**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

 

**Form 10-Q**

** **

** **
|  **(Mark  One)**                                                                                                                             | ** **                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
| **x**                                                                                                                                             | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                        |
| **For the quarterly period ended June 30, 2007**                                                                                                  |
| ** **                                                                                                                                        |
| **OR**                                                                                                                                            |
| ** **                                                                                                                                        |
| **o**                                                                                                                                             | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                        |
| **For the transition period  from         to         ** |

 

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

 

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Indicate by checkmark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.
| Huntsman  Corporation      |   | YES x |   | NO o |
|----------------------------|--------|------------|--------|-----------|
| Huntsman International LLC |   | YES x |   | NO o |

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Huntsman Corporation       |   | Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer  o |
|----------------------------|--------|---------------------------|--------|---------------------|--------|-------------------------------|
| Huntsman International LLC |   | Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer  x |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
| Huntsman Corporation       |   | YES o |   | NO x |
|----------------------------|--------|------------|--------|-----------|
| Huntsman International LLC |   | YES o |   | NO x |

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On August 3, 2007, 222,005,083 sharesof common stock of Huntsman Corporation were outstanding and 2,728 units ofmembership interests of Huntsman International LLC were outstanding. There isno established trading market for Huntsman International LLC’s units ofmembership interests. All of Huntsman International LLC’s units of membershipinterests are held by Huntsman Corporation.

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This QuarterlyReport on Form 10-Q presents information for two registrants:  Huntsman Corporation and HuntsmanInternational LLC (“Huntsman International”). Huntsman International is awholly owned subsidiary of Huntsman Corporation and is the principal operatingcompany of Huntsman Corporation. The information reflected in this Quarterly Reporton Form 10-Q is equally applicable to both Huntsman Corporation and HuntsmanInternational, except where otherwise indicated. Huntsman International meetsthe conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Qand, to the extent applicable, is therefore filing this form with a reduceddisclosure format.

 

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|  

**HUNTSMAN  CORPORATION AND SUBSIDIARIES**

**HUNTSMAN  INTERNATIONAL LLC AND SUBSIDIARIES**

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

**ENDED  JUNE 30, 2007**

** **

**TABLE  OF CONTENTS** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| PART I                                                                                                                                                                                                                          | FINANCIAL INFORMATION |   |
| ITEM 1.                                                                                                                                                                                                                         | Financial Statements: |   |
|                                                                                                                                                                                                                            |   |   |
|                                                                                                                                                                                                                            | Huntsman Corporation and Subsidiaries: |   |
|                                                                                                                                                                                                                            | Condensed Consolidated Balance Sheets (Unaudited) |   |
|                                                                                                                                                                                                                            | Condensed Consolidated Statements of Operations and  Comprehensive (Loss) Income (Unaudited) |   |
|                                                                                                                                                                                                                            | Condensed Consolidated Statements of Cash Flows  (Unaudited) |   |
|                                                                                                                                                                                                                            |   |   |
|                                                                                                                                                                                                                            | Huntsman International LLC and Subsidiaries: |   |
|                                                                                                                                                                                                                            | Condensed Consolidated Balance Sheets (Unaudited) |   |
|                                                                                                                                                                                                                            | Condensed Consolidated Statements of Operations and  Comprehensive (Loss) Income (Unaudited) |   |
|                                                                                                                                                                                                                            | Condensed Consolidated Statements of Cash Flows  (Unaudited) |   |
|                                                                                                                                                                                                                            |   |   |
|                                                                                                                                                                                                                            | Huntsman Corporation  and Subsidiaries and Huntsman International LLC and Subsidiaries: |   |
|                                                                                                                                                                                                                            | Notes to Condensed Consolidated Financial Statements  (Unaudited) |   |
|                                                                                                                                                                                                                            |   |   |
| ITEM 2.                                                                                                                                                                                                                         | Management’s  Discussion and Analysis of Financial Condition and 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  1A.                                                                                                                                                                                                                       | Risk  Factors |   |
| ITEM 4.                                                                                                                                                                                                                         | Submission of  Matters to a Vote of Security Holders |   |
| ITEM 5.                                                                                                                                                                                                                         | Other Information |   |
| ITEM  6.                                                                                                                                                                                                                        | Exhibits |   |

 

 

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**PART I. FINANCIALINFORMATION**

**ITEM 1. FINANCIALSTATEMENTS**

**HUNTSMAN CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

**(In Millions,Except Share and Per Share Amounts)**
| ** **                                                                                                                                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                      | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                      | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Current assets:**                                                                                                                                                             | ** ** | ** **        | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                                                                                                                                                      |       | $                 | 167.5      |                  | $          | 263.2 |   |
| Accounts and  notes receivables (net of allowance for doubtful accounts of $43.6 and $39.0,  respectively)                                                                      |       | 1,439.3           |       | 1,243.2               |       |
| Accounts  receivable from affiliates                                                                                                                                            |       | 17.5              |       | 14.1                  |       |
| Inventories, net                                                                                                                                                                |       | 1,348.0           |       | 1,520.1               |       |
| Prepaid expenses                                                                                                                                                                |       | 31.0              |       | 55.7                  |       |
| Deferred income  taxes                                                                                                                                                          |       | 68.0              |       | 64.6                  |       |
| Other current  assets                                                                                                                                                           |       | 128.2             |       | 175.7                 |       |
| Current assets  held for sale                                                                                                                                                   |       | 175.8             |       | —                |       |
| **Total  current assets**                                                                                                                                                       |       | 3,375.3           |       | 3,336.6               |       |
|                                                                                                                                                                            |       |              |       |                  |       |
| Property, plant and  equipment, net                                                                                                                                             |       | 3,825.1           |       | 4,059.4               |       |
| Investment in  unconsolidated affiliates                                                                                                                                        |       | 215.9             |       | 201.0                 |       |
| Intangible assets, net                                                                                                                                                          |       | 175.6             |       | 187.6                 |       |
| Goodwill                                                                                                                                                                        |       | 92.4              |       | 90.2                  |       |
| Deferred income taxes                                                                                                                                                           |       | 245.2             |       | 190.4                 |       |
| Other noncurrent assets                                                                                                                                                         |       | 398.5             |       | 379.7                 |       |
| Noncurrent assets held  for sale                                                                                                                                                |       | 187.2             |       | —                |       |
| **Total  assets**                                                                                                                                                               |       | $                 | 8,515.2    |                  | $          | 8,444.9 |   |
|                                                                                                                                                                            |       |              |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                                                            |       |              |       |                  |       |
| **Current liabilities:**                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Accounts payable                                                                                                                                                                |       | $                 | 1,083.9    |                  | $          | 1,006.2 |   |
| Accounts payable  to affiliates                                                                                                                                                 |       | 12.5              |       | 12.0                  |       |
| Accrued  liabilities                                                                                                                                                            |       | 802.9             |       | 857.6                 |       |
| Deferred income  taxes                                                                                                                                                          |       | 19.3              |       | 9.4                   |       |
| Current portion  of long-term debt                                                                                                                                              |       | 258.8             |       | 187.9                 |       |
| Current  liabilities held for sale                                                                                                                                              |       | 10.1              |       | —                |       |
| **Total  current liabilities**                                                                                                                                                  |       | 2,187.5           |       | 2,073.1               |       |
|                                                                                                                                                                            |       |              |       |                  |       |
| Long-term debt                                                                                                                                                                  |       | 3,524.6           |       | 3,457.4               |       |
| Deferred income taxes                                                                                                                                                           |       | 101.6             |       | 192.6                 |       |
| Other noncurrent  liabilities                                                                                                                                                   |       | 942.9             |       | 955.8                 |       |
| Noncurrent liabilities  held for sale                                                                                                                                           |       | 4.7               |       | —                |       |
| **Total  liabilities**                                                                                                                                                          |       | 6,761.3           |       | 6,678.9               |       |
| ** **                                                                                                                                                                      | ** ** | ** **        | ** ** | ** **            | ** ** |
| Minority interests in  common stock of consolidated subsidiaries                                                                                                                |       | 23.9              |       | 29.4                  |       |
|                                                                                                                                                                            |       |              |       |                  |       |
| **Commitments and contingencies  (Notes 14 and 15)**                                                                                                                            | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                                                            |       |              |       |                  |       |
| **Stockholders’ equity:**                                                                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| Common stock  $0.01 par value, 1,200,000,000 shares authorized, 222,003,528 and 221,549,461  issued and 221,025,680 and 220,652,429 outstanding in 2007 and 2006,  respectively |       | 2.2               |       | 2.2                   |       |
| Mandatory convertible  preferred stock $0.01 par value, 100,000,000 shares authorized, 5,750,000  issued and outstanding                                                        |       | 287.5             |       | 287.5                 |       |
| Additional  paid-in capital                                                                                                                                                     |       | 2,823.9           |       | 2,798.4               |       |
| Unearned  stock-based compensation                                                                                                                                              |       | (16.6             | )          | (12.5                 | )          |
| Accumulated  deficit                                                                                                                                                            |       | (1,348.5          | )          | (1,277.6              | )          |
| Accumulated  other comprehensive loss                                                                                                                                           |       | (18.5             | )          | (61.4                 | )          |
| **Total  stockholders’ equity**                                                                                                                                            |       | 1,730.0           |       | 1,736.6               |       |
| **Total liabilities and  stockholders’ equity**                                                                                                                            |       | $                 | 8,515.2    |                  | $          | 8,444.9 |   |

 

See accompanying notes tocondensed consolidated financial statements (unaudited).

1

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**HUNTSMAN CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND**

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

**(In Millions,Except Per Share Amounts)**
| ** **                                                                       | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues:**                                                                    | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade sales, services and fees                                                   |       | $                                                   | 2,499.3    |                                              | $          | 2,360.2 |   | $ | 4,768.2 |   | $ | 4,637.7 |   |
| Related party sales                                                              |       | 18.3                                                |       | 28.8                                              |       | 36.3 |   | 50.3 |   |
| **Total revenues**                                                               |       | 2,517.6                                             |       | 2,389.0                                           |       | 4,804.5 |   | 4,688.0 |   |
| **Cost of  goods sold**                                                          |       | 2,137.9                                             |       | 1,993.6                                           |       | 4,032.8 |   | 3,934.7 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Gross  profit**                                                                |       | 379.7                                               |       | 395.4                                             |       | 771.7 |   | 753.3 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  expenses:**                                                         | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Selling, general and administrative                                              |       | 220.1                                               |       | 171.7                                             |       | 429.6 |   | 332.5 |   |
| Research and development                                                         |       | 36.2                                                |       | 26.1                                              |       | 69.5 |   | 53.3 |   |
| Other operating expense (income)                                                 |       | 1.4                                                 |       | (95.0                                             | )          | 5.3 |   | (94.3 | ) |
| Restructuring, impairment and plant closing costs                                |       | 13.2                                                |       | 8.8                                               |       | 24.4 |   | 17.1 |   |
| Total expenses                                                                   |       | 270.9                                               |       | 111.6                                             |       | 528.8 |   | 308.6 |   |
| **Operating  income**                                                            |       | 108.8                                               |       | 283.8                                             |       | 242.9 |   | 444.7 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense, net                                                           |       | (70.0                                               | )          | (94.6                                             | )          | (143.8 | ) | (181.4 | ) |
| Loss on accounts  receivable securitization program                              |       | (4.7                                                | )          | (3.6                                              | )          | (9.0 | ) | (5.9 | ) |
| Equity in income  of investment in unconsolidated affiliates                     |       | 5.1                                                 |       | 1.4                                               |       | 7.3 |   | 2.1 |   |
| Other (expense)  income                                                          |       | (1.3                                                | )          | 0.6                                               |       | (2.1 | ) | 0.1 |   |
|                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| **Income  from continuing operations before income taxes and minority interest** | ** ** | 37.9                                                |       | 187.6                                             |       | 95.3 |   | 259.6 | ** ** |
| Income tax  benefit (expense)                                                    |       | 8.0                                                 |       | (17.4                                             | )          | (4.4 | ) | (32.3 | ) |
| Minority  interest in subsidiaries’ loss (income)                           |       | 11.1                                                |       | (0.3                                              | )          | 10.7 |   | (0.7 | ) |
| **Income  from continuing operations**                                           |       | 57.0                                                |       | 169.9                                             |       | 101.6 |   | 226.6 |   |
| (Loss) income  from discontinued operations, net of tax                          |       | (119.0                                              | )          | 42.5                                              |       | (119.4 | ) | 54.8 |   |
| **(Loss)  income before extraordinary (loss) gain**                              |       | (62.0                                               | )          | 212.4                                             |       | (17.8 | ) | 281.4 |   |
| Extraordinary  (loss) gain on the acquisition of a business, net of tax of nil   |       | (8.9                                                | )          | 50.5                                              |       | (6.5 | ) | 50.5 |   |
| **Net  (loss) income**                                                           |       | $                                                   | (70.9      | )                                                 | $          | 262.9 |   | $ | (24.3 | ) | $ | 331.9 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  (loss) income**                                                           |       | $                                                   | (70.9      | )                                                 | $          | 262.9 |   | $ | (24.3 | ) | $ | 331.9 |   |
| Other  comprehensive income                                                      |       | 22.7                                                |       | 49.3                                              |       | 42.9 |   | 80.3 |   |
| **Comprehensive  (loss) income**                                                 |       | $                                                   | (48.2      | )                                                 | $          | 312.2 |   | $ | 18.6 |   | $ | 412.2 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic  income (loss) per share:**                                              | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from  continuing operations                                               |       | $                                                   | 0.26       |                                              | $          | 0.77 |   | $ | 0.46 |   | $ | 1.03 |   |
| (Loss) income  from discontinued operations, net of tax                          |       | (0.54                                               | )          | 0.19                                              |       | (0.54 | ) | 0.25 |   |
| Extraordinary  (loss) gain on the acquisition of a business, net of tax          |       | (0.04                                               | )          | 0.23                                              |       | (0.03 | ) | 0.22 |   |
| Net (loss)  income                                                               |       | $                                                   | (0.32      | )                                                 | $          | 1.19 |   | $ | (0.11 | ) | $ | 1.50 |   |
| Weighted average  shares                                                         |       | 220.9                                               |       | 220.6                                             |       | 220.9 |   | 220.6 |   |
|                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| **Diluted  income (loss) per share:**                                            | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from  continuing operations                                               |       | $                                                   | 0.24       |                                              | $          | 0.73 |   | $ | 0.44 |   | $ | 0.97 |   |
| (Loss) income  from discontinued operations, net of tax                          |       | (0.50                                               | )          | 0.18                                              |       | (0.51 | ) | 0.24 |   |
| Extraordinary  (loss) gain on the acquisition of a business, net of tax          |       | (0.04                                               | )          | 0.22                                              |       | (0.03 | ) | 0.21 |   |
| Net (loss)  income                                                               |       | $                                                   | (0.30      | )                                                 | $          | 1.13 |   | $ | (0.10 | ) | $ | 1.42 |   |
| Weighted average  shares                                                         |       | 233.5                                               |       | 233.2                                             |       | 233.5 |   | 233.1 |   |
|                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| **Dividends per share**                                                          |       | $                                                   | 0.10       |                                              | $          | — |   | $ | 0.20 |   | $ | — |   |

 

See accompanyingnotes to condensed consolidated financial statements (unaudited).

2

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**HUNTSMAN CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**(Dollars in Millions)**
| ** **                                                                                | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Operating  Activities:**                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net (loss)  income                                                                        |       | $                                                 | (24.3      | ) | $ | 331.9 |   |
| Adjustments to  reconcile net (loss) income to net cash provided by operating activities: |       |                                              |       |   |   |
| Extraordinary loss (gain) on the acquisiton of  business, net of tax                      |       | 6.5                                               |       | (50.5 | ) |
| Equity in income of investment in unconsolidated  affiliates                              |       | (7.3                                              | )          | (2.1 | ) |
| Depreciation and amortization                                                             |       | 217.0                                             |       | 234.5 |   |
| Provision for losses on accounts receivable                                               |       | 4.4                                               |       | 2.2 |   |
| Gain on disposal of assets                                                                |       | (1.6                                              | )          | (92.4 | ) |
| Loss on early extinguishment of debt                                                      |       | 1.8                                               |       | — |   |
| Noncash interest expense                                                                  |       | 2.0                                               |       | 2.1 |   |
| Noncash restructuring, impairment and plant closing  costs                                |       | 11.7                                              |       | 12.3 |   |
| Impairment loss on pending disposal of discontinued  operations                           |       | 240.0                                             |       | — |   |
| Deferred income taxes                                                                     |       | (88.6                                             | )          | 18.4 |   |
| Net unrealized (gain) loss on foreign currency  transactions                              |       | (7.5                                              | )          | 26.9 |   |
| Stock-based compensation                                                                  |       | 11.9                                              |       | 8.2 |   |
| Minority interest in subsidiaries’ (loss) income                                     |       | (10.7                                             | )          | 0.7 |   |
| Other, net                                                                                |       | 9.8                                               |       | (9.1 | ) |
| Changes in  operating assets and liabilities:                                             |       |                                              |       |   |   |
| Accounts and notes receivable                                                             |       | (185.0                                            | )          | 63.3 |   |
| Inventories, net                                                                          |       | 29.9                                              |       | 23.1 |   |
| Prepaid expenses                                                                          |       | 26.2                                              |       | 1.3 |   |
| Other current assets                                                                      |       | 42.0                                              |       | 38.6 |   |
| Other noncurrent assets                                                                   |       | (64.2                                             | )          | (41.7 | ) |
| Accounts payable                                                                          |       | 12.9                                              |       | (81.8 | ) |
| Accrued liabilities                                                                       |       | (170.9                                            | )          | (140.7 | ) |
| Other noncurrent liabilities                                                              |       | 29.3                                              |       | (21.7 | ) |
| **Net  cash provided by operating activities**                                            |       | 85.3                                              |       | 323.5 |   |
| ** **                                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Investing  Activities:**                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                     |       | (282.8                                            | )          | (211.3 | ) |
| Acquisition of  business, net of cash acquired and post-closing adjustments               |       | 26.9                                              |       | (136.0 | ) |
| Proceeds from  sale of assets                                                             |       | 15.8                                              |       | 201.1 |   |
| Investment in  unconsolidated affiliates, net                                             |       | (16.7                                             | )          | (14.4 | ) |
| Proceeds from  government securities, restricted as to use                                |       | 7.2                                               |       | 7.2 |   |
| Change in  restricted cash                                                                |       | —                                            |       | (32.9 | ) |
| Other, net                                                                                |       | (0.5                                              | )          | — |   |
| **Net  cash used in investing activities**                                                |       | (250.1                                            | )          | (186.3 | ) |
|                                                                                      |       |                                              |       |   |   |
| **Financing  Activities:**                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net borrowings  (repayments) under revolving loan facilities                              |       | 205.0                                             |       | (1.9 | ) |
| Net repayments  from overdraft facilities and other short-term debt                       |       | (0.2                                              | )          | (6.2 | ) |
| Repayments of  long-term debt                                                             |       | (317.5                                            | )          | (69.5 | ) |
| Proceeds from  long-term debt                                                             |       | 266.1                                             |       | 22.9 |   |
| Repayments on  notes payable                                                              |       | (39.1                                             | )          | (22.3 | ) |
| Proceeds from  notes payable                                                              |       | 7.2                                               |       | — |   |
| Dividends paid  to common stockholders                                                    |       | (44.2                                             | )          | — |   |
| Dividends paid  to preferred stockholders                                                 |       | (7.2                                              | )          | (7.2 | ) |
| Contribution from  minority shareholder                                                   |       | —                                            |       | 6.2 |   |
| Call premiums  related to early extinguishment of debt                                    |       | (1.2                                              | )          | — |   |
| Debt issuance  costs paid                                                                 |       | (4.2                                              | )          | — |   |
| Other, net                                                                                |       | (0.8                                              | )          | — |   |
| **Net  cash provided by (used in) financing activities**                                  |       | 63.9                                              |       | (78.0 | ) |
|                                                                                      |       |                                              |       |   |   |
| Effect of  exchange rate changes on cash                                                  |       | 5.2                                               |       | (1.9 | ) |
| (Decrease)  increase in cash and cash equivalents                                         |       | (95.7                                             | )          | 57.3 |   |
| Cash and cash  equivalents at beginning of period                                         |       | 263.2                                             |       | 142.8 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                                 | 167.5      |   | $ | 200.1 |   |
|                                                                                      |       |                                              |       |   |   |
| **Supplemental  cash flow information:**                                                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash paid for interest                                                                    |       | $                                                 | 151.2      |   | $ | 182.9 |   |
| Cash paid for income taxes                                                                |       | 33.8                                              |       | 12.4 |   |
| Change in capital expenditures included in accounts  payable                              |       | 27.0                                              |       | — |   |

 

See accompanyingnotes to condensed consolidated financial statements (unaudited).

3

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

**(Dollarsin Millions)**
| ** **                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                 |       |              |       |                  |       |
| **Current assets:**                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                                                                                 |       | $                 | 167.5      |                  | $          | 246.0 |   |
| Accounts and  notes receivables (net of allowance for doubtful accounts of $43.6 and $39.0,  respectively) |       | 1,439.3           |       | 1,243.3               |       |
| Accounts  receivable from affiliates                                                                       |       | 52.6              |       | 19.5                  |       |
| Inventories, net                                                                                           |       | 1,348.0           |       | 1,520.1               |       |
| Prepaid expenses                                                                                           |       | 29.2              |       | 55.7                  |       |
| Deferred income  taxes                                                                                     |       | 74.1              |       | 70.7                  |       |
| Other current  assets                                                                                      |       | 115.6             |       | 161.6                 |       |
| Current assets  held for sale                                                                              |       | 175.8             |       | —                |       |
| **Total  current assets**                                                                                  |       | 3,402.1           |       | 3,316.9               |       |
|                                                                                                       |       |              |       |                  |       |
| Property, plant and  equipment, net                                                                        |       | 3,607.0           |       | 3,829.5               |       |
| Investment in  unconsolidated affiliates                                                                   |       | 215.9             |       | 201.0                 |       |
| Intangible assets, net                                                                                     |       | 180.2             |       | 192.6                 |       |
| Goodwill                                                                                                   |       | 92.4              |       | 90.2                  |       |
| Deferred income taxes                                                                                      |       | 243.6             |       | 188.7                 |       |
| Other noncurrent assets                                                                                    |       | 398.5             |       | 376.6                 |       |
| Noncurrent assets held  for sale                                                                           |       | 187.2             |       | —                |       |
| **Total  assets**                                                                                          |       | $                 | 8,326.9    |                  | $          | 8,195.5 |   |
|                                                                                                       |       |              |       |                  |       |
| **LIABILITIES AND MEMBERS’ EQUITY**                                                                   | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                       |       |              |       |                  |       |
| **Current liabilities:**                                                                                   | ** ** | ** **        | ** ** | ** **            | ** ** |
| Accounts payable                                                                                           |       | $                 | 1,083.9    |                  | $          | 1,006.2 |   |
| Accounts payable  to affiliates                                                                            |       | 17.8              |       | 16.7                  |       |
| Accrued  liabilities                                                                                       |       | 790.4             |       | 841.7                 |       |
| Deferred income  taxes                                                                                     |       | 19.3              |       | 9.4                   |       |
| Current portion  of long-term debt                                                                         |       | 257.2             |       | 187.9                 |       |
| Current liabilities  held for sale                                                                         |       | 10.1              |       | —                |       |
| **Total  current liabilities**                                                                             |       | 2,178.7           |       | 2,061.9               |       |
|                                                                                                       |       |              |       |                  |       |
| Long-term debt                                                                                             |       | 3,524.6           |       | 3,457.4               |       |
| Deferred income taxes                                                                                      |       | 109.1             |       | 161.6                 |       |
| Other noncurrent  liabilities                                                                              |       | 942.4             |       | 952.1                 |       |
| Noncurrent liabilities  held for sale                                                                      |       | 4.7               |       | —                |       |
| **Total  liabilities**                                                                                     |       | 6,759.5           |       | 6,633.0               |       |
| ** **                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| Minority interests in  common stock of consolidated subsidiaries                                           |       | 23.9              |       | 29.4                  |       |
|                                                                                                       |       |              |       |                  |       |
| **Commitments and contingencies  (Notes 14 and 15)**                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                       |       |              |       |                  |       |
| **Members’ equity:**                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| Members’ equity,  2,728 units issued and outstanding                                                  |       | 2,831.3           |       | 2,811.8               |       |
| Accumulated  deficit                                                                                       |       | (1,204.8          | )          | (1,150.4              | )          |
| Accumulated  other comprehensive loss                                                                      |       | (83.0             | )          | (128.3                | )          |
| **Total  members’ equity**                                                                            |       | 1,543.5           |       | 1,533.1               |       |
| **Total liabilities and members’  equity**                                                            |       | $                 | 8,326.9    |                  | $          | 8,195.5 |   |

 

See accompanying notesto condensed consolidated financial statements (unaudited).

