16, 2005 among the  Company, Deutsche Bank AG New York Branch as Administrative Agent and the  other financial institutions named therein (incorporated by reference to Exhibit 10.1  to our current report on Form 8-K filed August 22, 2005).                                                                                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.2       |       | Intercreditor Agreement dated August 16, 2005 among  Deutsche Bank AG New York Branch as collateral agent                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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|   |   | and administrative agent under the above referenced  credit agreement, and HSBC Bank USA, National Association as trustee under  the indenture governing the Company’s 11 5/8% senior secured notes  (incorporated by reference to Exhibit 10.2 to our current report on Form 8-K  filed August 22, 2005). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 10.3   |   | Collateral Security Agreement dated August 16, 2005  among the Company, Deutsche Bank AG New York Branch and other financial  institutions named therein (incorporated by reference to Exhibit 10.3 to  our current report on Form 8-K filed August 22, 2005).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 10.4   |   | Second Amendment to Amended and Restated Pooling  Agreement dated August 16, 2005 among Huntsman Receivables France LLC,  Huntsman (Europe), BVBA and J.P. Morgan Bank (incorporated by reference to Exhibit 10.4  to our current report on Form 8-K filed August 22, 2005).                               |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 10.5   |   | Fourth Amendment to 2000-1 Supplement dated August 16,  2005 among Huntsman Receivables France LLC, Huntsman (Europe), BVBA and J.P.  Morgan (Ireland) Plc (incorporated by reference to Exhibit 10.5 to our current  report on Form 8-K filed August 22, 2005).                                           |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 31.1   |   | Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 31.2   |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 32.1   |   | Certification of Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| 32.2   |   | Certification of Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                       |

 

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