4

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND**

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

**(Dollars in Millions)**
| ** **                                                                       | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues:**                                                                    | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade sales, services and fees                                                   |       | $                                                   | 2,499.3    |                                              | $          | 2,360.2 |   | $ | 4,768.2 |   | $ | 4,637.7 |   |
| Related party sales                                                              |       | 18.3                                                |       | 28.8                                              |       | 36.3 |   | 50.3 |   |
| **Total revenues**                                                               |       | 2,517.6                                             |       | 2,389.0                                           |       | 4,804.5 |   | 4,688.0 |   |
| **Cost of  goods sold**                                                          |       | 2,131.3                                             |       | 1,990.3                                           |       | 4,024.7 |   | 3,927.4 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Gross  profit**                                                                |       | 386.3                                               |       | 398.7                                             |       | 779.8 |   | 760.6 |   |
|                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| **Operating  expenses:**                                                         | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Selling, general and administrative                                              |       | 219.9                                               |       | 171.0                                             |       | 429.4 |   | 331.0 |   |
| Research and development                                                         |       | 36.2                                                |       | 26.1                                              |       | 69.5 |   | 53.3 |   |
| Other operating expense (income)                                                 |       | 1.4                                                 |       | (95.0                                             | )          | 5.3 |   | (94.3 | ) |
| Restructuring, impairment and plant closing costs                                |       | 13.2                                                |       | 8.8                                               |       | 24.4 |   | 17.1 |   |
| Total expenses                                                                   |       | 270.7                                               |       | 110.9                                             |       | 528.6 |   | 307.1 |   |
| **Operating  income**                                                            |       | 115.6                                               |       | 287.8                                             |       | 251.2 |   | 453.5 |   |
|                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Interest  expense, net                                                           |       | (70.1                                               | )          | (95.7                                             | )          | (144.4 | ) | (183.7 | ) |
| Loss on accounts  receivable securitization program                              |       | (4.7                                                | )          | (3.6                                              | )          | (9.0 | ) | (5.9 | ) |
| Equity in income  of investment in unconsolidated affiliates                     |       | 5.1                                                 |       | 1.4                                               |       | 7.3 |   | 2.1 |   |
| Other (expense)  income                                                          |       | (1.3                                                | )          | 0.6                                               |       | (2.6 | ) | 0.1 |   |
|                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| **Income  from continuing operations before income taxes and minority interest** |       | 44.6                                                |       | 190.5                                             |       | 102.5 |   | 266.1 |   |
| Income tax  expense                                                              |       | (18.6                                               | )          | (58.2                                             | )          | (42.1 | ) | (78.4 | ) |
| Minority  interest in subsidiaries’ loss (income)                           |       | 11.1                                                |       | (0.3                                              | )          | 10.7 |   | (0.7 | ) |
| **Income  from continuing operations**                                           |       | 37.1                                                |       | 132.0                                             |       | 71.1 |   | 187.0 |   |
| (Loss) income  from discontinued operations, net of tax                          |       | (119.0                                              | )          | 42.5                                              |       | (119.4 | ) | 54.8 |   |
| **(Loss)  income before extraordinary (loss) gain**                              |       | (81.9                                               | )          | 174.5                                             |       | (48.3 | ) | 241.8 |   |
| Extraordinary  (loss) gain on the acquisition of a business, net of tax of nil   |       | (8.9                                                | )          | 46.1                                              |       | (6.5 | ) | 46.1 |   |
| **Net  (loss) income**                                                           |       | $                                                   | (90.8      | )                                                 | $          | 220.6 |   | $ | (54.8 | ) | $ | 287.9 |   |
| ** **                                                                       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  (loss) income**                                                           |       | $                                                   | (90.8      | )                                                 | $          | 220.6 |   | $ | (54.8 | ) | $ | 287.9 |   |
| Other  comprehensive income                                                      |       | 22.3                                                |       | 57.2                                              |       | 45.3 |   | 91.5 |   |
| **Comprehensive (loss) income**                                                  |       | $                                                   | (68.5      | )                                                 | $          | 277.8 |   | $ | (9.5 | ) | $ | 379.4 |   |

 

See accompanyingnotes to condensed consolidated financial statements (unaudited).

5

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**HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)**

**(Dollars in Millions)**
| ** **                                                                                | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Operating  Activities:**                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net (loss) income                                                                         |       | $                                                 | (54.8      | ) | $ | 287.9 |   |
| Adjustments to reconcile net (loss) income to net  cash provided by operating activities: |       |                                              |       |   |   |
| Extraordinary loss (gain) on acqusition of a  business, net of tax                        |       | 6.5                                               |       | (46.1 | ) |
| Equity in income of investment in unconsolidated  affiliates                              |       | (7.3                                              | )          | (2.1 | ) |
| Depreciation and amortization                                                             |       | 205.6                                             |       | 220.9 |   |
| Provision for losses on accounts receivable                                               |       | 4.4                                               |       | 2.2 |   |
| Gain on disposal of assets                                                                |       | (1.6                                              | )          | (92.4 | ) |
| Loss on early extinguishment of debt                                                      |       | 2.2                                               |       | — |   |
| Noncash interest expense                                                                  |       | 2.3                                               |       | 4.1 |   |
| Noncash restructuring, impairment and plant closing  costs                                |       | 11.7                                              |       | 12.3 |   |
| Impairment loss on pending disposal of discontinued  operations                           |       | 240.0                                             |       | — |   |
| Deferred income taxes                                                                     |       | (50.9                                             | )          | 64.5 |   |
| Net unrealized (gain) loss on foreign currency  transactions                              |       | (7.5                                              | )          | 26.9 |   |
| Noncash compensation                                                                      |       | 11.9                                              |       | 8.2 |   |
| Minority interest in subsidiaries’ (loss) income                                     |       | (10.7                                             | )          | 0.7 |   |
| Other, net                                                                                |       | (18.8                                             | )          | (6.7 | ) |
| Changes in  operating assets and liabilities:                                             |       |                                              |       |   |   |
| Accounts and notes receivable                                                             |       | (185.0                                            | )          | 63.3 |   |
| Inventories, net                                                                          |       | 29.9                                              |       | 23.1 |   |
| Prepaid expenses                                                                          |       | 27.8                                              |       | (0.1 | ) |
| Other current assets                                                                      |       | 40.5                                              |       | 38.6 |   |
| Other noncurrent assets                                                                   |       | (67.7                                             | )          | (53.4 | ) |
| Accounts payable                                                                          |       | 12.9                                              |       | (81.8 | ) |
| Accrued liabilities                                                                       |       | (167.5                                            | )          | (141.3 | ) |
| Other noncurrent liabilities                                                              |       | 36.1                                              |       | (10.7 | ) |
| **Net  cash provided by operating activities**                                            |       | 60.0                                              |       | 318.1 |   |
|                                                                                      |       |                                              |       |   |   |
| **Investing  Activities:**                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                     |       | (282.8                                            | )          | (211.3 | ) |
| Acquisition of  business, net of cash acquired and post-closing adjustments               |       | 26.9                                              |       | (136.0 | ) |
| Proceeds from  sale of assets                                                             |       | 15.8                                              |       | 201.1 |   |
| Investment in  unconsolidated affiliates, net                                             |       | (16.7                                             | )          | (14.4 | ) |
| Change in  restricted cash                                                                |       | —                                            |       | (32.9 | ) |
| Other, net                                                                                |       | (0.5                                              | )          | — |   |
| **Net  cash used in investing activities**                                                |       | (257.3                                            | )          | (193.5 | ) |
|                                                                                      |       |                                              |       |   |   |
| **Financing  Activities:**                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net borrowings  (repayments) under revolving loan facilities                              |       | 205.0                                             |       | (1.9 | ) |
| Net repayments  from overdraft facilities and other short-term debt                       |       | (0.2                                              | )          | (6.2 | ) |
| Repayments of  long-term debt                                                             |       | (317.5                                            | )          | (69.5 | ) |
| Proceeds from  long-term debt                                                             |       | 266.1                                             |       | 22.9 |   |
| Repayments on  notes payable                                                              |       | (38.1                                             | )          | (20.5 | ) |
| Proceeds from  notes payable                                                              |       | 4.5                                               |       | — |   |
| Call premiums  related to early extinguishment of debt                                    |       | (1.2                                              | )          | — |   |
| Debt issuance  costs paid                                                                 |       | (4.2                                              | )          | — |   |
| Contribution  from minority shareholder                                                   |       | —                                            |       | 6.2 |   |
| Other, net                                                                                |       | (0.8                                              | )          | — |   |
| **Net  cash provided by (used in) financing activities**                                  |       | 113.6                                             |       | (69.0 | ) |
|                                                                                      |       |                                              |       |   |   |
| Effect of  exchange rate changes on cash                                                  |       | 5.2                                               |       | (1.9 | ) |
|                                                                                      |       |                                              |       |   |   |
| (Decrease)  increase in cash and cash equivalents                                         |       | (78.5                                             | )          | 53.7 |   |
| Cash and cash  equivalents at beginning of period                                         |       | 246.0                                             |       | 132.5 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                                 | 167.5      |   | $ | 186.2 |   |
|                                                                                      |       |                                              |       |   |   |
| **Supplemental  cash flow information:**                                                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash paid for interest                                                                    |       | $                                                 | 151.8      |   | $ | 183.3 |   |
| Cash paid for income taxes                                                                |       | 33.8                                              |       | 12.4 |   |
| Change in  capital expenditures included in accounts payable                              |       | 27.0                                              |       | — |   |

 

See accompanying notes to condensed consolidated financial statements(unaudited).

6

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**HUNTSMANCORPORATION AND SUBSIDIARIES**

**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**1.             GENERAL**

**CERTAIN DEFINITIONS**

“Company,”“our,” “us,” or “we” may be used to refer to Huntsman Corporation and, unlessthe context otherwise requires, its subsidiaries and predecessors. Anyreferences to our “Company,” “we,” “us” or “our” as of a date prior toOctober 19, 2004 (the date of our formation) are to Huntsman Holdings, LLCand its subsidiaries (including their respective predecessors). In this report,“Huntsman International” refers to Huntsman International LLC (our 100% ownedsubsidiary) and, unless the context otherwise requires, its subsidiaries; “HuntsmanAdvanced Materials” refers to Huntsman Advanced Materials Holdings LLC (our100% owned indirect subsidiary, the membership interests of which wecontributed to Huntsman International on December 20, 2005) and, unless thecontext otherwise requires, its subsidiaries; “HPS” refers to Huntsman PolyurethanesShanghai Ltd. (our consolidated splitting joint venture with ShanghaiChlor-Alkali Chemical Company, Ltd); “SLIC” refers to Shanghai LienghengIsocyanate Investment BV (our unconsolidated manufacturing joint venture withBASF AG and three Chinese chemical companies); “HMP Equity Trust” refers to HMPEquity Trust (the holder of approximately 47% of our common stock as of June 30,2007 and approximately 22% as of August 7, 2007), and “MatlinPatterson” refersto MatlinPatterson Global Opportunities Partners L.P., MatlinPatterson GlobalOpportunities Partners (Bermuda) L.P. and MatlinPatterson Global OpportunitiesPartners B, L.P. (collectively, an owner of HMP Equity Trust).

Inthis report, we may use, without definition, the common names of competitors orother industry participants. We may also use the common names or abbreviationsfor certain chemicals or products.

**DESCRIPTION OF BUSINESS**

We are among theworld’s largest global manufacturers of differentiated chemical products; wealso manufacture inorganic and commodity chemical products. Our productscomprise a broad range of chemicals and formulations, which we market in morethan 100 countries to a diversified group of consumer and industrial customers.Our products are used in a wide range of applications, including those in theadhesives, aerospace, automotive, construction products, durable andnon-durable consumer products, electronics, medical, packaging, paints andcoatings, power generation, refining, synthetic fiber, textile chemicals anddye industries. We are a leading global producer in many of our key productlines, including MDI products, amines, surfactants, epoxy-based polymerformulations, textile chemicals, dyes, maleic anhydride and titanium dioxide.

**COMPANY**

Our Company wasformed in 2004 to hold the Huntsman businesses. Jon M. Huntsman founded thepredecessor to our Company in the early 1970s as a small packaging company.Since then, we have grown through a series of significant acquisitions and nowown a global portfolio of differentiated, inorganic and commodity businesses.

HuntsmanInternational was formed in 1999 in connection with the acquisition of ICI’spolyurethane chemicals, selected petrochemicals and titanium dioxide businessesand BP’s 20% ownership interest in an olefins facility located at Wilton, U.K.and certain related assets.

7

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**PENDINGSALE OF OUR COMPANY**

On July 12, 2007, we entered into an Agreement andPlan of Merger (the "Merger Agreement") with Hexion SpecialtyChemicals, Inc., an entity owned by an affiliate of Apollo Management L.P.("Hexion"), and Nimbus Merger Sub Inc., a wholly-owned subsidiary ofHexion ("Merger Sub"), under which Hexion has agreed to acquire allof the issued and outstanding shares of our common stock pursuant to a mergerunder Delaware law. Under the terms of the Merger Agreement, Merger Sub will bemerged with and into our company, with our company continuing as the survivingcorporation and as a wholly-owned subsidiary of Hexion (the"Merger").

If the Merger is completed, each share of our commonstock that our stockholders own at the effective time of the Merger (unless thestockholder properly exercises appraisal rights under Delaware law) will becancelled and converted into the right to receive, without interest, $28.00 incash, plus, if the Merger is not consummated by April 5, 2008 (the"Adjustment Date"), an amount in cash equal to the excess, if any, of$0.006137 per day for each day after the Adjustment Date through and includingthe date on which the Merger is effected over any cash dividends ordistributions declared, made or paid from and after the Adjustment Date throughand including the date on which the Merger is effected (the "MergerConsideration"), less any applicable withholding taxes. After the Mergeris completed, any shares of our common stock owned by our stockholdersimmediately prior to the effective time of the Merger and converted in theMerger will thereafter represent only the right to receive the MergerConsideration (or the right to the fair value of such shares if appraisal isproperly demanded and perfected) and they will no longer have any rights as astockholder.

Prior to entering into the Merger Agreement, weterminated an Agreement and Plan of Merger (the "Basell Agreement")dated as of June 26, 2007 with Basell AF ("Basell") and paid Basellthe $200 million termination fee required under the terms of the BasellAgreement. One-half of the termination fee was funded by Hexion and we could berequired to pay Hexion such amount under certain circumstances in connectionwith a termination of the Merger Agreement. The closing price of our commonstock on June 25, 2007, the last trading day prior to announcement of theexecution of the Basell Agreement on June 26, 2007, was $18.90 per share.

After receiving a buyout offer from a prominentprivate equity fund on May 15, 2007, our board of directors formed atransaction committee comprised solely of independent directors and authorizedmanagement to engage a financial advisor to assist in conducting an appropriateprocess for the board of directors to evaluate and respond to the buyout offer.We engaged Merrill, Lynch & Co. ("Merrill Lynch") and invitedthem to contact a select list of parties that were likely to have an interestin an acquisition of our company. During the following two weeks, Merrill Lynchcontacted numerous parties regarding a potential sale of our Company.Ultimately we received three written proposals, including from ApolloManagement L.P., on behalf of Hexion, and from Basell. On June 25, 2007, aftersignificant negotiations with Apollo and Basell, we entered into the BasellAgreement providing for the acquisition of all outstanding shares of our commonstock at a price of $25.25 per share and made a public announcement settingforth the principal terms of the Basell Agreement. On June 29, 2007, Apollodelivered a letter to our board of directors offering to enter into a mergeragreement providing for the acquisition of all outstanding shares of our commonstock at a price of $27.25 per share. On July 12, 2007, more than a week afterpublic announcement of the new offer by Apollo, we terminated the BasellAgreement, entered into the Merger Agreement with Hexion and publicly announcedthe principal terms of the Merger Agreement, including the acquisition price of$28.00 per share of our common stock. Since our announcement of the proposedsale of the Company to Basell more than a month ago, we have not received anycompeting proposals from any parties other than the offer from Hexion which weaccepted and announced on July 12, 2007. Under the terms of the MergerAgreement with Hexion we are not permitted to, among other things and subjectto certain specified exceptions where our board of directors makes certaindeterminations, (i) initiate, solicit or knowingly encourage or facilitate anyinquiries, proposals or offers that constitute, or could reasonably be expectedto lead to, a competing proposal, (ii) enter into, participate or engage indiscussions or negotiations with third parties regarding any inquiries,proposals or offers that constitute, or could reasonably be expected to leadto, a competing proposal, or (iii) furnish or provide any non-publicinformation to any third parties with respect to, any inquiries, proposals oroffers that constitute, or could reasonably be expected to lead to, a competingproposal.

8

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**Consummation of the Merger is notsubject to a financing condition, but is subject to various other conditions.We and Hexion are required to complete the Merger unless certain specifiedconditions are not satisfied or waived. These conditions include, among others(i) adoption of the Merger Agreement by the holders of a majority of ouroutstanding shares of common stock, (ii) receipt of certain regulatoryapprovals or expiration of required waiting periods under U.S. and othercompetition laws, and (iii) no material adverse effect occurring with respectto us or our business prior to the effective time of the Merger. There can beno assurance the conditions to consummation of the Merger will be satisfied orwaived. For a complete list of the conditions that must be satisfied or waivedprior to the effective time of the Merger, please review the Merger Agreementfiled as an exhibit to our Current Report on Form 8-K on July 13, 2007.**

For the purposesof the Merger Agreement, a "material adverse effect" with respect tous means any occurrence, condition, change, event or effect that is materiallyadverse to the financial condition, business, or results of operations of ourCompany and its subsidiaries, taken as a whole, subject to certain specifiedexceptions relating to or resulting from:

·      changesin general economic or financial market conditions or in the chemical industrygenerally (including changes in commodity prices, general market prices andregulatory changes affecting the chemical industry generally), except and onlyto the extent that such change has had a disproportionate effect on the Companyand its subsidiaries compared to other persons engaged in the chemicalindustry; 

·      theoutbreak or escalation of hostilities involving the United States, thedeclaration by the United States of war or the occurrence of any naturaldisasters and acts of terrorism, except in the event, and only to the extent,of any damage or destruction to or loss of our physical properties; 

·      theannouncement or pendency of the Merger; 

·      anychange in GAAP, or in the interpretation thereof, or any change in law, or inthe interpretation thereof; 

·      complianceby us with the terms of the Merger Agreement or actions permitted by the MergerAgreement (or otherwise consented to by Hexion) or effectuating Hexion's debtfinancing; or 

·      anydivestiture action taken to ensure regulatory clearance.

The Merger Agreement provides that Hexion will have upto nine months (and an additional three months at Hexion's election), plusunder certain circumstances a further 90-day extension, to close the Merger.The Merger Agreement generally can be terminated by either party if the Mergeris not consummated within that time. We cannot predict the exact timing of theeffective time of the Merger or whether the Merger will be consummated becauseit is subject to certain conditions which are not within our control, such asexpiration of waiting periods or grants of approvals under competition laws incertain jurisdictions, including the United States and the European Union. Wedo not expect the Merger to occur prior to the end of the 2007 calendar year.

The Merger Agreement also contains certain terminationrights, including if our board of directors or a committee thereof changes itsrecommendation to our stockholders in connection with a superior proposal (asdefined in the Merger Agreement), and provides for break-up fees in variouscircumstances. Pursuant to the Merger Agreement, we have agreed to pay Hexion afee of $225 million plus an amount equal to $100 million (the"Reimbursement Amount"), representing the portion of the $200 milliontermination fee paid to Basell that was funded by Hexion, if we or Hexionterminates the Merger Agreement in certain circumstances, including where (i)our board of directors or the transaction committee thereof has withdrawn,modified or changed, in any manner that is adverse to Hexion, its approval orrecommendation that holders of our common stock approve and adopt the MergerAgreement and the Merger; (ii) a tender or exchange offer that would constitutea competing proposal (as defined in the Merger Agreement) is commenced and ourboard of directors or the transaction committee thereof fails to recommendagainst acceptance of such tender or exchange offer within 10 business days; or(iii) we, our board of directors or the transaction committee thereof hasapproved or recommended any competing proposal or approves any agreementrelating to any competing proposal (other than a permitted confidentialityagreement).

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**Wehave also agreed that if either we or Hexion terminates the Merger Agreementafter failure of our common stockholders to adopt the Merger Agreement and,within 12 months after the date of the stockholders' meeting, we enter into adefinitive agreement with respect to or consummate a competing proposal, thenwe have agreed to pay Hexion at the closing or other consummation of suchcompeting proposal:**

·      theReimbursement Amount if, at the time of the meeting, less than 50.1% of thetotal issued and outstanding voting power of our common stock is contractuallycommitted to vote in favor of the adoption of the Merger Agreement; or 

·      a feeof $225 million plus the Reimbursement Amount if, at the time of the meeting,there existed a publicly announced bona fide competing proposal that was notwithdrawn at least five business days prior to the date of the meeting.

**Hexionhas agreed in the Merger Agreement to pay us a fee of $325 million if:**

·      (i) eitherwe or Hexion terminate the Merger Agreement because a governmental agency hasissued a final non-appealable order, decree, ruling or injunction or taken anyother action permanently restraining, enjoining or otherwise prohibiting theconsummation of the Merger or any law or regulation is adopted that makesconsummation of the Merger illegal or otherwise prohibited and (ii) at the sametime there exists an order, decision, judgment, decree, ruling, injunction(preliminary or permanent), or any law, rule, regulation or other action isestablished preliminarily or permanently restraining, enjoining or prohibitingthe consummation of the Merger (each event in clause (ii) being an"Antitrust Prohibition"); 

·      eitherwe or Hexion terminate the Merger Agreement because the Merger has not beenconsummated by the termination date and the condition to consummation of theMerger related to the receipt of regulatory approvals has not been met or thereexists an Antitrust Prohibition; 

·      weterminate the Merger Agreement due to a breach by Hexion or Merger Sub of theircovenants related to making filings and seeking and obtaining approval ofregulatory authorities or their covenants related to obtaining the requiredfinancing; or 

·      weterminate the Merger Agreement because Hexion fails to consummate the Mergerwhen all of the conditions to its obligations to close have been satisfied orwaived (except those conditions that, by their nature, can only be satisfied atclosing) and the Merger has not been consummated on or prior to the terminationdate.

**We and Hexion have agreed that thenon-terminating party will pay to the terminating party the ReimbursementAmount if the Merger Agreement is terminated by either party as a result of awillful or intentional breach by the other party. In addition, no terminationof the Merger Agreement will relieve any party from liability for damages for aknowing and intentional breach of any covenant under the Merger Agreement.**

**In connection with the execution ofthe Merger Agreement, Hexion entered into separate voting agreements (the"Voting Agreements") with certain stockholders, includingMatlinPatterson, the Huntsman family and the Fidelity Charitable Gift Fund, whoat the time of signing collectively owned approximately 57% of our outstandingcommon stock. Pursuant to the terms of the Voting Agreements, the stockholdersthat are a party thereto have agreed to vote the shares of common stock that theyhold as of the record date in favor of the adoption of the Merger Agreement andagainst any competing proposal. The Voting Agreement binding MatlinPattersonrequires it to retain in HMP Equity Trust at least 19,870,000 shares (or 9.0%of our outstanding common stock) through the closing of the Merger. Such19,870,000 shares, however, may be sold if we agree that certain criteria aresatisfied or if the new owner grants all voting rights with respect to thepurchased shares to HMP Equity Trust or to Jon M. Huntsman. At present, HMPEquity Trust continues to hold such 19,870,000 shares. However, onAugust 6, 2007, MatlinPatterson sold 56,979,062 shares. Accordingly, lessthan a majority of our shares of outstanding common stock are subject to theVoting Agreements.**

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**HUNTSMAN CORPORATION AND HUNTSMAN INTERNATIONAL FINANCIAL STATEMENTS**

Exceptwhere otherwise indicated, these notes relate to the condensed consolidatedfinancial statements (unaudited) for each of our Company and HuntsmanInternational. The differences between our financial statements and HuntsmanInternational’s financial statements relate primarily to the following:

·                    purchaseaccounting recorded at our Company for the step-acquisition of HuntsmanInternational in May 2003; and

·                    thedifferent capital structures.

**PRINCIPLES OF CONSOLIDATION**

Ourcondensed consolidated financial statements (unaudited) and HuntsmanInternational’s condensed consolidated financial statements (unaudited) includethe accounts of our wholly-owned and majority-owned subsidiaries and anyvariable interest entities for which we are the primary beneficiary. Allintercompany accounts and transactions have been eliminated, except forintercompany sales between discontinued and continuing operations.

**INTERIM FINANCIAL STATEMENTS**

Our interimcondensed consolidated financial statements (unaudited) and HuntsmanInternational’s interim condensed consolidated financial statements (unaudited)were prepared in accordance with accounting principles generally accepted inthe United States of America (“GAAP” or “U.S. GAAP”) and in management’sopinion, reflect all adjustments, consisting only of normal recurringadjustments, necessary for a fair presentation of results of operations,financial position and cash flows for the periods presented. Results forinterim periods are not necessarily indicative of those to be expected for thefull year. These condensed consolidated financial statements (unaudited) shouldbe read in conjunction with the audited consolidated financial statements andnotes to consolidated financial statements included in the Annual Report onForm 10-K for the year ended December 31, 2006 for our Company andHuntsman International.

**USE OF ESTIMATES**

Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

**RECLASSIFICATIONS**

Certainamounts in the condensed consolidated financial statements (unaudited) forprior periods have been reclassified to conform with the currentpresentation.  The most significant ofthese reclassifications was to reclassify the results of operations from ourNorth American polymers business and our European base chemical and polymersbusinesses to discontinued operations. See “Note 3. Discontinued Operations.” In addition, beginning in the second quarter of 2007, our Australianstyrenics business was transferred from our Polymers segment to Corporate andother.  All segment information for priorperiods has been restated to reflect this transfer.

**2.             RECENTLY ISSUED ACCOUNTINGPRONOUNCEMENTS**

We adoptedEmerging Issues Task Force (“EITF”) Issue No. 06-2,*Accounting for Sabbatical Leave and Other SimilarBenefits Pursuant to FASB Statement No. 43,* on January 1, 2007.This pronouncement concludes that an employee’s right to a compensated absenceunder a sabbatical or other similar benefit arrangement accumulates; therefore,such benefits should be accrued over the required service period. The adoptionof this pronouncement did not have a significant impact on our consolidatedfinancial statements.

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We adopted FinancialAccounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”),*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109*, on January 1, 2007.FIN 48 clarifies the accounting for uncertainty in income taxes recognized inaccordance with Statement of Financial Accounting Standards (“SFAS”)No. 109,*  Accounting for Income Taxes,*  by prescribing a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. We recorded acredit of $0.3 million to accumulated deficit as of January 1, 2007for the cumulative effect of a change in accounting principle. See “Note 18.Income Taxes.”

We adopted EITFIssue 06-3,*How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation),*  on January 1, 2007. This pronouncementconcludes that the presentation of taxes within its scope is an accountingpolicy decision that should be disclosed. If the taxes are reported on a grossbasis, companies are required to disclose the amounts of those taxes if suchamounts are deemed significant. We present taxes within the scope of this issueon a net basis.

InSeptember 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* . SFASNo. 157 defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements. This statement iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007 and interim periods within those fiscal years. We arereviewing SFAS No. 157 to determine the statement’s impact on ourconsolidated financial statements.

InSeptember 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans—an amendment of FASB Statements No. 87, 88,106, and 132(R)*. Effective for December 31, 2008, SFASNo. 158 will require us to measure the funded status of our plans asof  December 31. We currently use aNovember 30 measurement date for our plans.

We adopted FASBStaff Position (“FSP”) No. AUG AIR-1,*Accounting for Planned Major Maintenance Activities,*  on January 1, 2007. This FSP prohibits theuse of the accrue-in-advance method of accounting for planned major maintenanceactivities. The adoption of this FSP did not have a significant impact on ourconsolidated financial statements.

We adopted FSPEITF 00-19-2,*Accounting for RegistrationPayment Arrangements,* on January 1, 2007. This FSP requires that thecontingent obligation to make future payments or otherwise transferconsideration under a registration payment arrangement should be separatelyrecognized and measured in accordance with SFAS No. 5,*  Accountingfor Contingencies* . In November 2006 and March 2007, wecompleted offerings of subordinated notes which contain registration paymentarrangements. See “Note 7. Debt.” We have evaluated the impact of this FSP asit relates to our note offerings, and the adoption of this FSP did not have asignificant impact on our consolidated financial statements.

In February 2007,the FASB issued SFAS No. 159,*The FairValue Option for Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115.*  SFAS No. 159 permits companies to chooseto measure many financial instruments and certain other items at fair value,with changes in fair value reflected in earnings. SFAS No. 159 iseffective as of the beginning of the first fiscal year that begins after November 15,2007. We are evaluating SFAS No. 159 to determine the statement’s impacton our consolidated financial statements.

In May 2007, theFASB issued FSP FIN 48-1, *Definition of “Settlement”in FASB Interpretation No. 48,* to provide guidance on how an enterpriseshould determine whether a tax position is effectively settled for the purposeof recognizing previously unrecognized tax benefits.  Our initial adoption of FIN 48 was consistentwith the provisions of this FSP; therefore, this pronouncement did not have animpact on our consolidated financial statements.

In June 2007, theFASB issued EITF Issue No. 06-11, *Accounting for Income TaxBenefits of Dividends on Share-Based Payment Awards*.  EITF Issue No. 06-11 requires companies torecognize a realized tax benefit from dividends charged to retained earnings onaffected securities as a credit to additional paid-in capital which should beincluded in the pool of excess tax benefits available to absorb taxdeficiencies from share-based payment awards. EITF Issue No. 06-11 will be applied prospectively to income taxbenefits of dividends on share-based payment awards that are declared in fiscalyears beginning after September 15, 2007. We are evaluating EITF Issue No. 06-11 

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to determine the impacton our consolidated financial statements.

**3.****                                      DISCONTINUEDOPERATIONS**

**NORTH AMERICAN POLYMERS BUSINESS**

OnFebruary 15, 2007, we entered into an agreement (the “Original Agreement”)pursuant to which Flint Hills Resources (“FHR”), a wholly owned subsidiary ofKoch, agreed to acquire our North American base chemicals and polymers businessassets for approximately $456 million in cash, plus the value of inventory onthe date of closing. We will retain other elements of working capital,including accounts receivable, accounts payable and certain accruedliabilities, which will be liquidated for cash in the ordinary course ofbusiness.  On June 22, 2007, we enteredinto an Amended and Restated Asset Purchase Agreement (the “Amended andRestated Agreement”) with FHR that amends certain terms of the OriginalAgreement to, among other things, provide for the closing of the sale of ourNorth American polymers business assets on August 1, 2007 for $150.0million plus the value of associated inventory on an average actual cost basis (the“North American Polymers Disposition”). We received total consideration for theNorth American Polymers Disposition of approximately $348 million, which issubject to post-closing adjustments. The net proceeds from the North AmericanPolymers Disposition were used to repay debt.

The Amended andRestated Agreement also provides for the separate closing of our U.S. basechemicals business for the remaining $306.0 million of sales price plus thevalue of associated inventory on an average actual cost basis (approximately$60 million at June 30, 2007), following the re-start of our Port Arthur,Texas olefins manufacturing facility, which is expected to occur during thefourth quarter of 2007 (the “Pending U.S. Base Chemicals Disposition” andtogether with the North American Polymers Disposition, the “Pending U.S.Petrochemical Disposition”). For more information, see “Note 4. BusinessDispositions and Combinations—Agreement to Sell U.S. Base Chemicals Business”and “Note 17. Casualty Losses and Insurance Recoveries—Port Arthur, Texas PlantFire.”

The Pending U.S.Petrochemical Disposition includes our olefins and polymers manufacturingassets located at five U.S. sites: Port Arthur, Odessa and Longview, Texas;Peru, Illinois; and Marysville, Michigan. These plants employ about 900associates. Pursuant to the Amended and Restated Agreement, we also shut downour Mansonville, Quebec expandable polystyrene manufacturing facility in June2007.  The captive ethylene unit at ourretained Port Neches, Texas site of our Performance Products segment operationsis not included in the sale. This asset, along with a long-term post-closingarrangement for the supply of ethylene and propylene from FHR to us, willcontinue to provide feedstock for our downstream derivative units.

As of June 22,2007, the North American polymers business was classified as held for sale andits results of operations for current and prior periods have been classified asdiscontinued operations in our financial statements in accordance with SFASNo. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*.  Werecorded a pretax impairment charge of $240.0 million during the three monthsended June 30, 2007 related to the North American Polymers Disposition.

The followingmajor classes of assets and liabilities of our North American polymers businessare presented as held for sale in the accompanying June 30, 2007 condensedconsolidated balance sheet (unaudited) (dollars in millions): 

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| **ASSETS**                         | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------|------------|
| Inventories, net                   |       | $          | 175.3      |   |
| Other current  assets              |       | 0.5        |       |
| Property, plant  and equipment net |       | 143.9      |       |
| Other noncurrent  assets           |       | 43.3       |       |
| **Total  assets**                  |       | 363.0      |       |
| **LIABILITIES**                    | ** ** | ** ** | ** ** |
| Accrued  liabilities               |       | 10.1       |       |
| Other noncurrent  liabilities      |       | 4.7        |       |
| **Total  liabilities**             |       | 14.8       |       |
| **NET  ASSETS**                    |       | $          | 348.2      |   |

 

The followingresults of our North American polymers business have been presented asdiscontinued operations in the accompanying condensed consolidated statementsof operations (unaudited) (dollars in millions):
| ** **                                              | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                              | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Revenues                                                |       | $                                | 385.6      |                           | $          | 356.0 |   | $ | 746.0 |   | $ | 713.7 |   |
| Costs and  expenses                                     |       | (377.5                           | )          | (332.2                         | )          | (736.3 | ) | (659.9 | ) |
| Impairment loss  on pending disposal                    |       | (240.0                           | )          | —                         |       | (240.0 | ) | — |   |
| Operating (loss)  income                                |       | (231.9                           | )          | 23.8                           |       | (230.3 | ) | 53.8 |   |
| Income tax  benefit (expense)                           |       | 75.9                             |       | (0.5                           | )          | 75.9 |   | (1.1 | ) |
| (Loss) income  from discontinued operations, net of tax |       | $                                | (156.0     | )                              | $          | 23.3 |   | $ | (154.4 | ) | $ | 52.7 |   |

 

The impairmentloss on the pending disposal in 2007 represents the impairment of long-livedassets resulting from the write-down of the North American polymers business tothe purchase price less cost to sell. The actual loss on disposal will differfrom this amount as we finalize transaction-related costs.  Furthermore, to the extent that we incuradditional capital expenditures in our North American polymers business, wewill record an additional impairment loss. In addition, we expect to incur a pension curtailment gain of approximately$14 million during the third quarter of 2007.

In connection withthe sale, we agreed to indemnify the buyer with respect to any losses resultingfrom (i) the breach of representations and warranties contained in the assetpurchase agreement, (ii) any pre-sale liabilities related to the assets soldnot assumed by FHR, and (iii) any unknown environmental liability related tothe pre-sale operations of the assets sold.  We are not required to pay under these indemnification obligations untilclaims against us, on a cumulative basis, exceed $10 million.  Upon exceeding this $10 million threshold, wegenerally are obligated to provide indemnification for any losses up to a limitof $150 million.  We believe that thereis a remote likelihood that we will be required to pay any significant amountsunder the indemnity provision.  As aresult, we have estimated that the fair value of this indemnity at the date ofthe closing of the sale will be minimal.

The EBITDA of theNorth American polymers business is reported in our Polymers operating segmentin the accompanying condensed consolidated financial statements (unaudited).

**EUROPEAN BASE CHEMICALS AND POLYMERS BUSINESS**

OnDecember 29, 2006, we completed the sale of the outstanding equityinterests of Huntsman Petrochemicals (UK) Limited for an aggregate purchaseprice of $685 million in cash plus the assumption by the purchaser ofapproximately $126 million in unfunded pension liabilities (the “U.K.Petrochemicals Disposition”). The 

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final sales price issubject to agreement by SABIC on adjustments relating to working capital,investment in the LDPE plant currently under construction in Wilton, U.K. andunfunded pension liabilities. The transaction did not include our Teeside,U.K.-based Pigments operations or the Wilton, U.K.-based aniline and nitrobenzeneoperations of our Polyurethanes segment.

In connection withthe U.K. Petrochemical Disposition, we agreed to make payments to SABIC of upto £18 million (approximately $36 million) related to the transfer ofpension plan assets and liabilities and we accrued this liability in 2006 inconnection with the sale transaction. During the three months ended June 30, 2007, the valuation of therelated pension assets and liabilities was refined and we now expect to makepayments to SABIC of approximately £0.5 million (approximately $1 million)and have adjusted the accrual accordingly. Therefore, during the three months ended June 30, 2007, we recorded apretax gain related to the U.K. Petrochemicals Disposition of $37.2 millionresulting primarily from the reversal of this pension funding accrual.Finalization of the required payment to SABIC is expected during the thirdquarter of 2007, at which time we expect to fund the obligation.

The final salesprice of the U.K. Petrochemical Disposition is also subject to adjustmentsrelating to working capital and investment in the LDPE plant under constructionin Wilton U.K. We have accrued a liability relating to these adjustments of$14.5 million and expect to finalize these adjustments and fund this obligationin the third quarter of 2007. Also, based on our 2006 pension valuation, we andHuntsman International expect to incur a non-cash pension settlement loss ofapproximately $18 million and $28 million, respectively, during the last halfof 2007.

The results ofoperations of our former European base chemicals and polymers business for allperiods have been classified as discontinued operations in our financialstatements in accordance with SFAS No. 144,*Accounting for the Impairment or Disposal of Long-Lived Assets*.

The followingresults of our European base chemicals and polymers business have beenpresented as discontinued operations in the accompanying condensed consolidatedstatements of operations (unaudited) (dollars in millions):
| ** **                                       | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                             |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                         |       | $                                                   | —     |                                              | $          | 598.0 |   | $ | — |   | $ | 1,129.8 |   |
| Costs and  expenses                              |       | —                                              |       | (572.1                                            | )          | — |   | (1,127.6 | ) |
| Post-closing  adjustments to loss on disposal    |       | 37.2                                                |       | —                                            |       | 35.6 |   | — |   |
| Operating income                                 |       | 37.2                                                |       | 25.9                                              |       | 35.6 |   | 2.2 |   |
| Income tax (expense)  benefit                    |       | —                                              |       | (6.4                                              | )          | — |   | 0.7 |   |
| Income from  discontinued operations, net of tax |       | $                                                   | 37.2       |                                              | $          | 19.5 |   | $ | 35.6 |   | $ | 2.9 |   |

 

The EBITDA of ourformer European base chemicals business is reported in our Base Chemicalsoperating segment in the accompanying condensed consolidated financialstatements (unaudited).

In connection with thesale, we agreed to indemnify the buyer with respect to any losses resultingfrom any environmental liability related to the pre-sale operations of theassets sold. These indemnities have various payment thresholds and time limitsdepending on the site and type of claim. Generally, we are not required to payunder these indemnification obligations until claims against us exceed £0.1million (approximately $0.2 million) individually or £1.0 million(approximately $2.0 million), in the aggregate. We also agreed to indemnify thebuyer with respect to certain tax liabilities. Our maximum exposure generallyshall not exceed $600 million in the aggregate. We believe that there is aremote likelihood that we will be required to pay any significant amounts underthe indemnity provision.

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**TDI BUSINESS**

On July 6, 2005, wesold our TDI business. The sale involved the transfer of our TDI customer listand sales contracts. We discontinued the use of our remaining TDI assets. Ourformer TDI business has been accounted for as a discontinued operation underSFAS No. 144 and is reported in our Polyurethanes segment. Accordingly,the following results of TDI have been presented as discontinued operations inthe accompanying condensed consolidated statements of operations (unaudited) (dollarsin millions):
| ** **                                     | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                     | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                           |       |                                                |       |                                              |       |   |   |   |   |
| Costs and  expenses                            |       | $                                                   | (0.6       | )                                                 | $          | (0.3 | ) | $ | (1.0 | ) | $ | (0.8 | ) |
| Operating loss                                 |       | (0.6                                                | )          | (0.3                                              | )          | (1.0 | ) | (0.8 | ) |
| Income tax  benefit                            |       | 0.4                                                 |       | —                                            |       | 0.4 |   | — |   |
| Loss from discontinued  operations, net of tax |       | $                                                   | (0.2       | )                                                 | $          | (0.3 | ) | $ | (0.6 | ) | $ | (0.8 | ) |

 

**4.             BUSINESSDISPOSITIONS AND COMBINATIONS**

**AGREEMENT TOSELL U.S. BASE CHEMICALS BUSINESS**

The Amended andRestated Agreement provides, among other things, for the separate closing ofour U.S. base chemicals business for $306 million of sales price plus the valueof associated inventory on an average actual cost basis (approximately$60 million at June 30, 2007), following the re-start of our Port Arthur,Texas olefins manufacturing facility which is expected to occur during thefourth quarter of 2007. For more information, see “Note 3. DiscontinuedOperations—North American Polymers Business” and “Note 17. Casualty Losses andInsurance Recoveries—Port Arthur, Texas Plant Fire.”  As of June 30, 2007, these assets wereclassified as held and used in accordance with SFAS No. 144 because these assets were notimmediately available for sale in their present condition due to the requiredrepair and restart of the Port Arthur, Texas facility. We tested these assetsfor recoverability using expected future cash flows, including the expectedproceeds from the Port Arthur fire insurance recovery, and concluded that theexpected future cash flows were in excess of the carrying value of the businessexpected to be sold. Therefore, we did not recognize an impairment charge as ofJune 30, 2007. We will continue to assess these assets for recoverabilityduring 2007 through the sale date. Upon the restart of the Port Arthurfacility, we expect that the carrying value of the business to be sold, whichwill increase as we rebuild the plant, will exceed the sales price and we willrecognize a loss on disposal.

**SALE OFAUSTRALIAN POLYESTER RESINS ASSETS**

On January 4, 2007,we completed the sale of our Australian polyester resins assets to Nuplex forA$9.6 million ($7.5 million) in cash, plus the value of inventory at the saledate, for a total transaction value of A$20.3 million ($15.8 million). Duringthe six months ended June 30, 2007, we recognized a pretax gain on the sale ofthese assets of $4.1 million. The transaction further includes additionalconsideration to be received over a three year period upon achieving certainassociated earnings targets. The sale includes our Australian polyesters,vinylesters and gelcoats manufacturing assets. In connection with the saleagreement, we also entered into a tolling agreement with Nuplex pursuant towhich we will continue to manufacture product using the Australian polyesterresins assets. Nuplex will own the assets located on our site. The tollingagreement expires January 2009.

The results ofoperations of these assets were not classified as a discontinued operationunder applicable accounting rules because we expect significant continuingcash flows from the Australian polyester resins assets through the tollingarrangement with Nuplex.

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**SALE OF U.S. BUTADIENE AND MTBE BUSINESS**

On June 27,2006, we sold the assets comprising our U.S. butadiene and MTBE businessoperated by our Base Chemicals segment. The total sales price was $274.0million, of which $204.0 million was paid to us during 2006. Theadditional $70.0 million will be payable to us after the restart of our PortArthur, Texas olefins unit that was damaged in a fire (see “Note 17. CasualtyLosses and Insurance Recoveries—Port Arthur, Texas Plant Fire”) and the relatedresumption of crude butadiene supply; provided that we achieve certainintermediate steps toward restarting the plant and the restart occurs within 30months of this sale. We expect to recognize an additional pre-tax gain ofapproximately $69 million upon completion of the conditions referencedabove.

The results ofoperations of this business were not classified as a discontinued operationunder applicable accounting rules because of the expected continuing cashflows from the MTBE business we continue to operate in our Polyurethanessegment.

In connection withthe sale, we indemnified the buyer with respect to any losses resulting from(i) the breach of representations and warranties contained in the assetpurchase agreement, (ii) pre-sale liabilities related to the pre-saleoperations of the assets sold not assumed by the buyer, and (iii) environmentalliability related to the pre-sale operations of the assets sold. We are notrequired to pay under these indemnification obligations until claims against usexceed $5 million. Upon exceeding this $5 million threshold, wegenerally are obligated to provide indemnification for any losses in excess of$5 million, up to a limit of $137.5 million. We believe that there isa remote likelihood that we will be required to pay any significant amountsunder the indemnity provision.

**TEXTILE EFFECTS ACQUISITION**

On June 30,2006, we acquired Ciba’s textile effects business for $172.1 million(CHF 215 million) in cash (the “Textile Effects Acquisition”). Thispurchase price was subject to finalization of post-closing working capitaladjustments resulting in a reduction to the purchase price of $26.9 millionthat we received during the second quarter of 2007. The operating results ofthe textile effects business have been consolidated with our operating resultsbeginning on July 1, 2006 and are reported with our advanced materialsoperations as part of our Materials and Effects segment.

We have accountedfor the Textile Effects Acquisition using the purchase method in accordancewith SFAS No. 141,*BusinessCombinations.*As such, we analyzed the fair value of tangible andintangible assets acquired and liabilities assumed, and we determined theexcess of fair value of net assets acquired over cost. Because the fair valueof the acquired assets and liabilities assumed exceeded the acquisition price,the valuation of the long-lived assets acquired was reduced to zero inaccordance with SFAS No. 141. Accordingly, no basis was assigned toproperty, plant and equipment or any other non-current non-financial assets andthe remaining excess was recorded as an extraordinary gain, net of taxes (whichwere not applicable because the gain was recorded in purchase accounting). Thefinal allocation of the purchase price to the assets and liabilities acquiredis summarized as follows (dollars in millions):

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| Acquisition cost:                                                                                               |   |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Acquisition payment,  exclusive of post-closing working capital adjustment                                      |   | $172.1 |   |
| Post-closing working  capital adjustment                                                                        |   | (26.9  | )      |
| Direct costs of  acquisition                                                                                    |   | 13.0   |   |
| Total acquisition costs                                                                                         |   | 158.2  |   |
| Fair value of assets acquired and liabilities assumed:                                                          |   |   |   |
| Cash                                                                                                            |   | 7.7    |   |
| Accounts receivable                                                                                             |   | 255.1  |   |
| Inventories                                                                                                     |   | 233.4  |   |
| Prepaid expenses and  other current assets                                                                      |   | 13.1   |   |
| Noncurrent assets                                                                                               |   | 2.2    |   |
| Deferred taxes                                                                                                  |   | 2.1    |   |
| Accounts payable                                                                                                |   | (94.1  | )      |
| Accrued liabilities                                                                                             |   | (35.1  | )      |
| Short-term debt                                                                                                 |   | (5.0   | )      |
| Noncurrent liabilities                                                                                          |   | (171.8 | )      |
| Total fair value of net assets acquired                                                                         |   | 207.6  |   |
| Extraordinary gain on the acquisition of a business—excess of fair  value of net assets acquired over cost |   | $49.4  |   |

 

During 2006, werecorded an extraordinary gain on the acquisition of $55.9 million based on thepreliminary purchase price allocation. During the three and six months ended June 30, 2007, we adjusted thepreliminary purchase price allocation for, among other things, the finalizationof restructuring plans, estimates of asset retirement obligations, thedetermination of related deferred taxes and finalization of the post-closingworking capital adjustments, resulting in a reduction to the extraordinary gainon the acquisition of $8.9 million and $6.5 million, respectively.

We plan to exitcertain activities of the textile effects business and expect to involuntarilyterminate the employment of, or relocate, certain textile effects employees. Weestimate that we will eliminate 785 positions and will create approximately 300new positions, globally. These plans include the exit of various manufacturing,sales and administrative activities throughout the business through 2009. Thispurchase price allocation includes recorded liabilities for workforcereductions and other business exit costs of $81.1 million and$11.2 million, respectively.

**PENDINGMETROCHEM ACQUISITION**

On June 29, 2007,we signed an agreement to acquire the Baroda division of Metrochem IndustriesLtd for $46.5 million in cash.  The division to be acquired by us is atextile dyes and intermediates manufacturer based in Baroda, India. Thetransaction, which is subject to regulatory approvals, is expected to close inJanuary 2008.

**5.            INVENTORIES**

Inventoriesconsisted of the following (dollars in millions):

18

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| ** **                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2007**          | ** ** | **2006**              | ** ** |
|                        |       |              |       |                  |       |
| Raw materials  and supplies |       | $                 | 273.7      |                  | $          | 320.1 |   |
| Work in progress            |       | 90.2              |       | 109.8                 |       |
| Finished goods              |       | 1,072.2           |       | 1,204.3               |       |
| **Total**                   |       | 1,436.1           |       | 1,634.2               |       |
| LIFO reserves               |       | (88.1             | )          | (114.1                | )          |
|                        |       |              |       |                  |       |
| **Net**                     |       | $                 | 1,348.0    |                  | $          | 1,520.1 |   |

 

As of June 30,2007 and December 31, 2006, approximately 13% and 18%, respectively, ofinventories were recorded using the last-in, first-out cost method.

In the normalcourse of operations, we at times exchange raw materials and finished goodswith other companies for similar inventories for the purpose of reducingtransportation costs.   The net openexchange positions are valued at our cost. The amount included in inventoryunder open exchange agreements payable by us at June 30, 2007 was $2.5 million(4.9 million pounds of feedstock and products). The amount included ininventory under open exchange agreements receivable by us at December 31, 2006was $9.7 million (30.9 million pounds of feedstock and products).

**6.            ****RESTRUCTURING,IMPAIRMENT AND PLANT CLOSING COSTS**

As of June 30,2007 and December 31, 2006, accrued restructuring costs by type of cost andinitiative consisted of the following (dollars in millions):
| ** **                                                   | ** ** | ** **        | ** ** | ** **              | ** ** | ** **           | ** ** | **Other**         | ** ** | ** **   | ** ** |
|--------------------------------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-------------------|------------|--------------|------------|
| ** **                                                   | ** ** | **Workforce**     | ** ** | **Demolition and** | ** ** | **Non-cancelable**   | ** ** | **restructuring** | ** ** | ** **   | ** ** |
| ** **                                                   | ** ** | **reductions(1)** | ** ** | **decommissioning**     | ** ** | **lease costs** | ** ** | **costs**         | ** ** | **Total(2)** | ** ** |
| ** **                                                   | ** ** | ** **        | ** ** | ** **              | ** ** | ** **           | ** ** | ** **        | ** ** | ** **   | ** ** |
| Accrued  liabilities as of December 31, 2006                 |       | $                 | 76.4       |                    | $          | 0.3                  |       | $                 | 8.7        |         | $          | 16.7 |   | $ | 102.1 |   |
| Adjustment to  Textile Effects opening balance sheet accrual |       | 14.0              |       | 2.2                     |       | (2.1                 | )          | 4.5               |       | 18.6         |       |
| 2007 charges for  2004 initiatives                           |       | 0.8               |       | —                  |       | 0.1                  |       | 0.1               |       | 1.0          |       |
| 2007 charges for  2005 initiatives                           |       | 0.2               |       | —                  |       | —               |       | —            |       | 0.2          |       |
| 2007 charges for  2007 initiatives                           |       | 0.8               |       | —                  |       | —               |       | 13.7              |       | 14.5         |       |
| Reversal of  reserves no longer required                     |       | (1.8              | )          | —                  |       | (1.2                 | )          | —            |       | (3.0         | )          |
| 2007 payments  for 2003 initiatives                          |       | (1.8              | )          | —                  |       | (0.4                 | )          | (0.1              | )          | (2.3         | )          |
| 2007 payments  for 2004 initiatives                          |       | (2.7              | )          | (0.3                    | )          | (0.3                 | )          | (0.1              | )          | (3.4         | )          |
| 2007 payments  for 2005 initiatives                          |       | (2.9              | )          | —                  |       | —               |       | —            |       | (2.9         | )          |
| 2007 payments  for 2006 initiatives                          |       | (5.6              | )          | —                  |       | —               |       | (0.5              | )          | (6.1         | )          |
| 2007 payments  for 2007 initiatives                          |       | —            |       | —                  |       | —               |       | (13.7             | )          | (13.7        | )          |
| Net activity of  discontinued operations                     |       | 1.1               |       | —                  |       | —               |       | —            |       | 1.1          |       |
| Foreign currency  effect on reserve balance                  |       | 1.0               |       | —                  |       | —               |       | (0.8              | )          | 0.2          |       |
| Accrued  liabilities as of June 30, 2007                     |       | $                 | 79.5       |                    | $          | 2.2                  |       | $                 | 4.8        |         | $          | 19.8 |   | $ | 106.3 |   |

----

(1)                                 Withthe exception of liabilities recorded in connection with business combinations,accrued liabilities classified as workforce reductions consist primarily ofrestructuring programs involving ongoing termination benefit arrangements andrestructuring programs involving special termination benefits. Accordingly, therelated liabilities were accrued as a one-time charge to earnings in accordancewith SFAS No. 112, *Employers’ Accounting forPostemployment Benefits* and with SFAS No. 88, *Employers’Accounting for Settlements and Curtailments of Defined Benefit Pension Plansand for Termination Benefits*, respectively. The remaining accruedliabilities related to these charges of $2.7 million represent workforcereductions to be paid by the end of 2011. Liabilities for workforce reductionsrecorded in connection with business combinations were accrued in accordancewith EITF 95-3, *Recognition of Liabilitiesin Connection with a Purchase Business Combination*, and are expectedto be paid through 2009. The total workforce reduction 

19

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reserves of $79.5 million relate to 710 positions that have not beenterminated as of June 30, 2007.

(2)           Accrued liabilities by initiativeswere as follows (dollars in millions):

|                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2007**          | ** ** | **2006**              | ** ** |
|                                        |       |              |       |                  |       |
| 2001 initiatives                            |       | $                 | 1.4        |                  | $          | 1.4 |   |
| 2003 initiatives                            |       | 12.6              |       | 15.8                  |       |
| 2004 initiatives                            |       | 7.8               |       | 12.2                  |       |
| 2005 initiatives                            |       | —            |       | 1.4                   |       |
| 2006 initiatives                            |       | 87.6              |       | 76.2                  |       |
| 2007 initiatives                            |       | 1.6               |       | —                |       |
| Foreign currency  effect on reserve balance |       | (4.7              | )          | (4.9                  | )          |
| Total                                       |       | $                 | 106.3      |                  | $          | 102.1 |   |

 

Details with respect toour restructuring reserves are provided below by segment and initiative(dollars in millions):
| ** **                                                               | ** ** | ** **        | ** ** | **Materials and** | ** ** | **Performance** | ** ** | ** **   | ** ** | ** **   | ** ** | **Base**      | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|------------|------------------------|------------|-----------------|------------|--------------|------------|--------------|------------|---------------|------------|------------|------------|
| ** **                                                               | ** ** | **Polyurethanes** | ** ** | **Effects**            | ** ** | **Products**    | ** ** | **Pigments** | ** ** | **Polymers** | ** ** | **Chemicals** | ** ** | **Total**  | ** ** |
| ** **                                                               | ** ** | ** **        | ** ** | ** **             | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Accrued  liabilities as of December 31, 2006                             |       | $                 | 6.6        |                   | $          | 78.5            |       | $            | 7.4        |         | $          | 7.9           |       | $          | —     |   | $ | 1.7 |   | $ | 102.1 |   |
| Adjustment to  Textile Effects opening balance sheet accrual             |       | —            |       | 18.6                   |       | —          |       | —       |       | —       |       | —        |       | 18.6       |       |
| 2007 charges for  2004 initiatives                                       |       | —            |       | —                 |       | 0.4             |       | 0.6          |       | —       |       | —        |       | 1.0        |       |
| 2007 charges for  2005 initiatives                                       |       | —            |       | —                 |       | —          |       | 0.2          |       | —       |       | —        |       | 0.2        |       |
| 2007 charges for  2007 initiatives                                       |       | —            |       | 14.5                   |       | —          |       | —       |       | —       |       | —        |       | 14.5       |       |
| Reversal of  reserves no longer required                                 |       | —            |       | (0.1                   | )          | —          |       | (2.9         | )          | —       |       | —        |       | (3.0       | )          |
| 2007 payments for  2003 initiatives                                      |       | (1.2              | )          | (0.2                   | )          | —          |       | (0.9         | )          | —       |       | —        |       | (2.3       | )          |
| 2007 payments for  2004 initiatives                                      |       | (0.2              | )          | —                 |       | (1.9            | )          | (1.3         | )          | —       |       | —        |       | (3.4       | )          |
| 2007 payments for  2005 initiatives                                      |       | (0.1              | )          | (0.1                   | )          | (1.6            | )          | —       |       | —       |       | (1.1          | )          | (2.9       | )          |
| 2007 payments for  2006 initiatives                                      |       | —            |       | (6.1                   | )          | —          |       | —       |       | —       |       | —        |       | (6.1       | )          |
| 2007 payments for  2007 initiatives                                      |       | —            |       | (13.7                  | )          | —          |       | —       |       | —       |       | —        |       | (13.7      | )          |
| Net activity of  discontinued operations                                 |       | —            |       | —                 |       | —          |       | —       |       | 1.1          |       | —        |       | 1.1        |       |
| Foreign currency  effect on reserve balance                              |       | 0.2               |       | —                 |       | —          |       | —       |       | —       |       | —        |       | 0.2        |       |
| Accrued  liabilities as of June 30, 2007                                 |       | $                 | 5.3        |                   | $          | 91.4            |       | $            | 4.3        |         | $          | 3.6           |       | $          | 1.1        |   | $ | 0.6 |   | $ | 106.3 |   |
|                                                                     |       |              |       |                   |       |            |       |         |       |         |       |          |       |       |       |
| Current portion  of restructuring reserve                                |       | $                 | 2.1        |                   | $          | 58.9            |       | $            | 3.1        |         | $          | 2.5           |       | $          | 1.1        |   | $ | 0.6 |   | $ | 68.3 |   |
| Long-term portion  of restructuring reserve                              |       | 3.2               |       | 32.5                   |       | 1.2             |       | 1.1          |       | —       |       | —        |       | 38.0       |       |
|                                                                     |       |              |       |                   |       |            |       |         |       |         |       |          |       |       |       |
| Estimated  additional future charges for current restructuring projects: |       |              |       |                   |       |            |       |         |       |         |       |          |       |       |       |
| Estimated  additional charges within one year                            |       | $                 | —     |                   | $          | 1.3             |       | $            | —     |         | $          | 1.9           |       | $          | —     |   | $ | — |   | $ | 3.2 |   |
| Estimated additional  charges beyond one year                       |       | —            |       | —                 |       | —          |       | 3.9          |       | —       |       | —        |       | 3.9        |       |

 

Details with respect tocash and non-cash restructuring charges by initiative are provided below(dollars in millions):

| Cash charges:                                                 |   |   |   |
|---------------------------------------------------------------|--------|--------|--------|
| 2007 charges for 2004 initiatives                             |   | $      | 1.0    |   |
| 2007 charges for 2005 initiatives                             |   | 0.2    |   |
| 2007 charges for 2007 initiatives                             |   | 14.5   |   |
| Reversal of reserves no longer required                       |   | (3.0   | )      |
| Non-cash charges                                              |   | 11.7   |   |
| Total 2007  restructuring, impairment and plant closing costs |   | $      | 24.4   |   |

 

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During the sixmonths ended June 30, 2007, our Materials and Effects segment recorded acash charge for 2007 initiatives of $10.0 million related to redundant servicecontracts for information technology services and $3.7 million related tosupply chain integration processes.

During the sixmonths ended June 30, 2007, our Polymers segment recorded a non-cash impairmentcharge of $240.0 million related to an impairment loss on our North Americanpolymers business. For further information regarding the impairment of theNorth American polymers long-lived assets, see “Note 3. Discontinued Operations—NorthAmerican Polymers Business.”

During the sixmonths ended June 30, 2007, we recorded a non-cash impairment charge of $11.1million in Corporate and Other related to capital expenditures and turnaroundcosts associated with our Australian styrenics business that was previouslyimpaired.  The long-lived assets of ourAustralian styrenics business were determined to be impaired in accordance withSFAS No. 144 and an impairment charge was recorded in 2005.  Capital expenditures and turnaround costs inthis business, which are necessary to maintain operations, are also consideredto be impaired immediately after they are incurred.

**7.             DEBT**

Outstanding debtconsisted of the following (dollars in millions):

**Huntsman Corporation**

|                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Senior Credit  Facilities:    |       |              |       |                  |       |
| Revolving  Facility           |       | $                 | 218.0      |                  | $          | — |   |
| Term Loans                    |       | 1,640.0           |       | 1,711.2               |       |
| Secured Notes                 |       | 294.1             |       | 294.0                 |       |
| Senior Notes                  |       | 198.0             |       | 198.0                 |       |
| Subordinated Notes            |       | 1,246.9           |       | 1,228.3               |       |
| Australian Credit  Facilities |       | 50.7              |       | 61.4                  |       |
| HPS (China) debt              |       | 106.3             |       | 90.3                  |       |
| Other                         |       | 29.4              |       | 62.1                  |       |
| Total debt                    |       | $                 | 3,783.4    |                  | $          | 3,645.3 |   |
|                          |       |              |       |                  |       |
| Current portion               |       | $                 | 258.8      |                  | $          | 187.9 |   |
| Long-term portion             |       | 3,524.6           |       | 3,457.4               |       |
| Total debt                    |       | $                 | 3,783.4    |                  | $          | 3,645.3 |   |

 

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**HuntsmanInternational**

|                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Senior Credit  Facilities:    |       |              |       |                  |       |
| Revolving  Facility           |       | $                 | 218.0      |                  | $          | — |   |
| Term Loans                    |       | 1,640.0           |       | 1,711.2               |       |
| Secured Notes                 |       | 294.1             |       | 294.0                 |       |
| Senior Notes                  |       | 198.0             |       | 198.0                 |       |
| Subordinated Notes            |       | 1,246.9           |       | 1,228.3               |       |
| Australian Credit  Facilities |       | 50.7              |       | 61.4                  |       |
| HPS (China) debt              |       | 106.3             |       | 90.3                  |       |
| Other                         |       | 27.8              |       | 62.1                  |       |
| Total debt                    |       | $                 | 3,781.8    |                  | $          | 3,645.3 |   |
|                          |       |              |       |                  |       |
| Current portion               |       | $                 | 257.2      |                  | $          | 187.9 |   |
| Long-term portion             |       | 3,524.6           |       | 3,457.4               |       |
| Total debt                    |       | $                 | 3,781.8    |                  | $          | 3,645.3 |   |

 

**TRANSACTIONS AFFECTING OUR SENIORCREDIT FACILITIES**

As of June 30, 2007, our senior secured creditfacilities (“Senior Credit Facilities”) consisted of (i) a$650 million revolving facility (the “Revolving Facility”) and (ii) a$1,640.0 million term loan B facility (the “Dollar Term Loan”).  As of June 30, 2007, there were $218.0million borrowings outstanding under our Revolving Facility, and we had $33.1million in U.S. dollarequivalents of letters of credit and bank guarantees issued and outstandingunder our Revolving Facility.

During the sixmonths ended June 30, 2007, we completed the following transactions relating toour Senior Credit Facilities:

·                  OnJanuary 16, 2007, we made a voluntary repayment of $75.0 million U.S.dollar equivalents on our term loans with available liquidity.

·                  On April 19,2007, we entered into an amendment to our Senior Credit Facilities (the “Amendment”).Pursuant to the Amendment, the maturity of the Dollar Term Loan was extended toApril 2014 and the loan amount was increased to $1,640.0 million. We used theincreased amount to repay, in full, our previously outstanding euro term loanfacility (the “Euro Term Loan”).

As of June 30,2007, borrowings under the Revolving Facility and Dollar Term Loan boreinterest at LIBOR plus 1.75%. The Amendment made no changes to the applicableinterest rate of the Revolving Facility. However, pursuant to the Amendment,the applicable interest rate of the Dollar Term Loan is currently set at LIBORplus 1.75%, subject to a reduction to LIBOR plus 1.50% upon achieving certainsecured leverage ratio thresholds defined in the Amendment. The Amendmentcontains one financial covenant, which is applicable only to the RevolvingFacility, and this covenant is only in effect when loans or letters of creditare outstanding under the Revolving Facility. The Amendment, among otherthings, also increased the restricted payments basket for certain types ofpayments, and, subject to certain conditions, increased our capacity foradditional term loan borrowings. The Amendment provides for continuingcustomary restrictions and limitations on our ability to incur liens, incuradditional debt, merge or sell assets, make certain restricted payments, prepayother indebtedness, make investments or engage in transactions with affiliates,and it contains other customary default provisions.

**OTHER TRANSACTIONS AFFECTING OUR DEBT**

During the sixmonths ended June 30, 2007, we have also completed the following othertransactions relating to our debt:

22

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·                  Onor about February 28, 2007, we completed a direct private placement of $147.0million in aggregate principal amount of dollar denominated 7.875% seniorsubordinated notes due November 15, 2014. These notes were issued at apremium of 104% of principal amount for a yield of 7.01% and were issued underthe same indenture and are of the same series as an original placement ofdollar denominated notes issued by us in November 2006. We used the netproceeds of $151.7 million to redeem all (approximately €114 million) ofour remaining outstanding euro denominated 10.125% senior subordinated notesdue 2009, which were called for redemption on March 27, 2007 at a callprice of 101.688% plus accrued interest.

·                    OnMay 29, 2007 we amended certain credit facilities belonging to our Australian subsidiaries(the “Australian Credit Facilities’). The amendment, among other things, amended the interest rate to be theAustralian index rate plus a margin of 2.4%, and the maturity was extended forthree years to May 29, 2010. The aggregate outstanding balance as of June 30,2007 under the Australian Credit Facilities was A$60.5 million ($50.7 million,of which $3.7 million is classified as current portion of long term debt).

**COMPLIANCEWITH COVENANTS**

Our management believes that we are in compliancewith the covenants contained in the agreements governing the Senior CreditFacilities, the Australian Credit Facilities, the A/R Securitization Program (asdefined in “Note 9. Securitization of Accounts Receivable”) and the indenturesgoverning our notes.

**8.             DERIVATIVEINSTRUMENTS AND HEDGING ACTIVITIES**

Asof June 30, 2007 and December 31, 2006, and for the six months ended June 30,2007 and 2006, the fair value, change in fair value, and realized gains orlosses of outstanding hedging contracts were not significant.

We may enter into foreign currency derivative instruments to minimizethe short-term impact of movements in foreign currency rates. As of June 30,2007 and December 31, 2006, and for the six months ended June 30, 2007 and2006, the fair value and realized gains (losses) of outstanding foreigncurrency rate hedging contracts were not significant.

In conjunctionwith the redemption of our remaining 10.125% euro denominated subordinatednotes due 2009 in the first quarter 2007 discussed in “Note 7. Debt” above, andin an effort to maintain approximately the same amount of euro denominated debtexposure, on March 27, 2007 we entered into a cross currency rate interest rateswap pursuant to which we have agreed to swap $152.6 million of LIBOR floatingrate debt payments for €115.9 million of EURIBOR floating rate debt payments.On maturity, August 15, 2012, we are required to pay principal of €115.9million and will receive principal of $152.6 million. During the life of thisswap, we will receive floating rate interest (LIBOR) in dollars and we will payfloating rate interest (EURIBOR) in euros. This swap is currently notdesignated as a hedge for financial reporting purposes.  As of June 30, 2007, the fair value of thisswap was $4.4 million and was recorded in other noncurrent liabilities in ourbalance sheet.

In conjunctionwith the Amendment as discussed in “Note 7. Debt” above, and in an effort tomaintain approximately the same amount of euro denominated debt exposure, onApril 19, 2007 we entered into a cross currency rate interest rate swappursuant to which we have agreed to swap $95.8 million of LIBOR floating ratedebt payments for €70.7 million of EURIBOR floating rate debt payments. Onmaturity, April 19, 2010, we are required to pay principal of €70.7 million andwill receive principal of $95.8 million. During the life of this swap, we willreceive floating rate interest (LIBOR) in dollars and we will pay floating rateinterest (EURIBOR) in euros. This swap was designated as a hedge of a netinvestment for financial reporting purposes. As of June 30, 2007, the fair value of this swap was $0.7 million andwas recorded in other noncurrent assets in our balance sheet.

On July 12, 2007we unwound a cross currency interest rate swap pursuant to which we had swapped$31.3 million of 11.0% fixed rate debt for €25 million of 9.4% fixed ratedebt.   The swap was not designated as ahedge for financial reporting purposes. As of June 30, 2007, the fair value of this swap was $2.4 million andwas recorded in accrued liabilities in our balance sheet.

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From time to time,we review our non-U.S. dollar denominated debt and swaps to determine theappropriate amounts designated as hedges. As of June 30, 2007, we havedesignated approximately €430.7 million of debt and swaps as net investmenthedges. As of June 30, 2007, we had approximately €1,106.0 million in neteuro-denominated assets.

**9.             SECURITIZATION OF ACCOUNTSRECEIVABLE**

Under our accounts receivable securitization program (“A/RSecuritization Program”), we grant an undivided interest in certain of ourtrade receivables to a qualified off-balance sheet entity (the “ReceivablesTrust”) at a discount. This undivided interest serves as security for theissuance by the Receivables Trust of commercial paper. The A/RSecuritization Program currently provides for financing through a commercialpaper conduit program (in both U.S. dollars and euros). The A/R SecuritizationProgram consists of a commercial paper conduit program with a committed amountof approximately $500 million U.S. dollar equivalents.  The A/R Securitization Program matures onApril 1, 2009.  On June 29, 2007, weamended certain agreements governing the A/R Securitization Program to providefor, among other things, interest costs to the Receivables Trust of LIBORand/or EURIBOR, as applicable, plus 55 basis points per annum based upon apricing grid (which is dependent upon our credit rating). Transfers of accountsreceivable to the Receivables Trust are accounted for as sales.

As of June 30, 2007, the Receivables Trust had $500.0 million in U.S.dollar equivalents (comprised of $246.0 million and approximately €189.0million ($254.0 million)) in commercial paper outstanding.

**10.          EMPLOYEEBENEFIT PLANS**

Components of the netperiodic benefit costs for the three and six months ended June 30, 2007 and2006 were as follows (dollars in millions):

**HuntsmanCorporation**
| ** **                                           | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                           | ** ** | **Three months ended**    | ** ** | **Three months ended**                      | ** ** |
| ** **                                           | ** ** | **June 30,**                   | ** ** | **June 30,**                                     | ** ** |
| ** **                                           | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                         |       | $                                   | 20.8       |                                                  | $          | 20.3 |   | $ | 1.1 |   | $ | 1.1 |   |
| Interest cost                                        |       | 34.1                                |       | 31.7                                                  |       | 2.4 |   | 2.3 |   |
| Expected return on  assets                           |       | (43.6                               | )          | (37.1                                                 | )          | — |   | — |   |
| Amortization of  transition obligation               |       | 0.5                                 |       | 0.4                                                   |       | — |   | — |   |
| Amortization of prior  service cost                  |       | (1.7                                | )          | (1.7                                                  | )          | (0.7 | ) | (0.7 | ) |
| Amortization of  actuarial loss                      |       | 3.2                                 |       | 4.5                                                   |       | 0.9 |   | 0.8 |   |
| Settlement loss                                      |       | —                              |       | 0.4                                                   |       | — |   | — |   |
| Net periodic benefit  cost                           |       | 13.3                                |       | 18.5                                                  |       | 3.7 |   | 3.5 |   |
| Less discontinued  operations                        |       | (0.8                                | )          | (5.1                                                  | )          | (0.6 | ) | (0.6 | ) |
| Net periodic benefit cost from continuing operations |       | $                                   | 12.5       |                                                  | $          | 13.4 |   | $ | 3.1 |   | $ | 2.9 |   |

 

24

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| ** **                                           | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                           | ** ** | **Six months ended**      | ** ** | **Six months ended**                        | ** ** |
| ** **                                           | ** ** | **June 30,**                   | ** ** | **June 30,**                                     | ** ** |
| ** **                                           | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                         |       | $                                   | 41.6       |                                                  | $          | 40.6 |   | $ | 2.2 |   | $ | 2.2 |   |
| Interest cost                                        |       | 68.2                                |       | 63.4                                                  |       | 4.8 |   | 4.6 |   |
| Expected return on  assets                           |       | (87.2                               | )          | (74.2                                                 | )          | — |   | — |   |
| Amortization of  transition obligation               |       | 1.0                                 |       | 0.8                                                   |       | — |   | — |   |
| Amortization of prior  service cost                  |       | (3.4                                | )          | (3.4                                                  | )          | (1.4 | ) | (1.4 | ) |
| Amortization of  actuarial loss                      |       | 6.4                                 |       | 9.0                                                   |       | 1.8 |   | 1.6 |   |
| Settlement loss                                      |       | —                              |       | 0.8                                                   |       | — |   | — |   |
| Net periodic benefit  cost                           |       | 26.6                                |       | 37.0                                                  |       | 7.4 |   | 7.0 |   |
| Less discontinued  operations                        |       | (1.6                                | )          | (10.2                                                 | )          | (1.2 | ) | (1.1 | ) |
| Net periodic benefit cost from continuing operations |       | $                                   | 25.0       |                                                  | $          | 26.8 |   | $ | 6.2 |   | $ | 5.9 |   |

 

**HuntsmanInternational**
| ** **                                           | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                           | ** ** | **Three months ended**    | ** ** | **Three months ended**                      | ** ** |
| ** **                                           | ** ** | **June 30,**                   | ** ** | **June 30,**                                     | ** ** |
| ** **                                           | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                         |       | $                                   | 20.8       |                                                  | $          | 20.3 |   | $ | 1.1 |   | $ | 1.1 |   |
| Interest cost                                        |       | 34.1                                |       | 31.7                                                  |       | 2.4 |   | 2.3 |   |
| Expected return on  assets                           |       | (43.6                               | )          | (37.1                                                 | )          | — |   | — |   |
| Amortization of  transition obligation               |       | 0.5                                 |       | 0.4                                                   |       | — |   | — |   |
| Amortization of prior  service cost                  |       | (1.7                                | )          | (1.7                                                  | )          | (0.7 | ) | (0.7 | ) |
| Amortization of  actuarial loss                      |       | 4.9                                 |       | 6.9                                                   |       | 0.9 |   | 0.8 |   |
| Settlement loss                                      |       | —                              |       | 0.4                                                   |       | — |   | — |   |
| Net periodic benefit  cost                           |       | 15.0                                |       | 20.9                                                  |       | 3.7 |   | 3.5 |   |
| Less discontinued  operations                        |       | (0.8                                | )          | (5.6                                                  | )          | (0.6 | ) | (0.6 | ) |
| Net periodic benefit cost from continuing operations |       | $                                   | 14.2       |                                                  | $          | 15.3 |   | $ | 3.1 |   | $ | 2.9 |   |

 
| ** **                                           | ** ** | **Defined Benefit Plans** | ** ** | **Other Postretirement Benefit Plans** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                           | ** ** | **Six months ended**      | ** ** | **Six months ended**                        | ** ** |
| ** **                                           | ** ** | **June 30,**                   | ** ** | **June 30,**                                     | ** ** |
| ** **                                           | ** ** | **2007**                            | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                         |       | $                                   | 41.6       |                                                  | $          | 40.6 |   | $ | 2.2 |   | $ | 2.2 |   |
| Interest cost                                        |       | 68.2                                |       | 63.4                                                  |       | 4.8 |   | 4.6 |   |
| Expected return on  assets                           |       | (87.2                               | )          | (74.2                                                 | )          | — |   | — |   |
| Amortization of  transition obligation               |       | 1.0                                 |       | 0.8                                                   |       | — |   | — |   |
| Amortization of prior  service cost                  |       | (3.4                                | )          | (3.4                                                  | )          | (1.4 | ) | (1.4 | ) |
| Amortization of  actuarial loss                      |       | 9.8                                 |       | 13.8                                                  |       | 1.8 |   | 1.6 |   |
| Settlement loss                                      |       | —                              |       | 0.8                                                   |       | — |   | — |   |
| Net periodic benefit  cost                           |       | 30.0                                |       | 41.8                                                  |       | 7.4 |   | 7.0 |   |
| Less discontinued  operations                        |       | (1.6                                | )          | (11.2                                                 | )          | (1.2 | ) | (1.1 | ) |
| Net periodic benefit cost from continuing operations |       | $                                   | 28.4       |                                                  | $          | 30.6 |   | $ | 6.2 |   | $ | 5.9 |   |

 

25

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During the sixmonths ended June 30, 2007 and 2006, we made contributions to our pension plansof $89.4 million and $51.0 million, respectively. During the remainder of 2007,we expect to contribute an additional $96.9 million to our pension plans.

**11.****          DIVIDENDS**

**5% MANDATORYCONVERTIBLE PREFERRED STOCK**

In connection withthe initial public offering of our 5% mandatory convertible preferred stock onFebruary 16, 2005, we declared all dividends that will be payable on suchpreferred stock from the issuance through the mandatory conversion date, whichis February 16, 2008. Accordingly, we recorded dividends payable of$43.1 million and a corresponding charge to net income available to commonstockholders during the first quarter of 2005. As of June 30, 2007, we had$10.7 million invested in government securities that are restricted forsatisfaction of our dividend payment obligations through the mandatoryconversion date. We expect to pay dividends in cash on August 16 andNovember 16, 2007 and on February 16, 2008. Under certaincircumstances, we may not be allowed to pay dividends in cash. If this were tooccur, any unpaid dividend would be payable in shares of common stock onFebruary 16, 2008 based on the market value of common stock at that time.

**COMMON****STOCK**

On March 30, 2007and June 29, 2007, we paid cash dividends of $22.1 million each, or $0.10 pershare each, to common stockholders of record as of March 15, 2007 and June 15,2007, respectively.

**12.          OTHERCOMPREHENSIVE INCOME (LOSS)**

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

**Huntsman Corporation**
| ** **                                                                                                                                        | ** ** | **Accumulated other  comprehensive income (loss)** | ** ** | **Other comprehensive  income (loss)** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | ** **                                                        | ** ** | ** **                                       | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
| ** **                                                                                                                                        | ** ** | **June 30,**                                                 | ** ** | **December 31,**                            | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                                                                        | ** ** | **2007**                                                          | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Foreign currency  translation adjustments, net of tax of $26.5 million and $31.8 million as of  June 30, 2007 and December 31, 2006, respectively |       | $                                                                 | 263.5      |                                             | $          | 228.3 |   | $ | 17.7 |   | $ | 49.0 |   | $ | 35.2 |   | $ | 76.7 |   |
|                                                                                                                                              |       |                                                              |       |                                             |       |   |   |   |   |   |   |   |   |
| Pension related  adjustments, net of tax of $64.0 and $63.8 as of June 30, 2007 and December  31, 2006, respectively                              |       | (299.7                                                            | )          | (304.1                                           | )          | 2.2 |   | — |   | 4.4 |   | 2.5 |   |
| Other comprehensive  income of unconsolidated affiliates                                                                                          |       | 9.3                                                               |       | 7.3                                              |       | 2.0 |   | — |   | 2.0 |   | — |   |
| Other, net of tax of  $0.6 million and nil as of June 30, 2007 and December 31, 2006, respectively                                                |       | 8.4                                                               |       | 7.1                                              |       | 0.8 |   | 0.3 |   | 1.3 |   | 1.1 |   |
| Total                                                                                                                                             |       | $                                                                 | (18.5      | )                                                | $          | (61.4 | ) | $ | 22.7 |   | $ | 49.3 |   | $ | 42.9 |   | $ | 80.3 |   |

 

**Huntsman International**
| ** **                                                                                                                                      | ** ** | **Accumulated other  comprehensive income (loss)** | ** ** | **Other comprehensive  income (loss)** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                      | ** ** | ** **                                                        | ** ** | ** **                                       | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
| ** **                                                                                                                                      | ** ** | **June 30,**                                                 | ** ** | **December 31,**                            | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                                                                      | ** ** | **2007**                                                          | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Foreign currency  translation adjustments, net of tax of $5.5 million and $0.2 million as of  June 30, 2007 and December 31, 2006, respectively |       | $                                                                 | 301.2      |                                             | $          | 266.9 |   | $ | 15.6 |   | $ | 56.9 |   | $ | 34.3 |   | $ | 87.8 |   |
|                                                                                                                                            |       |                                                              |       |                                             |       |   |   |   |   |   |   |   |   |
| Pension related  adjustments, net of tax of $100.9 and $101.6 as of June 30, 2007 and December  31, 2006, respectively                          |       | (396.5                                                            | )          | (404.1                                           | )          | 3.8 |   | — |   | 7.6 |   | 2.5 |   |
| Other comprehensive  income of unconsolidated affiliates                                                                                        |       | 9.3                                                               |       | 7.3                                              |       | 2.0 |   | — |   | 2.0 |   | — |   |
| Other, net of tax of  $0.6 million and nil as of June 30, 2007 and December 31, 2006, respectively                                              |       | 3.0                                                               |       | 1.6                                              |       | 0.9 |   | 0.3 |   | 1.4 |   | 1.2 |   |
| Total                                                                                                                                           |       | $                                                                 | (83.0      | )                                                | $          | (128.3 | ) | $ | 22.3 |   | $ | 57.2 |   | $ | 45.3 |   | $ | 91.5 |   |

 

Items of othercomprehensive income (loss) of our Company and our unconsolidated affiliateshave been recorded net of tax, with the exception of the foreign currencytranslation adjustments related to subsidiaries with earnings permanentlyreinvested. The tax effect is determined based upon the jurisdiction where theincome or loss was recognized and is net of valuation allowances that have beenrecorded.

26

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**13.          OTHEROPERATING EXPENSE (INCOME)**

The components of otheroperating expense (income) were as follows (dollars in millions):
| ** **                              | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                              | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Loss (gain) on sale of  business/assets |       | $                                | 0.7        |                           | $          | (92.2 | ) | $ | (1.6 | ) | $ | (92.4 | ) |
| Foreign exchange losses                 |       | 2.8                              |       | 3.7                            |       | 3.7 |   | 5.1 |   |
| Bad debt                                |       | 1.6                              |       | 0.2                            |       | 2.7 |   | 2.2 |   |
| Insurance recovery                      |       | (11.0                            | )          | (8.8                           | )          | (11.0 | ) | (8.8 | ) |
| Legal settlement                        |       | 6.3                              |       | —                         |       | 6.3 |   | — |   |
| Other, net                              |       | 1.0                              |       | 2.1                            |       | 5.2 |   | (0.4 | ) |
| Total                                   |       | $                                | 1.4        |                           | $          | (95.0 | ) | $ | 5.3 |   | $ | (94.3 | ) |

 

**14.          COMMITMENTSAND CONTINGENCIES**

**LEGAL MATTERS**

**DiscolorationClaims**

Certainclaims have been filed against us relating to discoloration of unplasticizedpolyvinyl chloride products allegedly caused by our titanium dioxide.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 an aggregate of approximately$16 million in costs and settlement amounts for Discoloration Claimsthrough June 30, 2007.

Thefollowing table presents information about the number of Discoloration Claimsfor the periods indicated. Claims include all claims for which service has beenreceived by us, and each such claim represents plaintiffs who are pursuing aclaim against us.
| ** **                                | ** ** | **Six Months Ended   June 30, 2007** | ** ** | **Six Months Ended   June 30, 2006** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Claims unresolved at  beginning of period |       | 2                                                             |       | 2                                                             |       |
| Claims filed during  period               |       | 0                                                             |       | 0                                                             |       |
| Claims resolved during  period            |       | 0                                                             |       | 0                                                             |       |
| Claims unresolved at end of period        |       | 2                                                             |       | 2                                                             |       |

 

Thetwo Discoloration Claims unresolved as of June 30, 2007 asserted aggregatedamages of approximately $70 million. An appropriate liability has beenaccrued for these claims. Based on our understanding of the merits of theseclaims and our rights under contracts of indemnity and insurance, we do notbelieve that the net impact on our financial condition, results of operationsor liquidity will be material.

Whileadditional Discoloration Claims may be made in the future, we cannot reasonablyestimate the amount of loss related to such claims. Although we may incuradditional costs as a result of future claims (including settlement costs),based on our history with Discoloration Claims to date, the fact thatsubstantially all of the titanium dioxide that has been the subject of theseDiscoloration Claims was manufactured and sold more than eight years ago, andthe fact that we have rights under contract to indemnity, including from ICI,we do not believe that any unasserted Discoloration Claims will have a materialimpact on our financial condition, results of operations, or liquidity. Basedon this conclusion and our inability to reasonably estimate our expected costswith respect to these unasserted claims, we have made no accruals in ourfinancial statements as of June 30, 2007 for costs associated with unassertedDiscoloration Claims.

27

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**AsbestosLitigation**

Wehave been named as a “premises defendant” in a number of asbestos exposurecases, typically a claim by a non-employee of exposure to asbestos while at afacility. In the past, these cases typically have involved multiple plaintiffsbringing actions against multiple defendants, and the complaint has notindicated which plaintiffs were making claims against which defendants, whereor how the alleged injuries occurred, or what injuries each plaintiff claimed.These facts, which would be central to any estimate of probable loss, generallyhave been learned only through discovery. Recent changes in Texas tortprocedures have required many pending cases to be split into multiple cases,one for each claimant, increasing the number of pending cases reported below.While the complaints in these cases provide little additional information, wedo not believe that the increased number of cases resulting from the changes inTexas tort procedure reflects an increase in the number of underlying claims.

Wherethe alleged exposure occurred prior to our ownership of the relevant “premises,”the prior owners generally have contractually agreed to retain liability for,and to indemnify us against, asbestos exposure claims. This indemnification isnot subject to any time or dollar amount limitations. Upon service of acomplaint in one of these cases, we tender it to the prior owner. None of thecomplaints in these cases state the amount of damages being sought. The priorowner accepts responsibility for the conduct of the defense of the cases andpayment of any amounts due to the claimants. In our thirteen-year experiencewith tendering these cases, we have not made any payment with respect to anytendered asbestos cases. We believe that the prior owners have the intentionand ability to continue to honor their indemnity obligations, although wecannot assure you that they will continue to do so or that we will not beliable for these cases if they do not.

Thefollowing table presents for the periods indicated certain information aboutcases for which service has been received that we have tendered to the priorowner, all of which have been accepted.
| ** **                         | ** ** | **Six Months Ended  June 30, 2007** | ** ** | **Six Months Ended  June 30, 2006** | ** ** |
|------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Unresolved at beginning  of period |       | 1,367                                                   |       | 576                                                     |       |
| Tendered during period             |       | 17                                                      |       | 962                                                     |       |
| Resolved during period(1)          |       | 142                                                     |       | 113                                                     |       |
| Unresolved at end of period        |       | 1,242                                                   |       | 1,425                                                   |       |

----

 (1)                               Although theindemnifying party informs us when tendered cases have been resolved, it generallydoes not inform us of the settlement amounts relating to such cases, if any.The indemnifying party has informed us that it typically manages our defensetogether with the defense of other entities in such cases and resolves claimsinvolving multiple defendants simultaneously, and that it considers theallocation of settlement amounts, if any, among defendants to be confidentialand proprietary. Consequently, we are not able to provide the number of casesresolved with payment by the indemnifying party or the amount of such payments.

Wehave never made any payments with respect to these cases. As of June 30, 2007,we had an accrued liability of $12.5 million relating to these cases and acorresponding receivable of $12.5 million relating to our indemnityprotection with respect to these cases. We cannot assure you that our liabilitywill not exceed our accruals or that our liability associated with these caseswould not be material to our financial condition, results of operations orliquidity; however, we are not able to estimate the amount or range of loss inexcess of our accruals. Additional asbestos exposure claims may be made againstus in the future, and such claims could be material. However, because we arenot able to estimate the amount or range of losses associated with such claims,we have made no accruals with respect to unasserted asbestos exposure claims asof June 30, 2007.

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

28

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all cases for whichservice has been received by us, other than a number of cases that wereerroneously filed against us due to a clerical error. The cases filed in errorhave been dismissed.
| ** **                         | ** ** | **Six Months Ended  June 30, 2007** | ** ** | **Six Months Ended  June 30, 2006** | ** ** |
|------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Unresolved at beginning  of period |       | 42                                                      |       | 34                                                      |       |
| Filed during period                |       | 51                                                      |       | 16                                                      |       |
| Resolved during period             |       | 2                                                       |       | 8                                                       |       |
| Unresolved at end of period        |       | 91                                                      |       | 42                                                      |       |

 

Wepaid gross settlement costs for asbestos exposure cases that are not subject toindemnification of approximately $138,500 and $5,000 during the six monthsended June 30, 2007 and 2006, respectively. As of June 30, 2007, we had anaccrual of approximately $3.4 million relating to these cases. We cannot assureyou that our liability will not exceed our accruals or that our liabilityassociated with these cases would not be material to our financial condition,results of operations or liquidity; however, we are not able to estimate theamount or range of loss in excess of our accruals. Additional asbestos exposureclaims may be made against us in the future, and such claims could be material.However, because we are not able to estimate the amount or range of lossesassociated with such claims, we have made no accruals with respect tounasserted asbestos exposure claims as of June 30, 2007.

**Antitrust Matters**

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

Wehave also been named as a defendant in putative class action antitrust suitsalleging a conspiracy to fix prices in the MDI, TDI and polyether polyolsindustries filed in the Superior Court of Justice, Ontario, Canada onMay 5, 2006 and in Superior Court, Quebec, Canada on May 17, 2006.The other defendants named above in the Polyether Polyols cases are alsodefendants in these Canadian cases.

Thepleadings of the plaintiffs in these antitrust suits provide few specificsabout any alleged illegal conduct of the defendants, and we are not aware ofany evidence of illegal conduct by us or any of our employees. For thesereasons, we cannot estimate the possibility of loss or range of loss relatingto these claims, and therefore we have not accrued a liability for theseclaims. Nevertheless, we could incur losses due to these claims in the futureand those losses could be material.

Inaddition, on February 16, 2006, the Antitrust Division of the U.S.Department of Justice served us with a grand jury subpoena requestingproduction of documents relating to the businesses of TDI, MDI, polyetherpolyols and related systems. The other defendants in the Polyether Polyolscases have confirmed that they have also been served with subpoenas in thismatter. We are cooperating fully with the investigation.

**MTBELitigation**

InMarch 2007, we were named for the first time as a defendant in eight lawsuitsalleging liability related to MTBE contamination in groundwater.  Numerous other companies, including refiners,manufacturers and sellers of gasoline, as well as manufacturers of MTBE, havebeen named as defendants in these and many other cases currently pending in U.S.courts. The plaintiffs in the eight cases in which we have been named aremunicipal water districts and a regional water supply authority that claim thatdefendants’ conduct has caused MTBE contamination of their groundwater. Theplaintiffs seek injunctive relief, such as monitoring and abatement,compensatory damages, punitive 

29

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damages and attorneyfees. At this time, we have insufficient information to meaningfully assess ourpotential exposure in these cases and therefore we have not accrued a liabilityfor these claims.

**Other Proceedings**

We are a party to various other proceedings institutedby private plaintiffs, governmental authorities and others arising underprovisions of applicable laws, including various environmental, productsliability and other laws. Except as 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.For more information, see “Note 15. Environmental, Health and SafetyMatters—Remediation Liabilities.”

**GUARANTEES**

InJanuary 2003, Huntsman International entered into two related jointventure agreements to build MDI production facilities near Shanghai, China.SLIC, our manufacturing joint venture with BASF AG and three Chinese chemicalcompanies, operates three plants that manufacture MNB, aniline and crude MDI.We indirectly own 35% of SLIC and it is an unconsolidated affiliate.

OnSeptember 19, 2003, SLIC obtained secured financing for the constructionof production facilities. SLIC obtained various committed loans in theaggregate amount of approximately $230 million in U.S. dollar equivalents.As of June 30, 2007, there were $84.4 million and RMB 1,055 million($138.5 million) in outstanding borrowings under these facilities. Theinterest rate on these facilities is LIBOR plus 0.48% for U.S. dollarborrowings and 90% of the Peoples Bank of China rate for RMB borrowings. Theloans are secured by substantially all the assets of SLIC and will be paid in16 semiannual installments, which began on June 30, 2007. Weunconditionally guarantee 35% of any amounts due and unpaid by SLIC under theloans described above (except for a $1.5 million VAT facility which is notguaranteed). Our guarantee remains in effect until SLIC has commencedproduction of at least 70% of capacity for at least 30 days, achieved a debtservice coverage ratio of at least 1:1. SLIC commenced operations in the third quarter of 2006. We haveestimated that the fair value of this guarantee is nil as of the closing of thetransaction and, accordingly, no amounts have been recorded.

**15.****          ENVIRONMENTAL, HEALTH AND SAFETY MATTERS**

Weare subject to extensive federal, state, local and foreign laws, regulations,rules and ordinances relating to safety, pollution, protection of theenvironment and the generation, storage, handling, transportation, treatment,disposal and remediation of hazardous substances and waste materials. In theordinary course of business, we are subject to frequent environmentalinspections and monitoring and occasional investigations by governmentalenforcement authorities. In addition, our production facilities requireoperating permits that are subject to renewal, modification and, in certaincircumstances, revocation. Actual or alleged violations of safety laws,environmental 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.

**EHS CAPITAL EXPENDITURES**

Wemay incur future costs for capital improvements and general compliance underEHS laws, including costs to acquire, maintain and repair pollution control equipment.For the six months ended June 30, 2007 and 2006, our capital expenditures forEHS matters totaled $23.5 million and $15.4 million, respectively. Sincecapital expenditures for these matters are subject to evolving regulatoryrequirements and depend, in part, on the timing, promulgation and enforcementof specific requirements, we cannot provide assurance that our recentexpenditures will be indicative of future amounts required under EHS laws.

30

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**REMEDIATION LIABILITIES**

Wehave incurred, and we may in the future incur, liability to investigate andclean up waste or contamination at our current or former facilities orfacilities operated by third parties at which we may have disposed of waste orother materials. Similarly, we may incur costs for the cleanup of wastes thatwere disposed of prior to the purchase of our businesses. Under somecircumstances, the scope of our liability may extend to damages to naturalresources.

UnderCERCLA, and similar state laws, a current or former owner or operator of realproperty may be liable for remediation costs regardless of whether the releaseor disposal 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. We have beennotified by third parties of claims against us for cleanup liabilities atapproximately 12 former facilities or third party sites, including, butnot limited to, sites listed under CERCLA. Based on current information andpast experiences at other CERCLA sites, we do not expect any of these thirdparty claims to result in material liability to us.

Inaddition, under RCRA, and similar state laws, we may be required to remediatecontamination originating from our properties as a condition to our hazardouswaste permit. Some of our manufacturing sites have an extended history ofindustrial chemical manufacturing and use, including on-site waste disposal. Weare aware of soil, groundwater or surface contamination from past operations atsome of our sites, and we may find contamination at other sites in the future.For example, our Odessa, Port Arthur and Port Neches facilities in Texas, andour Geismar facility in Louisiana, are the subject of ongoing remediationrequirements under RCRA authority.

In June of 2006,an agreement was reached between the local regulatory authorities and our advancedmaterials site in Pamplona, Spain to relocate our manufacturing operations inorder to facilitate new urban development desired by the city.  Subsequently, as required by the authorities,soil and groundwater sampling was performed and followed by a quantitative riskassessment.  Although unresolved at thistime, some level of remediation of site contamination may be required, but theestimated cost is unknown because the remediation approach has not beendetermined.

Inmany cases, our potential liability arising from historical contamination isbased on operations and other events occurring prior to our ownership of abusiness or specific facility. In these situations, we frequently obtained anindemnity agreement from the prior owner addressing remediation liabilitiesarising from pre-closing conditions. We have successfully exercised our rightsunder these contractual covenants for a number of sites and, where applicable,mitigated our ultimate remediation liability. We cannot assure you, however,that all of such matters will be subject to indemnity or that our existingindemnities will be sufficient to cover our liabilities for such matters.

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

**ENVIRONMENTAL RESERVES**

Wehave accrued liabilities relating to anticipated environmental cleanupobligations, site reclamation and closure costs and known penalties.Liabilities are recorded when potential liabilities are either known orconsidered probable and can be reasonably estimated. Our liability estimatesare based upon available facts, existing technology and past experience. Theenvironmental liabilities do not include amounts recorded as asset retirementobligations. We have accrued $6.8 million and $14.0 million forenvironmental liabilities as of June 30, 2007 and December 31, 2006,respectively. Of these amounts, $4.2 million and $6.0 million areclassified as accrued liabilities on our consolidated balance sheets as of June30, 2007 and December 31, 2006, respectively, and $2.6 million and$8.0 million are classified as other noncurrent liabilities on ourconsolidated balance sheets as of June 30, 2007 and December 31, 2006,respectively. In certain cases, our remediation liabilities are payable overperiods of up to 

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30 years. We mayincur losses for environmental remediation in excess of the amounts accrued;however, we are not able to estimate the amount or range of such potentialexcess.

**REGULATORYDEVELOPMENTS**

Underthe EU’s integrated pollution prevention and control directive (“IPPC”), EUmember governments are to adopt rules and implement a cross media (air,water and waste) environmental permitting program for individual facilities.While the EU countries are at varying stages in their respective implementationof the IPPC permit program, we have submitted all necessary IPPC permitapplications required to date and in some cases received completed permits fromthe applicable government agency. We expect to submit all other IPPCapplications and related documents on a timely basis as the various countriesimplement the IPPC permit program. Although we do not know with certainty whateach IPPC permit will require, we believe, based upon our experience with thepermits received to date, that the costs of compliance with the IPPC permitprogram will not be material to our financial condition, results of operationsor cash flows.

InDecember 2006, the EU parliament and EU council approved a new EUregulatory framework for chemicals called “REACH” (Registration, Evaluation andAuthorization of Chemicals). REACH took effect on June 1, 2007, and the programit establishes will be phased in over 11 years. Under the regulation, companiesthat manufacture or import more than one ton of a chemical substance per yearwill be required to register such chemical substances and isolatedintermediates in a central database. Use authorizations will be granted for aspecific chemical if the applicants can show that any risk in using thechemical can be adequately controlled or, where there are no suitablealternatives available, if the applicant can demonstrate that the social andeconomic benefits of using the chemical outweigh the risks. In addition,specified uses of some hazardous substances may be restricted. Furthermore, allapplicants will have to study the availability of alternative chemicals. If analternative is available, an applicant will have to submit a “substitution”plan to the regulatory agency. The regulatory agency will only authorizepersistent bio-accumulative and toxic substances if an alternative chemical isnot available. The registration, evaluation and authorization phases of theprogram will require expenditures and resource commitments in order to, forexample, develop information technology tools, generate data, prepare andsubmit dossiers for substance registration, participate in consortia, obtainlegal advice and reformulate products, if necessary. We have established across-business European REACH team that is working closely with our businessesto identify and list all substances manufactured or imported by us into the EU.Although the total long-term cost for REACH compliance is not estimable at thistime, we do not expect spending on REACH to exceed $5.0 million during 2007.

**GREENHOUSE GAS REGULATION**

Inthe EU and other jurisdictions committed to compliance with the Kyoto Protocolto the United Nations Framework Convention on Climate Change (the “Convention”),there is an increasing likelihood that our manufacturing sites will be affectedin some way over the next few years by regulation or taxation of greenhouse gas(“GHG”) emissions. In addition, although the U.S. is not a signatory to theConvention, several states, including California, are implementing their ownGHG regulatory programs, and a federal program in the U.S. is a possibility forthe future. Several of our sites are subject to existing GHG legislation, butfew have experienced or anticipate significant cost increases as a result, althoughit is likely that GHG emission restrictions will increase over time. Potentialconsequences of such restrictions include increases in energy costs above thelevel of general inflation, as well as direct compliance costs. Currently,however, it is not possible to estimate the likely financial impact ofpotential future regulation on any of our sites.

**CHEMICAL FACILITY ANTI-TERRORISM RULEMAKING**

Asrequired by the Homeland Security Appropriations Act of 2006, on April 9, 2007,the Department of Homeland Security issued the “Chemical FacilityAnti-Terrorism Standards,” an interim final rule establishing risk-basedperformance standards for the chemical industry. The majority of the standardswent into effect on June 8, 2007 and require security vulnerability assessmentsand site security plans for facilities qualifying as high risk.

Since2003, we have conducted security vulnerability assessments at our higher riskmanufacturing facilities in the U.S. Those assessments led to changes in ouroperations in certain instances in an effort to ensure greater security.However, not all of our facilities, including some of our recently-acquiredsites, have been assessed. Whether 

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the assessments andresulting improvements will fully satisfy the requirements of this newregulation, and whether additional changes which could cause us to incur costswill have to be made, is unclear to us at this time.

**16.          STOCK-BASED COMPENSATION PLANS**

Under the HuntsmanStock Incentive Plan (the “Stock Incentive Plan”), a plan approved bystockholders, we may grant non-qualified stock options, incentive stockoptions, stock appreciation rights, restricted stock, phantom stock,performance awards and other stock-based awards to our employees and directorsand to employees and directors of our subsidiaries, provided that incentivestock options may be granted solely to employees. The terms of the grants arefixed at the grant date. As of June 30, 2007, we were authorized to grant up to21,590,909 shares under the Stock Incentive Plan. Option awards have a maximumcontractual term of 10 years and generally must have an exercise price atleast equal to the market price of our common stock on the date the optionaward is granted. Stock-based awards generally vest ratably over a three-year period.

In connection withthe closing on the Merger Agreement, the restrictions applicable to each shareof restricted Common Stock (including Common Stock underlying restricted stockunits and phantom stock) issued or granted pursuant to our Stock Incentive Plan(as defined in the Merger Agreement) shall immediately lapse, and at theeffective time of the Merger, each share of such Common Stock, restricted stockunits and phantom stock will be converted into the right to receive the MergerConsideration.  All options to acquire shares of Common Stock outstandingunder our Stock Incentive Plan will vest immediately prior to the EffectiveTime and holders of such options will be entitled to receive an amount in cashequal to the excess, if any, of the Merger Consideration over the exerciseprice per share of Common Stock for each option.

The compensation cost for the Stock Incentive Plan was$6.6 million and $4.7 million for the three months ended June 30, 2007 and2006, respectively, and $11.9 million and $8.2 million for six months endedJune 30, 2007 and 2006, respectively. The total income tax benefit recognizedin the statement of operations for stock-based compensation arrangements was $3.5million and nil for the six months ended June 30, 2007 and 2006, respectively.

The fair value ofeach stock option award is estimated on the date of grant using theBlack-Scholes valuation model that uses the assumptions noted in the followingtable. Because we became a publicly-held company in February 2005, expectedvolatilities are based on implied volatilities from the stock of comparablecompanies and other factors. The expected term of options granted is estimatedbased on the contractual term of the instruments and employees’ expectedexercise and post-vesting employment termination behavior. The risk-free ratefor periods within the contractual life of the option is based on the U.S.Treasury yield curve in effect at the time of grant.
| ** **                                                | ** ** | **Three months ended  June 30,** | ** **  | **Six months ended  June 30,** | ** **  |
|-----------------------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------------------|-------------|
| ** **                                                | ** ** | **2007**                                        | ** **  | **2006**                                      | ** **  | **2007** | ** ** | **2006** | ** ** |
| Dividend yield                                            |       | 2.0                                             | %           | 0                                             | %           | 1.9 | % | 0 | % |
| Expected  volatility                                      |       | 20.8                                            | %           | 23.1                                          | %           | 20.8 | % | 23.1 | % |
| Risk-free  interest rate                                  |       | 4.6                                             | %           | 5.1                                           | %           | 4.7 | % | 4.6 | % |
| Expected life of stock  options granted during the period |       | 6.6                                             |  years | 6.6                                           |  years | 6.6 |  years | 6.6 |  years |

 

**STOCK OPTIONS**

A summary of stock optionactivity under the Stock Incentive Plan as of June 30, 2007 and changes duringthe six months then ended is presented below:

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| **Option Awards**          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **(000)**  | ** ** | ** **                             | ** ** | **(Years)**                                         | ** ** | **($000)**                      | ** ** |
| Outstanding at  January 1, 2007 |       | 4,151      |       | $                                      | 21.72      |                                                |       |                            |       |   |
| Granted                         |       | 2,309      |       | 20.63                                  |       |                                                |       |                            |       |
| Exercised                       |       | (90        | )          | 21.83                                  |       |                                                |       |                            |       |
| Forfeited                       |       | (34        | )          | 21.74                                  |       |                                                |       |                            |       |
| Outstanding at  June 30, 2007   |       | 6,336      |       | 21.32                                  |       | 8.7                                                 |       | $                               | 18,953     |   |
| Exercisable at June 30,  2007   |       | 2,055      |       | 22.17                                  |       | 7.9                                                 |       | 4,397                           |       |
|                                 |            |            |            |                                        |            |                                                     |            |                                 |            |  |  |

 

Theweighted-average grant-date fair value of stock options granted during the sixmonths ended June 30, 2007 was $5.15 per option. The total intrinsic value ofstock options exercised during the six months ended June 30, 2007 and 2006 was$0.2 million and nil, respectively.  Asof June 30, 2007, there was $20.7 million of total unrecognized compensationcost related to nonvested stock option arrangements granted under the StockIncentive Plan. That cost is expected to be recognized over a weighted-averageperiod of approximately 1.7 years.

**NONVESTEDSHARES**

Nonvested shares grantedunder the Stock Incentive Plan consist of restricted stock, which is accountedfor as an equity award, and phantom stock, which is accounted for as aliability award because it can be settled in either stock or cash. A summary ofthe status of our nonvested shares as of June 30, 2007 and changes during thesix months then ended is presented below:
| ** **                    | ** ** | **Equity Awards** | ** ** | **Liability Awards**                          | ** ** |
|-------------------------------|------------|------------------------|------------|----------------------------------------------------|------------|
| ** **                    | ** ** | **Shares**             | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** | **Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** |
| ** **                    | ** ** | **(000)**              | ** ** | ** **                                         | ** ** | **(000)** | ** ** | ** ** | ** ** |
| Nonvested at  January 1, 2007 |       | 909                    |       | $                                                  | 21.73      |   | 46 |   | $ | 21.72 |   |
| Granted                       |       | 475                    |       | 20.64                                              |       | 118 |   | 20.58 |   |
| Vested                        |       | (373                   | )(1)       | 22.03                                              |       | (19 | ) | 21.97 |   |
| Forfeited                     |       | (2                     | )          | 20.91                                              |       | — |   | — |   |
| Nonvested at June 30,  2007   |       | 1,009                  |       | 21.11                                              |       | 145 |   | 20.76 |   |
|                               |            |                        |            |                                                    |            |  |  |  |  |  |  |

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(1)                                 Duringthe six months ended June 30, 2007, 3,888 restricted stock units vested.  These shares are not reflected as vestedshares in this table because, in accordance with the restricted stock unitagreements, shares of common stock are not issued for vested restricted stockunits until termination of employment.

As of June 30,2007, there was $19.7 million of total unrecognized compensation cost relatedto nonvested share compensation arrangements granted under the Stock IncentivePlan. That cost is expected to be recognized over a weighted-average period ofapproximately 2.0 years. The total fair value of shares that vested duringthe six months ended June 30, 2007 and 2006 was $8.7 million and $5.9 million,respectively.

**17.          CASUALTY LOSSES AND INSURANCE RECOVERIES**

**2005U.S. GULF COAST STORMS**

On September 22,2005, we suspended operations at our Gulf Coast facilities in Texas andLouisiana as a result of hurricane Rita. In addition, we sustained propertydamage at our Port Neches and Port Arthur, Texas facilities as a result of thehurricane. We maintain customary insurance coverage for property damage andbusiness interruption. With respect to coverage of these losses, the deductiblefor property damage was $10.0 million per site, while business interruptioncoverage does not apply for the first 60 days.

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During 2006 and the sixmonths ended June 30, 2007, we recorded insurance recoveries of $26.5 millionand $11.0 million, respectively, related to the 2005 Gulf Coast storms. On July25, 2007, we executed a sworn statement in proof of loss with our insurers toreceive additional insurance recoveries of $11.0 million related to the 2005Gulf Coast Storms.  This amount wasrecorded as an insurance recovery receivable in the accompanying condensedconsolidated balance sheets (unaudited) as of June 30, 2007.  We also recognized corresponding otheroperating income of $11.0 million during the three months ended June 30, 2007,as the amount represents the recovery of losses previously recognized in priorperiods, of which $5.7 million was allocated to the Performance Productssegment and $5.3 million was allocated to the Base Chemicals segment.  We and our insurers are working to reach asettlement on the remainder of the insurance claim, and we can provide noassurance with respect to the ultimate resolution of this matter.

**PORTARTHUR, TEXAS PLANT FIRE**

On April 29, 2006,our Port Arthur, Texas olefins manufacturing plant experienced a major fire.With the exception of cyclohexane operations at the site, which were restartedin June 2006, the remaining operations at the site remain shutdown. Thedamage is significant and, while no assurances can be made, we currently expectoperations to restart in the fourth quarter of 2007. The Port Arthurmanufacturing plant is covered by property damage and business interruptioninsurance. With respect to coverage for this outage, the deductible forproperty damage is $10.0 million and business interruption coverage does notapply for the first 60 days, subject to a combined deductible for propertydamage and business interruption of $60.0 million.

During the fourthquarter of 2006, we received insurance recovery advances of $150.0 million, ofwhich $56.4 million was applied to our insurance receivables related torecovery of costs already incurred and $93.6 million was recorded as a deferredinsurance recovery gain in “Accrued liabilities” on the accompanying condensedconsolidated balance sheet (unaudited) as of December 31, 2006. On March 16,2007, we executed a sworn statement in proof of loss with our insurers toreceive additional recovery advances of $100.0 million, all of which wasreceived as of June 30, 2007. On June 18, 2007, we executed another swornstatement in proof of loss with our insurers to receive additional recoveryadvances of $55.0 million, of which $18.0 million was received as of June 30,2007. The remaining $37.0 million was received in July 2007 and wasrecorded as an insurance receivable in “Other current assets” on theaccompanying condensed consolidated balance sheets (unaudited) as of June 30,2007. The additional aggregate $155.0 million of deferred insurancerecovery gain was recorded in “Accrued liabilities.”

During the six monthsended June 30, 2007, we incurred expenditures and losses for both propertydamage and business interruption as a result of the Port Arthur fire. Duringthe six months ended June 30, 2007, we incurred $43.6 million in repair andmaintenance costs and $39.3 million of fixed costs during the businessinterruption period, all of which were charged to the deferred insurancerecovery gain.

The following tabledescribes changes to the deferred insurance recovery gain during the six monthsended June 30, 2007 (dollars in millions):
| Balance as of  January 1, 2007                                                                               |   | $     | 93.6   |   |
|--------------------------------------------------------------------------------------------------------------|--------|-------|--------|--------|
| Additional  insurance recovery advances                                                                      |   | 155.0 |   |
| Incurrence of  repair and maintenance costs during the six months ended June 30, 2007                        |   | (43.6 | )      |
| Incurrence of  fixed costs during the business interuption period during the six months  ended June 30, 2007 |   | (39.3 | )      |
| Balance as of June 30,  2007                                                                                 |   | $     | 165.7  |   |

 

The incurrence offuture fixed costs during the business interruption period and the futurerepair and maintenance expense of the damaged equipment will be offset againstthe deferred insurance recovery gain. Any such amounts incurred above thedeferred gain will be recorded as an insurance receivable if realization isdeemed probable. Future insurance recovery advances, if any, in excess ofaccrued fixed costs and other expenses relating to the damaged facilities willbe recorded as a deferred gain, and any remaining deferred gains associatedwith this event will not be recognized in our consolidated statements ofoperations until final settlement is reached with our insurance carriers.

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**18.          INCOME TAXES**

We use the asset and liability method of accountingfor income taxes. Deferred income taxes reflect the net tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial and tax reporting purposes. We evaluate deferred tax assets todetermine whether it is more likely than not that they will be realized.  Valuation allowances are reviewed each periodon a tax jurisdiction by jurisdiction basis to analyze whether there issufficient positive or negative evidence to support a change in judgment aboutthe realizability of the related deferred tax assets.  During the second quarter of 2007, wereleased the valuation allowance on the U.S. net deferred tax assets, primarilyas a result of achieving sustained profitability from continuing operations.  As a result, we recorded an incrementalnon-cash tax provision benefit of approximately $19.8 million to continuingoperations. As a result of releasing the U.S. valuation allowance, we andHuntsman International also recorded a tax benefit on the current period,primarily from the impairment of our North American polymers assets which areincluded in discontinued operations, of $76.3 million and a $7.7 millioncredit directly to additional paid-in capital related to previous equitytransactions.

We adopted the provisions of FIN 48 on January 1, 2007and recognized a $0.3 million decrease in the liability for unrecognized taxbenefits and recorded a corresponding credit to accumulated deficit for thecumulative effect of a change in accounting principle.  As of the adoption date, we had $123.8 millionof unrecognized tax benefits of which $100.9 million, if recognized, wouldaffect the effective tax rate.

In accordance with our accounting policy, we continueto recognize interest and penalties accrued related to unrecognized taxbenefits in income tax expense.  Duringthe six months ended June 30, 2007, we recognized approximately $1.7 million inincome tax expense related to interest and penalties.  We had approximately $12.0 million and $10.3million accrued for the payment of interest and penalties as of June 30, 2007and January 1, 2007, respectively.

We conduct business globally and, as a result, we fileincome tax returns in the U.S. federal, various U.S. state and various non-U.S.jurisdictions.  The following tablesummarizes the tax years that remain subject to examination by major taxjurisdictions:

| Tax Jurisdiction | ** ** | **Open Tax Years** | ** ** |
|-----------------------|------------|------------------------------|------------|
| Australia             |       | 2001  and later              |       |
| Belgium               |       | 2004  and later              |       |
| China                 |       | 2002  and later              |       |
| Germany               |       | 2002  and later              |       |
| Italy                 |       | 2000  and later              |       |
| Switzerland           |       | 2004  and later              |       |
| The Netherlands       |       | 2003  and later              |       |
| United Kingdom        |       | 1999  and later              |       |
| United States federal |       | 2002 and later               |       |

 

On April 12, 2007,we received a Revenue Agent Report from the Internal Revenue Service related tothe examination of our federal income tax returns for the years 2002 through2004.  The Internal Revenue Serviceproposed a decrease to our net operating losses of approximately $387 millionrelated to transactions completed in 2002. We believe that these claims are largely without merit and, therefore,will continue to dispute the proposed adjustments.  We believe that adequate provision for thisitem has been made in the financial statements.

Certain of ourU.S. and non-U.S. income tax returns are currently under various stages ofaudit by applicable tax authorities and the amounts ultimately agreed upon inresolution of the issues raised may differ materially from the amountsaccrued.  An estimate of the range ofpossible changes in the unrecognized tax benefits within the next 12 monthscannot be made.

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**Huntsman Corporation**

We recorded anincome tax expense of $4.4 million for the six months ended June 30, 2007 andexpense of $32.3 million for the six months ended June 30, 2006.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate.

Excluding the incremental$19.8 million discrete portion of our valuation allowance release, oureffective income tax rates were 25% for the six months ended June 30, 2007 and12% six months ended June 30, 2006. These effective tax rates are lower than the U.S. statutory rate of 35%primarily due to our mix of earnings in tax jurisdictions where no tax expenseis provided due to the release of valuation allowances, losses in taxjurisdictions where we recognize tax benefits, and earnings in taxjurisdictions with lower statutory rates. Our effective tax rate increased largely due to income in jurisdictionswhere we are projected to no longer have a valuation allowance, net increasesin operating losses in jurisdictions which do not record a tax benefit, and netincreases in operating income in jurisdictions which record a tax expense.

**Huntsman International**

We recorded anincome tax expense of $42.1 million for the six months ended June 30, 2007 andexpense of $78.4 million for the six months ended June 30, 2006.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate.

Our effectiveincome tax rates were 41% for the six months ended June 30, 2007 and 29% forthe six months ended June 30, 2006.  Oureffective tax rate increased largely due to income in jurisdictions where weare projected to no longer have a valuation allowance, net increases inoperating losses in jurisdictions which do not record a tax benefit, and netincreases in operating income in jurisdictions which record a tax expense.

**19.          NET INCOME PER SHARE**

Basicincome per share excludes dilution and is computed by dividing net incomeavailable to common stockholders by the weighted average number of sharesoutstanding during the period. Diluted income per share reflects potentialdilution and is computed by dividing net income available to commonstockholders by the weighted average number of shares outstanding during theperiod, increased by the number of additional shares that would have beenoutstanding if the potential dilutive units had been exercised or converted.

Basic and diluted incomeweighted average shares are determined as follows:
| ** **                                             | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                             | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Weighted average  shares outstanding                   |       | 220,938,218                                         |       | 220,639,403                                       |       | 220,861,287 |   | 220,597,624 |   |
| Dilutive  securities:                                  |       |                                                |       |                                              |       |   |   |   |   |
| Stock-based awards                                     |       | 95,872                                              |       | 15,355                                            |       | 105,149 |   | 5,869 |   |
| Preferred stock conversion                             |       | 12,499,925                                          |       | 12,499,925                                        |       | 12,499,925 |   | 12,499,925 |   |
| Total dilutive shares  outstanding assuming conversion |       | 233,534,015                                         |       | 233,154,683                                       |       | 233,466,361 |   | 233,103,418 |   |

 

Additionalstock-based awards of 6,507,582 and 4,666,495 weighted average equivalentshares of stock were outstanding during the three months ended June 30, 2007and 2006, respectively, and additional stock-based awards of 6,164,452 and4,526,394 weighted average equivalent shares of stock were outstanding duringthe six months ended June 30, 2007 and 2006, respectively, and were notincluded in the computation of diluted earnings per share because the effectwould be anti-dilutive.

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**20.          OPERATING SEGMENT INFORMATION**

We report our operationsthrough six operating segments: Polyurethanes, Materials and Effects,Performance Products, Pigments, Polymers and Base Chemicals.

The major products ofeach reportable operating segment are as follows:
| **Segment**              | ** ** | **Products**                                                                                                                                                                                 |
|--------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Polyurethanes            |       | MDI products, PO, polyols, PG, TPU, aniline and MTBE                                                                                                                                         |
| Materials and Effects(1) |       | epoxy resin compounds and formulations;  cross-linking, matting and curing agents; epoxy, acrylic and  polyurethane-based adhesives, tooling resin formulations, textile chemicals  and dyes |
| Performance Products     |       | amines, surfactants, LAB, maleic anhydride, other  performance chemicals, EG, olefins and technology licenses                                                                                |
| Pigments                 |       | titanium dioxide                                                                                                                                                                             |
| Polymers(1)(2)(3)        |       | LDPE and LLDPE, polypropylene, EPS and styrene                                                                                                                                               |
| Base Chemicals(3)        |       | ethylene, propylene and cyclohexane                                                                                                                                                          |

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(1)                     EffectiveJanuary 1, 2007, the results of our APAO facility are reported in our Materialsand Effects segment. These results were previously reported in our Polymerssegment. All segment information for prior periods has been reclassified toreflect this transfer.

(2)                     Beginningin the second quarter of 2007, our Australian styrenics business wastransferred from our Polymers segment to Corporate and other.  All segment information for prior periods hasbeen restated to reflect this transfer.

(3)                     OnJune 22, 2007, we entered into the Amended and Restated Agreement with respectto the Pending U.S. Petrochemical Disposition. See “Note 3. DiscontinuedOperations — North American Polymers Business” and “Note 4. BusinessDispositions and Combinations—Agreement to Sell U.S. Base Chemicals Business.”On December 29, 2006, we completed the U.K. Petrochemicals Disposition.The operating results of our North American polymers business and European basechemicals and polymers business have been classified as discontinued operationsand, accordingly, the revenues of these businesses are excluded from thePolymers and Base Chemicals operating segment revenues, respectively, for allperiods presented. The EBITDA of our North American polymers business andEuropean base chemicals and polymers business are included in the Polymers andBase Chemicals segment EBITDA, respectively, for all periods presented. See “Note3. Discontinued Operations — North American Polymers Business” and “Note 3.Discontinued Operations—Sale of European Base Chemicals and Polymers Business.”On June 27, 2006, we sold our U.S. butadiene and MTBE business operated inour Base Chemicals segment. See “Note 4. Business Dispositions andCombinations—Sale of U.S. Butadiene and MTBE Business.” The PO/MTBE operationsin our Polyurethanes segment were not included in this sale.

Sales betweensegments are generally recognized at external market prices and are eliminatedin consolidation. We use EBITDA to measure the financial performance of ourglobal business units and for reporting the results of our operating segments.This measure includes all operating items relating to the businesses. TheEBITDA of operating segments excludes items that principally apply to ourCompany as a whole. The revenues and EBITDA for each of our reportable operatingsegments are as follows (dollars in millions):

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| ** **                                              | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Net  Sales:**                                         | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Polyurethanes                                           |       | $                                                   | 1,010.2    |                                              | $          | 925.1 |   | $ | 1,850.2 |   | $ | 1,734.2 |   |
| Materials and Effects                                   |       | 621.5                                               |       | 335.3                                             |       | 1,211.1 |   | 658.4 |   |
| Performance Products                                    |       | 548.4                                               |       | 543.4                                             |       | 1,100.3 |   | 1,053.3 |   |
| Pigments                                                |       | 293.2                                               |       | 276.0                                             |       | 563.4 |   | 534.8 |   |
| Polymers(2)                                             |       | —                                              |       | —                                            |       | — |   | — |   |
| Base Chemicals(3)                                       |       | 141.3                                               |       | 350.6                                             |       | 273.9 |   | 797.9 |   |
| Eliminations and other                                  |       | (97.0                                               | )          | (41.4                                             | )          | (194.4 | ) | (90.6 | ) |
| Total                                                   |       | $                                                   | 2,517.6    |                                              | $          | 2,389.0 |   | $ | 4,804.5 |   | $ | 4,688.0 |   |
|                                                    |       |                                                |       |                                              |       |   |   |   |   |
| **Huntsman  Corporation:**                              | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Segment  EBITDA****(1):**                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Polyurethanes                                           |       | $                                                   | 158.6      |                                              | $          | 180.5 |   | $ | 276.9 |   | $ | 339.7 |   |
| Materials and Effects                                   |       | 52.5                                                |       | 34.2                                              |       | 109.6 |   | 69.1 |   |
| Performance Products                                    |       | 33.2                                                |       | 77.5                                              |       | 105.3 |   | 128.4 |   |
| Pigments                                                |       | 21.9                                                |       | 31.8                                              |       | 45.4 |   | 65.1 |   |
| Polymers(2)                                             |       | (219.9                                              | )          | 35.2                                              |       | (206.5 | ) | 75.6 |   |
| Base Chemicals(3)                                       |       | 34.9                                                |       | 138.1                                             |       | 34.4 |   | 152.9 |   |
| Corporate and other(4)                                  |       | (58.6                                               | )          | 2.0                                               |       | (100.5 | ) | (50.3 | ) |
| Total                                                   |       | 22.6                                                |       | 499.3                                             |       | 264.6 |   | 780.5 |   |
|                                                    |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense,  net                                  |       | (70.0                                               | )          | (94.6                                             | )          | (143.8 | ) | (181.4 | ) |
| Income tax  benefit (expense) - continuing operations   |       | 8.0                                                 |       | (17.4                                             | )          | (4.4 | ) | (32.3 | ) |
| Income tax  benefit (expense) - discontinued operations |       | 76.3                                                |       | (6.9                                              | )          | 76.3 |   | (0.4 | ) |
| Depreciation and  amortization                          |       | (107.8                                              | )          | (117.5                                            | )          | (217.0 | ) | (234.5 | ) |
| Net (loss) income                                       |       | $                                                   | (70.9      | )                                                 | $          | 262.9 |   | $ | (24.3 | ) | $ | 331.9 |   |
|                                                    |       |                                                |       |                                              |       |   |   |   |   |
| **Huntsman  International:**                            | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Segment  EBITDA****(1):**                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Polyurethanes                                           |       | $                                                   | 158.6      |                                              | $          | 180.5 |   | $ | 276.9 |   | $ | 339.7 |   |
| Materials and Effects                                   |       | 52.5                                                |       | 34.2                                              |       | 109.6 |   | 69.1 |   |
| Performance Products                                    |       | 33.2                                                |       | 77.5                                              |       | 105.3 |   | 128.4 |   |
| Pigments                                                |       | 21.9                                                |       | 31.8                                              |       | 45.4 |   | 65.1 |   |
| Polymers(2)                                             |       | (219.9                                              | )          | 35.2                                              |       | (206.5 | ) | 75.6 |   |
| Base Chemicals(3)                                       |       | 34.9                                                |       | 138.1                                             |       | 34.4 |   | 152.9 |   |
| Corporate and other(4)                                  |       | (57.6                                               | )          | (5.2                                              | )          | (104.1 | ) | (59.5 | ) |
| Total                                                   |       | 23.6                                                |       | 492.1                                             |       | 261.0 |   | 771.3 |   |
|                                                    |       |                                                |       |                                              |       |   |   |   |   |
| Interest  expense, net                                  |       | (70.1                                               | )          | (95.7                                             | )          | (144.4 | ) | (183.7 | ) |
| Income tax  expense - continuing operations             |       | (18.6                                               | )          | (58.2                                             | )          | (42.1 | ) | (78.4 | ) |
| Income tax  benefit (expense) - discontinued operations |       | 76.3                                                |       | (6.9                                              | )          | 76.3 |   | (0.4 | ) |
| Depreciation and  amortization                          |       | (102.0                                              | )          | (110.7                                            | )          | (205.6 | ) | (220.9 | ) |
| Net (loss) income                                       |       | $                                                   | (90.8      | )                                                 | $          | 220.6 |   | $ | (54.8 | ) | $ | 287.9 |   |

----

(1)                                 SegmentEBITDA is defined as net income before interest, income tax and depreciationand amortization.

(2)                                 Beginningin the second quarter of 2007, the operating results of our North Americanpolymers business are classified as discontinued operations and, accordingly,the revenues of this business are excluded from the Polymers segment revenuesfor all periods presented. The EBITDA of our North American polymers businessis included in the Polymers segment EBITDA for all periods presented.

(3)                                 Beginningin the fourth quarter of 2006, the operating results of our European basechemicals and polymers business are classified as discontinued operations and,accordingly, the revenues of this business are excluded from the Base Chemicalssegment revenues for all periods presented. The EBITDA of our European basechemicals and polymers business is included in the Base Chemicals segmentEBITDA for all periods presented.

(4)                                 EBITDAfrom corporate and other items includes unallocated corporate overhead, loss onearly extinguishment of debt, loss on A/R Securitization Program, unallocatedforeign exchange gains or losses, other non-operating income (expense),extraordinary gain (loss) on the acquisition of a business and the operatingresults of our Australian styrenics business.

39

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**21.****                              CONDENSEDCONSOLIDATING FINANCIAL INFORMATION OF HUNTSMAN INTERNATIONAL LLC (UNAUDITED)**

The following condensedconsolidating financial information (unaudited) of Huntsman International LLCpresents, in separate columns, financial information for the following:Huntsman International (on a parent only basis), with its investment insubsidiaries recorded under the equity method; the guarantors of HuntsmanInternational’s debt on a combined, and where appropriate, consolidated basis;and non-guarantor subsidiaries on a combined, and where appropriate,consolidated basis. Additional columns present eliminating adjustments andconsolidated totals as of June 30, 2007 and December 31, 2006 and for the threeand six months ended June 30, 2007 and 2006. There are no contractualrestrictions limiting transfers of cash from Huntsman International’sguarantors to Huntsman International. Each Huntsman International guarantor is100% owned by Huntsman International and has fully and unconditionallyguaranteed Huntsman International’s debt on a joint and several basis.

40

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**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES****CONDENSED CONSOLIDATING BALANCE SHEET(UNAUDITED)****AS OF JUNE 30, 2007****(Dollars in Millions)**
| ** **                                      | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Current assets:**                             | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Cash and cash  equivalents                      |       | $                   | 10.2       |           | $          | 11.6                 |       | $                | 145.7      |                                           | $          | — |   | $ | 167.5 |   |
| Accounts and  notes receivables, net            |       | 61.3                |       | 239.7          |       | 1,138.0              |       | 0.3              |       | 1,439.3                                        |       |
| Accounts  receivable from affiliates            |       | 945.4               |       | 3,724.7        |       | 456.1                |       | (5,073.6         | )          | 52.6                                           |       |
| Inventories, net                                |       | 90.6                |       | 273.6          |       | 988.6                |       | (4.8             | )          | 1,348.0                                        |       |
| Prepaid expenses                                |       | 4.3                 |       | 7.4            |       | 17.6                 |       | (0.1             | )          | 29.2                                           |       |
| Deferred income  taxes                          |       | 7.3                 |       | 65.4           |       | 6.3                  |       | (4.9             | )          | 74.1                                           |       |
| Other current  assets                           |       | 3.5                 |       | 2.3            |       | 109.8                |       | —           |       | 115.6                                          |       |
| Current assets  held for sale                   |       | 51.5                |       | 120.5          |       | 3.8                  |       | —           |       | 175.8                                          |       |
| **Total  current assets**                       |       | 1,174.1             |       | 4,445.2        |       | 2,865.9              |       | (5,083.1         | )          | 3,402.1                                        |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| Property, plant and  equipment, net             |       | 466.2               |       | 1,099.6        |       | 2,038.4              |       | 2.8              |       | 3,607.0                                        |       |
| Investment in  unconsolidated affiliates        |       | 3,016.0             |       | 1,387.3        |       | 106.4                |       | (4,293.8         | )          | 215.9                                          |       |
| Intangible assets, net                          |       | 131.8               |       | (11.3          | )          | 59.7                 |       | —           |       | 180.2                                          |       |
| Goodwill                                        |       | —              |       | 87.1           |       | 9.4                  |       | (4.1             | )          | 92.4                                           |       |
| Deferred income taxes                           |       | 48.0                |       | 2.7            |       | 192.9                |       | —           |       | 243.6                                          |       |
| Notes receivables from  affiliates              |       | 4,467.3             |       | 1,567.5        |       | (7.5                 | )          | (6,027.3         | )          | —                                         |       |
| Other noncurrent assets                         |       | 60.0                |       | 120.3          |       | 218.2                |       | —           |       | 398.5                                          |       |
| Noncurrent assets held  for sale                |       | 45.6                |       | 141.6          |       | —               |       | —           |       | 187.2                                          |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  assets**                               |       | $                   | 9,409.0    |           | $          | 8,840.0              |       | $                | 5,483.4    |                                           | $          | (15,405.5 | ) | $ | 8,326.9 |   |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **LIABILITIES AND MEMBERS’ EQUITY**        | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Current liabilities:**                        | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Accounts payable                                |       | $                   | 103.9      |           | $          | 298.0                |       | $                | 682.0      |                                           | $          | — |   | $ | 1,083.9 |   |
| Accounts payable  to affiliates                 |       | 3,910.5             |       | 478.9          |       | 701.7                |       | (5,073.3         | )          | 17.8                                           |       |
| Accrued  liabilities                            |       | 57.9                |       | 273.7          |       | 458.8                |       | —           |       | 790.4                                          |       |
| Deferred income  taxes                          |       | 10.0                |       | —         |       | 9.3                  |       | —           |       | 19.3                                           |       |
| Current portion  of long-term debt              |       | 234.4               |       | 0.5            |       | 22.3                 |       | —           |       | 257.2                                          |       |
| Current  liabilities held for sale              |       | 5.3                 |       | 4.8            |       | —               |       | —           |       | 10.1                                           |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  current liabilities**                  |       | 4,322.0             |       | 1,055.9        |       | 1,874.1              |       | (5,073.3         | )          | 2,178.7                                        |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| Long-term debt                                  |       | 3,362.6             |       | 2.3            |       | 159.7                |       | —           |       | 3,524.6                                        |       |
| Long-term  debt-affiliates                      |       | 27.7                |       | 4,429.1        |       | 1,570.5              |       | (6,027.3         | )          | —                                         |       |
| Deferred income taxes                           |       | (7.6                | )          | 11.9           |       | 109.8                |       | (5.0             | )          | 109.1                                          |       |
| Other noncurrent  liabilities                   |       | 160.8               |       | 184.5          |       | 597.8                |       | (0.7             | )          | 942.4                                          |       |
| Noncurrent liabilities  held for sale           |       | —              |       | 4.7            |       | —               |       | —           |       | 4.7                                            |       |
| **Total  liabilities**                          |       | 7,865.5             |       | 5,688.4        |       | 4,311.9              |       | (11,106.3        | )          | 6,759.5                                        |       |
| ** **                                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Minority interest in  consolidated subsidiaries |       | —              |       | 118.8          |       | 17.4                 |       | (112.3           | )          | 23.9                                           |       |
| ** **                                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Members’ equity:**                       | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Members’ equity                            |       | 2,831.3             |       | 2,128.6        |       | 1,382.4              |       | (3,511.0         | )          | 2,831.3                                        |       |
| Subsidiary  preferred stock                     |       | —              |       | 73.5           |       | 1.4                  |       | (74.9            | )          | —                                         |       |
| (Accumulated  deficit) retained earnings        |       | (1,204.8            | )          | 669.1          |       | 7.6                  |       | (676.7           | )          | (1,204.8                                       | )          |
| Accumulated  other comprehensive (loss) income  |       | (83.0               | )          | 161.6          |       | (237.3               | )          | 75.7             |       | (83.0                                          | )          |
| **Total  members’ equity**                 |       | 1,543.5             |       | 3,032.8        |       | 1,154.1              |       | (4,186.9         | )          | 1,543.5                                        |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  liabilities and members’ equity** |       | $                   | 9,409.0    |           | $          | 8,840.0              |       | $                | 5,483.4    |                                           | $          | (15,405.5 | ) | $ | 8,326.9 |   |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |

 

41

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATING BALANCE SHEET(UNAUDITED)****AS OF DECEMBER 31, 2006****(Dollars in Millions)**
| ** **                                      | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Current  assets:**                            | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Cash and cash equivalents                       |       | $                   | 18.1       |           | $          | —               |       | $                | 227.9      |                                           | $          | — |   | $ | 246.0 |   |
| Accounts and notes receivables, net             |       | 35.3                |       | 216.0          |       | 992.0                |       | —           |       | 1,243.3                                        |       |
| Accounts receivable from affiliates             |       | 605.2               |       | 2,766.0        |       | 445.0                |       | (3,796.7         | )          | 19.5                                           |       |
| Inventories, net                                |       | 157.9               |       | 424.9          |       | 942.3                |       | (5.0             | )          | 1,520.1                                        |       |
| Prepaid expenses                                |       | 8.0                 |       | 58.6           |       | 16.9                 |       | (27.8            | )          | 55.7                                           |       |
| Deferred income taxes                           |       | 4.7                 |       | 66.5           |       | 4.5                  |       | (5.0             | )          | 70.7                                           |       |
| Other current assets                            |       | 6.4                 |       | 4.6            |       | 150.6                |       | —           |       | 161.6                                          |       |
| **Total current assets**                        |       | 835.6               |       | 3,536.6        |       | 2,779.2              |       | (3,834.5         | )          | 3,316.9                                        |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| Property, plant  and equipment, net             |       | 536.0               |       | 1,298.0        |       | 1,992.5              |       | 3.0              |       | 3,829.5                                        |       |
| Investment in  unconsolidated affiliates        |       | 3,094.4             |       | 1,250.6        |       | 92.9                 |       | (4,236.9         | )          | 201.0                                          |       |
| Intangible  assets, net                         |       | 145.9               |       | (8.0           | )          | 54.7                 |       | —           |       | 192.6                                          |       |
| Goodwill                                        |       | —              |       | 86.9           |       | 7.4                  |       | (4.1             | )          | 90.2                                           |       |
| Deferred income  taxes                          |       | 2.0                 |       | 2.0            |       | 184.7                |       | —           |       | 188.7                                          |       |
| Notes  receivables from affiliates              |       | 3,572.2             |       | 1,539.9        |       | —               |       | (5,112.1         | )          | —                                         |       |
| Other noncurrent  assets                        |       | 63.4                |       | 124.9          |       | 188.3                |       | —           |       | 376.6                                          |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total assets**                                |       | $                   | 8,249.5    |           | $          | 7,830.9              |       | $                | 5,299.7    |                                           | $          | (13,184.6 | ) | $ | 8,195.5 |   |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **LIABILITIES  AND MEMBERS’ EQUITY**       | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Current  liabilities:**                       | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Accounts payable                                |       | $                   | 73.3       |           | $          | 281.3                |       | $                | 651.6      |                                           | $          | — |   | $ | 1,006.2 |   |
| Accounts payable to affiliates                  |       | 2,924.7             |       | 245.1          |       | 643.7                |       | (3,796.8         | )          | 16.7                                           |       |
| Accrued liabilities                             |       | 98.5                |       | 264.2          |       | 506.8                |       | (27.8            | )          | 841.7                                          |       |
| Deferred income taxes                           |       | —              |       | —         |       | 9.4                  |       | —           |       | 9.4                                            |       |
| Current portion of long-term debt               |       | 111.8               |       | 0.5            |       | 75.6                 |       | —           |       | 187.9                                          |       |
| **Total current liabilities**                   |       | 3,208.3             |       | 791.1          |       | 1,887.1              |       | (3,824.6         | )          | 2,061.9                                        |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| Long-term debt                                  |       | 3,356.6             |       | 2.5            |       | 98.3                 |       | —           |       | 3,457.4                                        |       |
| Long-term  debt-affiliates                      |       | 27.7                |       | 3,536.7        |       | 1,547.7              |       | (5,112.1         | )          | —                                         |       |
| Deferred income  taxes                          |       | 4.8                 |       | 67.1           |       | 94.6                 |       | (4.9             | )          | 161.6                                          |       |
| Other noncurrent  liabilities                   |       | 119.0               |       | 197.4          |       | 635.7                |       | —           |       | 952.1                                          |       |
| **Total liabilities**                           |       | 6,716.4             |       | 4,594.8        |       | 4,263.4              |       | (8,941.6         | )          | 6,633.0                                        |       |
| ** **                                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Minority  interest in consolidated subsidiaries |       | —              |       | 118.5          |       | 23.4                 |       | (112.5           | )          | 29.4                                           |       |
| ** **                                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Members’  equity:**                      | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Members’ equity                            |       | 2,811.8             |       | 2,228.7        |       | 1,314.0              |       | (3,542.7         | )          | 2,811.8                                        |       |
| Subsidiary preferred stock                      |       | —              |       | 73.4           |       | 1.4                  |       | (74.8            | )          | —                                         |       |
| Accumulated deficit                             |       | (1,150.4            | )          | 711.6          |       | (33.1                | )          | (678.5           | )          | (1,150.4                                       | )          |
| Accumulated other comprehensive (loss) income   |       | (128.3              | )          | 103.9          |       | (269.4               | )          | 165.5            |       | (128.3                                         | )          |
| **Total members’ equity**                  |       | 1,533.1             |       | 3,117.6        |       | 1,012.9              |       | (4,130.5         | )          | 1,533.1                                        |       |
|                                            |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Total  liabilities and members’ equity** |       | $                   | 8,249.5    |           | $          | 7,830.9              |       | $                | 5,299.7    |                                           | $          | (13,184.6 | ) | $ | 8,195.5 |   |

 

42

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**HUNTSMAN INTERNATIONAL LLC ANDSUBSIDIARIES****CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS (UNAUDITED)****THREE MONTHS ENDED JUNE 30, 2007****(Dollars in Millions)**
| ** **                                                                              | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                           | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Trade sales, services and fees                                                          |       | $                   | 248.5      |           | $          | 661.8                |       | $                | 1,589.0    |                                           | $          | — |   | $ | 2,499.3 |   |
| Related party sales                                                                     |       | 125.0               |       | 85.4           |       | 263.3                |       | (455.4           | )          | 18.3                                           |       |
| **Total  revenues**                                                                     |       | 373.5               |       | 747.2          |       | 1,852.3              |       | (455.4           | )          | 2,517.6                                        |       |
| **Cost of  goods sold**                                                                 |       | 294.1               |       | 679.2          |       | 1,611.8              |       | (453.8           | )          | 2,131.3                                        |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                       |       | 79.4                |       | 68.0           |       | 240.5                |       | (1.6             | )          | 386.3                                          |       |
| Selling, general  and administrative                                                    |       | 55.9                |       | 25.9           |       | 138.3                |       | (0.2             | )          | 219.9                                          |       |
| Research and  development                                                               |       | 10.6                |       | 8.2            |       | 17.4                 |       | —           |       | 36.2                                           |       |
| Other operating  expense (income)                                                       |       | 2.0                 |       | (17.7          | )          | 17.1                 |       | —           |       | 1.4                                            |       |
| Restructuring,  impairment and plant closing (credits) costs                            |       | —              |       | (0.5           | )          | 13.7                 |       | —           |       | 13.2                                           |       |
| ** **                                                                              | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Operating  income**                                                                   |       | 10.9                |       | 52.1           |       | 54.0                 |       | (1.4             | )          | 115.6                                          |       |
| Interest income  (expense), net                                                         |       | 4.8                 |       | (43.4          | )          | (31.5                | )          | —           |       | (70.1                                          | )          |
| Loss on accounts  receivable securitization program                                     |       | (0.2                | )          | (2.7           | )          | (1.8                 | )          | —           |       | (4.7                                           | )          |
| Equity in (loss)  income of investment in affiliates and subsidiaries                   |       | (106.6              | )          | 68.4           |       | 5.1                  |       | 38.2             |       | 5.1                                            |       |
| Other (expense)  income                                                                 |       | (1.6                | )          | 5.4            |       | (1.0                 | )          | (4.1             | )          | (1.3                                           | )          |
| **(Loss)  income from continuing operations before income taxes and minority interest** | ** ** | (92.7               | )          | 79.8           | ** ** | 24.8                 | ** ** | 32.7             | ** ** | 44.6                                           | ** ** |
| Income tax  benefit (expense)                                                           |       | 10.4                |       | (13.9          | )          | (15.1                | )          | —           |       | (18.6                                          | )          |
| Minority  interest in subsidiaries’ loss                                           |       | —              |       | 4.1            |       | 11.2                 |       | (4.2             | )          | 11.1                                           |       |
| **(Loss)  income from continuing operations**                                           |       | (82.3               | )          | 70.0           |       | 20.9                 |       | 28.5             |       | 37.1                                           |       |
| (Loss) income  from discontinued operations, net of tax                                 |       | (11.7               | )          | (129.2         | )          | 21.9                 |       | —           |       | (119.0                                         | )          |
| Extraordinary  gain (loss) on the acquisition of a business, net of tax                 |       | 3.2                 |       | —         |       | (12.1                | )          | —           |       | (8.9                                           | )          |
| **Net (loss) income**                                                                   |       | $                   | (90.8      | )              | $          | (59.2                | )          | $                | 30.7       |                                           | $          | 28.5 |   | $ | (90.8 | ) |

 

43

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS (UNAUDITED)****THREE MONTHS ENDED JUNE 30, 2006****(Dollars in Millions)**
| ** **                                                                       | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                    | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Trade sales, services and fees                                                   |       | $                   | 231.0      |           | $          | 946.5                |       | $                | 1,182.7    |                                           | $          | — |   | $ | 2,360.2 |   |
| Related party sales                                                              |       | 67.6                |       | 82.6           |       | 205.4                |       | (326.8           | )          | 28.8                                           |       |
| **Total  revenues**                                                              |       | 298.6               |       | 1,029.1        |       | 1,388.1              |       | (326.8           | )          | 2,389.0                                        |       |
| **Cost of  goods sold**                                                          |       | 215.5               |       | 894.3          |       | 1,206.5              |       | (326.0           | )          | 1,990.3                                        |       |
|                                                                             |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                |       | 83.1                |       | 134.8          |       | 181.6                |       | (0.8             | )          | 398.7                                          |       |
| Selling, general  and administrative                                             |       | 56.8                |       | 23.6           |       | 90.9                 |       | (0.3             | )          | 171.0                                          |       |
| Research and  development                                                        |       | 8.9                 |       | 7.5            |       | 9.7                  |       | —           |       | 26.1                                           |       |
| Other operating  expense (income)                                                |       | 15.1                |       | (106.1         | )          | (4.0                 | )          | —           |       | (95.0                                          | )          |
| Restructuring,  impairment and plant closing costs (credits)                     |       | 0.1                 |       | 10.3           |       | (1.6                 | )          | —           |       | 8.8                                            |       |
| ** **                                                                       | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Operating  income**                                                            |       | 2.2                 |       | 199.5          |       | 86.6                 |       | (0.5             | )          | 287.8                                          |       |
| Interest  expense, net                                                           |       | (51.3               | )          | (3.8           | )          | (40.6                | )          | —           |       | (95.7                                          | )          |
| Gain (loss) on  accounts receivable securitization program                       |       | 3.3                 |       | (4.6           | )          | (2.3                 | )          | —           |       | (3.6                                           | )          |
| Equity in income  of investment in affiliates and subsidiaries                   |       | 260.9               |       | 75.8           |       | 1.4                  |       | (336.7           | )          | 1.4                                            |       |
| Other (expense)  income                                                          |       | (1.3                | )          | 5.3            |       | 0.8                  |       | (4.2             | )          | 0.6                                            |       |
| **Income  from continuing operations before income taxes and minority interest** | ** ** | 213.8               | ** ** | 272.2          | ** ** | 45.9                 | ** ** | (341.4           | )          | 190.5                                          | ** ** |
| Income tax  expense                                                              |       | (2.1                | )          | (41.1          | )          | (15.0                | )          | —           |       | (58.2                                          | )          |
| Minority  interest in subsidiaries’ income                                  |       | —              |       | (28.3          | )          | (0.3                 | )          | 28.3             |       | (0.3                                           | )          |
| **Income  from continuing operations**                                           |       | 211.7               |       | 202.8          |       | 30.6                 |       | (313.1           | )          | 132.0                                          |       |
| Income from  discontinued operations, net of tax                                 |       | 4.4                 |       | 18.6           |       | 19.5                 |       | —           |       | 42.5                                           |       |
| Extraordinary  gain on the acquisition of a business, net of tax                 |       | 4.5                 |       | —         |       | 41.6                 |       | —           |       | 46.1                                           |       |
| **Net income**                                                                   |       | $                   | 220.6      |           | $          | 221.4                |       | $                | 91.7       |                                           | $          | (313.1 | ) | $ | 220.6 |   |

 

44

----

**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS (UNAUDITED)****SIX MONTHS ENDED JUNE 30, 2007****(Dollars in Millions)**
| ** **                                                                              | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                           | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Trade sales, services and fees                                                          |       | $                   | 472.8      |           | $          | 1,274.7              |       | $                | 3,020.7    |                                           | $          | — |   | $ | 4,768.2 |   |
| Related party sales                                                                     |       | 249.1               |       | 163.3          |       | 510.1                |       | (886.2           | )          | 36.3                                           |       |
| **Total  revenues**                                                                     |       | 721.9               |       | 1,438.0        |       | 3,530.8              |       | (886.2           | )          | 4,804.5                                        |       |
| **Cost of  goods sold**                                                                 |       | 558.2               |       | 1,276.8        |       | 3,074.4              |       | (884.7           | )          | 4,024.7                                        |       |
|                                                                                    |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                       |       | 163.7               |       | 161.2          |       | 456.4                |       | (1.5             | )          | 779.8                                          |       |
| Selling, general  and administrative                                                    |       | 105.1               |       | 48.9           |       | 275.8                |       | (0.4             | )          | 429.4                                          |       |
| Research and  development                                                               |       | 20.3                |       | 16.5           |       | 32.7                 |       | —           |       | 69.5                                           |       |
| Other operating  expense (income)                                                       |       | 7.0                 |       | (23.2          | )          | 21.5                 |       | —           |       | 5.3                                            |       |
| Restructuring,  impairment and plant closing (credits) costs                            |       | —              |       | (0.4           | )          | 24.8                 |       | —           |       | 24.4                                           |       |
| ** **                                                                              | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Operating  income**                                                                   |       | 31.3                |       | 119.4          |       | 101.6                |       | (1.1             | )          | 251.2                                          |       |
| Interest income  (expense), net                                                         |       | 4.4                 |       | (85.1          | )          | (63.7                | )          | —           |       | (144.4                                         | )          |
| Gain (loss) on  accounts receivable securitization program                              |       | 0.2                 |       | (4.6           | )          | (4.6                 | )          | —           |       | (9.0                                           | )          |
| Equity in (loss)  income of investment in affiliates and subsidiaries                   |       | (88.6               | )          | 82.5           |       | 7.3                  |       | 6.1              |       | 7.3                                            |       |
| Other (expense)  income                                                                 |       | (3.4                | )          | 5.4            |       | (0.5                 | )          | (4.1             | )          | (2.6                                           | )          |
| **(Loss)  income from continuing operations before income taxes and minority interest** | ** ** | (56.1               | )          | 117.6          | ** ** | 40.1                 | ** ** | 0.9              | ** ** | 102.5                                          | ** ** |
| Income tax  benefit (expense)                                                           |       | 11.0                |       | (25.7          | )          | (27.4                | )          | —           |       | (42.1                                          | )          |
| Minority  interest in subsidiaries’ loss                                           |       | —              |       | 0.1            |       | 10.8                 |       | (0.2             | )          | 10.7                                           |       |
| **(Loss)  income from continuing operations**                                           |       | (45.1               | )          | 92.0           |       | 23.5                 |       | 0.7              |       | 71.1                                           |       |
| (Loss) income  from discontinued operations, net of tax                                 |       | (8.3                | )          | (131.7         | )          | 20.6                 |       | —           |       | (119.4                                         | )          |
| Extraordinary  loss on the acquisition of a business, net of tax                        |       | (1.4                | )          | —         |       | (5.1                 | )          | —           |       | (6.5                                           | )          |
| **Net (loss) income**                                                                   |       | $                   | (54.8      | )              | $          | (39.7                | )          | $                | 39.0       |                                           | $          | 0.7 |   | $ | (54.8 | ) |

 

45

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATING STATEMENT OFOPERATIONS (UNAUDITED)****SIX MONTHS ENDED JUNE 30, 2006****(Dollars in Millions)**
| ** **                                                                       | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Revenues:**                                                                    | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Trade sales, services and fees                                                   |       | $                   | 441.6      |           | $          | 1,948.6              |       | $                | 2,247.5    |                                           | $          | — |   | $ | 4,637.7 |   |
| Related party sales                                                              |       | 126.7               |       | 168.3          |       | 423.1                |       | (667.8           | )          | 50.3                                           |       |
| **Total  revenues**                                                              |       | 568.3               |       | 2,116.9        |       | 2,670.6              |       | (667.8           | )          | 4,688.0                                        |       |
| **Cost of  goods sold**                                                          |       | 414.2               |       | 1,859.0        |       | 2,319.4              |       | (665.2           | )          | 3,927.4                                        |       |
|                                                                             |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Gross  profit**                                                                |       | 154.1               |       | 257.9          |       | 351.2                |       | (2.6             | )          | 760.6                                          |       |
| Selling, general  and administrative                                             |       | 115.4               |       | 44.8           |       | 171.3                |       | (0.5             | )          | 331.0                                          |       |
| Research and  development                                                        |       | 20.3                |       | 14.1           |       | 18.9                 |       | —           |       | 53.3                                           |       |
| Other operating  expense (income)                                                |       | 23.8                |       | (115.0         | )          | (3.1                 | )          | —           |       | (94.3                                          | )          |
| Restructuring,  impairment and plant closing costs                               |       | —              |       | 11.9           |       | 5.2                  |       | —           |       | 17.1                                           |       |
| ** **                                                                       | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| **Operating  (loss) income**                                                     |       | (5.4                | )          | 302.1          |       | 158.9                |       | (2.1             | )          | 453.5                                          |       |
| Interest  expense, net                                                           |       | (100.5              | )          | (7.1           | )          | (76.1                | )          | —           |       | (183.7                                         | )          |
| Gain (loss) on  accounts receivable securitization program                       |       | 5.4                 |       | (5.3           | )          | (6.0                 | )          | —           |       | (5.9                                           | )          |
| Equity in income  of investment in affiliates and subsidiaries                   |       | 374.5               |       | 86.4           |       | 2.1                  |       | (460.9           | )          | 2.1                                            |       |
| Other (expense)  income                                                          |       | (1.3                | )          | 5.3            |       | 0.3                  |       | (4.2             | )          | 0.1                                            |       |
| **Income  from continuing operations before income taxes and minority interest** | ** ** | 272.7               | ** ** | 381.4          | ** ** | 79.2                 | ** ** | (467.2           | )          | 266.1                                          | ** ** |
| Income tax  expense                                                              |       | (3.0                | )          | (48.8          | )          | (26.6                | )          | —           |       | (78.4                                          | )          |
| Minority  interest in subsidiaries’ income                                  |       | —              |       | (38.4          | )          | (0.6                 | )          | 38.3             |       | (0.7                                           | )          |
| **Income  from continuing operations**                                           |       | 269.7               |       | 294.2          |       | 52.0                 |       | (428.9           | )          | 187.0                                          |       |
| Income from  discontinued operations, net of tax                                 |       | 13.7                |       | 38.2           |       | 2.9                  |       | —           |       | 54.8                                           |       |
| Extraordinary  gain on the acquisition of a business, net of tax                 |       | 4.5                 |       | —         |       | 41.6                 |       | —           |       | 46.1                                           |       |
| **Net income**                                                                   |       | $                   | 287.9      |           | $          | 332.4                |       | $                | 96.5       |                                           | $          | (428.9 | ) | $ | 287.9 |   |

 

46

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS (UNAUDITED)****SIX MONTHS ENDED JUNE 30, 2007****(Dollars in Millions)**
| ** **                                                                  | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net  cash provided by (used in) operating activities**                    |       | $                   | 590.7      |           | $          | (460.0               | )          | $                | (65.4      | )                                              | $          | (5.3 | ) | $ | 60.0 |   |
|                                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing  activities:**                                                  | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Capital  expenditures                                                       |       | (14.9               | )          | (151.3         | )          | (116.6               | )          | —           |       | (282.8                                         | )          |
| Acquisition of  business, net of cash acquired and post-closing adjustments |       | —              |       | —         |       | 26.9                 |       | —           |       | 26.9                                           |       |
| Proceeds from  sale of assets                                               |       | —              |       | —         |       | 15.8                 |       | —           |       | 15.8                                           |       |
| Investment in  affiliates, net                                              |       | 42.7                |       | (1.3           | )          | (15.4                | )          | (42.7            | )          | (16.7                                          | )          |
| Other, net                                                                  |       | —              |       | —         |       | (0.5                 | )          | —           |       | (0.5                                           | )          |
| **Net  cash provided by (used in) investing activities**                    |       | 27.8                |       | (152.6         | )          | (89.8                | )          | (42.7            | )          | (257.3                                         | )          |
|                                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing  activities:**                                                  | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Net borrowings  (repayments) under revolving loan facilities                |       | 218.5               |       | —         |       | (13.5                | )          | —           |       | 205.0                                          |       |
| Net repayments  on overdraft facilities                                     |       | —              |       | —         |       | (0.2                 | )          | —           |       | (0.2                                           | )          |
| Repayments of  long-term debt                                               |       | (313.0              | )          | (0.3           | )          | (4.2                 | )          | —           |       | (317.5                                         | )          |
| Proceeds from  long-term debt                                               |       | 249.5               |       | —         |       | 16.6                 |       | —           |       | 266.1                                          |       |
| Intercompany  (repayments) borrowings                                       |       | (739.3              | )          | 742.2          |       | (2.9                 | )          | —           |       | —                                         |       |
| Repayments on  note payable                                                 |       | (36.8               | )          | —         |       | (1.3                 | )          | —           |       | (38.1                                          | )          |
| Proceeds from  notes payable                                                |       | —              |       | —         |       | 4.5                  |       | —           |       | 4.5                                            |       |
| Call premiums  related to early extinguishment of debt                      |       | (1.2                | )          | —         |       | —               |       | —           |       | (1.2                                           | )          |
| Debt issuance  cost paid                                                    |       | (4.2                | )          | —         |       | —               |       | —           |       | (4.2                                           | )          |
| (Distribution  to) contribution from parent, net                            |       | —              |       | (116.8         | )          | 68.8                 |       | 48.0             |       | —                                         |       |
| Other                                                                       |       | 0.1                 |       | (0.9           | )          | —               |       | —           |       | (0.8                                           | )          |
| **Net  cash (used in) provided by financing activities**                    |       | (626.4              | )          | 624.2          |       | 67.8                 |       | 48.0             |       | 113.6                                          |       |
|                                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of  exchange rate changes on cash                                    |       | —              |       | —         |       | 5.2                  |       | —           |       | 5.2                                            |       |
|                                                                        |       |                |       |           |       |                 |       |             |       |                                           |       |
| (Decrease)  increase in cash and cash equivalents                           |       | (7.9                | )          | 11.6           |       | (82.2                | )          | —           |       | (78.5                                          | )          |
| Cash and cash  equivalents at beginning of period                           |       | 18.1                |       | —         |       | 227.9                |       | —           |       | 246.0                                          |       |
| Cash and cash equivalents  at end of period                                 |       | $                   | 10.2       |           | $          | 11.6                 |       | $                | 145.7      |                                           | $          | — |   | $ | 167.5 |   |

 

47

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**HUNTSMANINTERNATIONAL LLC AND SUBSIDIARIES****CONDENSED CONSOLIDATING STATEMENT OF CASHFLOWS (UNAUDITED)****SIX MONTHS ENDED JUNE 30, 2006****(Dollars in Millions)**
| ** **                                               | ** ** | **Parent  Company** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated  Huntsman  International  LLC** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------------------------------------|------------|
| **Net  cash provided by (used in) operating activities** |       | $                   | 797.3      |           | $          | (403.9               | )          | $                | (69.9      | )                                              | $          | (5.4 | ) | $ | 318.1 |   |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Investing  activities:**                               | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Capital  expenditures                                    |       | (13.6               | )          | (27.0          | )          | (170.7               | )          | —           |       | (211.3                                         | )          |
| Acquisition of  business, net of cash acquired           |       | (5.8                | )          | —         |       | (130.2               | )          | —           |       | (136.0                                         | )          |
| Proceeds from  sale of assets                            |       | —              |       | 192.7          |       | 8.4                  |       | —           |       | 201.1                                          |       |
| Investment in  affiliates, net                           |       | (405.2              | )          | (7.5           | )          | (14.1                | )          | 412.4            |       | (14.4                                          | )          |
| Other, net                                               |       | —              |       | —         |       | (32.9                | )          | —           |       | (32.9                                          | )          |
| **Net  cash (used in) provided by investing activities** |       | (424.6              | )          | 158.2          |       | (339.5               | )          | 412.4            |       | (193.5                                         | )          |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| **Financing  activities:**                               | ** ** | ** **          | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **                                     | ** ** |
| Net repayments  under revolving loan facilities          |       | —              |       | —         |       | (1.9                 | )          | —           |       | (1.9                                           | )          |
| Net repayments  on overdraft facilities                  |       | —              |       | —         |       | (6.2                 | )          | —           |       | (6.2                                           | )          |
| Repayments of  long-term debt                            |       | (50.1               | )          | (0.6           | )          | (18.8                | )          | —           |       | (69.5                                          | )          |
| Intercompany  (repayments) borrowings                    |       | (291.2              | )          | 249.1          |       | 454.5                |       | (412.4           | )          | —                                         |       |
| Proceeds from  long-term debt                            |       | —              |       | —         |       | 22.9                 |       | —           |       | 22.9                                           |       |
| Repayments on  note payable                              |       | (19.6               | )          | (0.9           | )          | —               |       | —           |       | (20.5                                          | )          |
| Contribution  from minority shareholders                 |       | —              |       | —         |       | 6.2                  |       | —           |       | 6.2                                            |       |
| Dividends paid                                           |       | —              |       | (5.4           | )          | —               |       | 5.4              |       | —                                         |       |
| Other, net                                               |       | (2.7                | )          | (0.7           | )          | 3.4                  |       | —           |       | —                                         |       |
| **Net  cash (used in) provided byfinancing activities**  |       | (363.6              | )          | 241.5          |       | 460.1                |       | (407.0           | )          | (69.0                                          | )          |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| Effect of  exchange rate changes on cash                 |       | (0.2                | )          | (0.8           | )          | (0.9                 | )          | —           |       | (1.9                                           | )          |
|                                                     |       |                |       |           |       |                 |       |             |       |                                           |       |
| Increase  (decrease) in cash and cash equivalents        |       | 8.9                 |       | (5.0           | )          | 49.8                 |       | —           |       | 53.7                                           |       |
| Cash and cash  equivalents at beginning of period        |       | 10.0                |       | 7.9            |       | 114.6                |       | —           |       | 132.5                                          |       |
| Cash and cash  equivalents at end of period              |       | $                   | 18.9       |           | $          | 2.9                  |       | $                | 164.4      |                                           | $          | — |   | $ | 186.2 |   |

 

48

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**Forward-lookingStatements**

Certain information set forth in this report contains “forward-lookingstatements” within the meaning of the federal securities laws. Forward-lookingstatements include statements concerning our plans, objectives, goals,strategies, future events, future revenues or performance, capitalexpenditures, financing needs, plans or intentions relating to acquisitions andother information that is not historical information. In some cases,forward-looking statements can be identified by terminology such as “believes,”“expects,” “may,” “should,” “anticipates,” or “intends” or the negative of suchterms or other comparable terminology, or by discussions of strategy. We mayalso make additional forward-looking statements from time to time. All suchsubsequent forward-looking statements, whether written or oral, by us or on ourbehalf, are also expressly qualified by these cautionary statements.

All forward-looking statements, including without limitation, management’sexamination of historical operating trends, are based upon our currentexpectations and various assumptions. Our expectations, beliefs and projectionsare expressed in good faith and we believe there is a reasonable basis forthem, but, there can be no assurance that management’s expectations, beliefsand projections will result or be achieved. All forward-looking statementsapply only as of the date made. We undertake no obligation to publicly updateor revise forward-looking statements which may be made to reflect events orcircumstances after the date made or to reflect the occurrence of unanticipatedevents.

There are a number of risks and uncertainties that could cause ouractual results to differ materially from the forward-looking statementscontained in or contemplated by this report. Any forward-looking statementsshould be considered in light of the risks referenced in “Part II. Item1A. Risk Factors” below and in “Part I. Item 1A. Risk Factors” included inour Annual Report on Form 10-K.

**OVERVIEW**

**Business**

We are among theworld’s largest global manufacturers of differentiated chemical products; wealso manufacture inorganic and commodity chemical products. Our productscomprise a broad range of chemicals and formulations, which we market in morethan 100 countries to a diversified group of consumer and industrial customers.Our products are used in a wide range of applications, including those in theadhesives, aerospace, automotive, construction products, durable andnon-durable consumer products, electronics, medical, packaging, paints andcoatings, power generation, refining, synthetic fiber, textile chemicals anddye industries. We are a leading global producer in many of our key productlines, including MDI products, amines, surfactants, epoxy-based polymerformulations, textile chemicals, dyes, maleic anhydride and titanium dioxide.Our businesses benefit from vertical integration, large production scale incertain products and proprietary manufacturing technologies, which allow us tomaintain a low-cost position. We had revenues for the six months ended June 30, 2007 and 2006 of$4,804.5 million and $4,688.0 million,respectively.

Our business isorganized around our six segments: Polyurethanes, Materials and Effects,Performance Products, Pigments, Polymers and Base Chemicals. These segments canbe divided into three broad categories: differentiated, inorganic andcommodity. Our Polyurethanes, Materials and Effects and Performance Productssegments produce differentiated products, our Pigments segment producesinorganic products and our Polymers and Base Chemicals segments producecommodity chemicals.

Growth in ourPolyurethanes and Materials and Effects segments has been driven by thecontinued substitution of other materials by our products across a broad rangeof applications, as well as by the level of global economic activity.Historically, demand for many of these products has grown at rates in excess ofGDP growth. In Polyurethanes, this growth, particularly in Asia, has recentlyresulted in improved demand and higher industry capacity utilization rates formany of our key products, including MDI.

49

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In our PerformanceProducts segment, demand for our performance specialties has generallycontinued to grow at rates in excess of GDP as overall demand is significantlyinfluenced by new product and application development. Overall demand for mostof our performance intermediates has generally been stable or improving, exceptfor ethylene glycol where industry operating rates and profitability havedeclined since 2005 due to additional capacity coming on stream. Over time,demand for maleic anhydride has generally grown at rates that slightly exceedGDP growth. However, given its dependence on the UPR market, which is heavilyinfluenced by construction end markets, maleic anhydride demand can becyclical.

Historically,demand for titanium dioxide pigments has grown at rates approximately equal toglobal GDP growth. Pigment prices have historically reflected industry-wideoperating rates but have typically lagged behind movements in these rates by upto twelve months due to the effects of product stocking and destocking bycustomers and producers, contract arrangements and seasonality. The industryexperiences some seasonality in its sales because sales of paints, the largestend use for titanium dioxide, generally peak during the spring and summermonths in the northern hemisphere. This results in greater sales volumes in thesecond and third quarters of the year.

The profitabilityof our Polymers and Base Chemicals segments has historically been cyclical innature. The industry has recently operated in an up cycle that resultedprimarily from strong demand reflecting global economic conditions and the factthat there have been no recent capacity additions in our markets. However,volatile crude oil and natural gas-based raw materials costs and a recentweakening in demand could negatively impact the profitability of our Polymersand Base Chemicals segments. In addition, the profitability of our BaseChemicals segment was negatively impacted in 2006 and will be negativelyimpacted in 2007 by the fire at our Port Arthur, Texas manufacturing plant.During 2006, we sold our U.S. butadiene and MTBE business and our European basechemicals and polymers business. On February 15, 2007, we announced the PendingU.S. Petrochemical Disposition and on August 1, 2007, we sold our NorthAmerican polymers business. For more information, see “Note 3.  Discontinued Operations — North AmericanPolymers Business” to our condensed consolidated financial statements(unaudited) included elsewhere in this report.

**Recent Developments**

***Pending Sale of Our Company***

***On July 12, 2007, we entered into theMerger Agreement with Hexion and Merger Sub, under which Hexion has agreed toacquire all of the issued and outstanding shares of our common stock pursuantto a merger under Delaware law. Under the terms of the Merger Agreement, MergerSub will be merged with and into our company, with our company continuing asthe surviving corporation and as a wholly-owned subsidiary of Hexion.***

***If the Merger is completed, each share ofour common stock that our stockholders own at the effective time of the Merger(unless the stockholder properly exercises appraisal rights under Delaware law)will be cancelled and converted into the right to receive, without interest,$28.00 in cash, plus, if the Merger is not consummated by the Adjustment Date,April 5, 2008, an amount in cash equal to the excess, if any, of $0.006137 perday for each day after the Adjustment Date through and including the date onwhich the Merger is effected over any cash dividends or distributions declared,made or paid from and after the Adjustment Date through and including the dateon which the Merger is effected, less any applicable withholding taxes. Afterthe Merger is completed, any shares of our common stock owned by ourstockholders immediately prior to the effective time of the Merger andconverted in the Merger will thereafter represent only the right to receive theMerger Consideration (or the right to the fair value of such shares ifappraisal is properly demanded and perfected) and they will no longer have anyrights as a stockholder.***

***Prior to entering into the MergerAgreement, we terminated the Basell Agreement and paid Basell the $200 milliontermination fee required under the terms of the Basell Agreement. One-half ofthe termination fee was funded by Hexion and we could be required to pay Hexionsuch amount under certain circumstances in connection with a termination of theMerger Agreement. The closing price of our common stock on June 25, 2007, thelast trading day prior to announcement of the execution of the Basell Agreementon June 26, 2007, was $18.90 per share.***

 

50

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After receiving abuyout offer from a prominent private equity fund on May 15, 2007, our board ofdirectors formed a transaction committee comprised solely of independentdirectors and authorized management to engage a financial advisor to assist inconducting an appropriate process for the board of directors to evaluate andrespond to the buyout offer. We engaged Merrill Lynch and invited them tocontact a select list of parties that were likely to have an interest in anacquisition of our company. During the following two weeks, Merrill Lynchcontacted numerous parties regarding a potential sale of our Company.Ultimately we received three written proposals, including from ApolloManagement L.P., on behalf of Hexion, and from Basell. On June 25, 2007, aftersignificant negotiations with Apollo and Basell, we entered into the BasellAgreement providing for the acquisition of all outstanding shares of our commonstock at a price of $25.25 per share and made a public announcement settingforth the principal terms of the Basell Agreement. On June 29, 2007, Apollodelivered a letter to our board of directors offering to enter into a mergeragreement providing for the acquisition of all outstanding shares of our commonstock at a price of $27.25 per share. On July 12, 2007, more than a week afterpublic announcement of the new offer by Apollo, we terminated the BasellAgreement, entered into the Merger Agreement with Hexion and publicly announcedthe principal terms of the Merger Agreement, including the acquisition price of$28.00 per share of our common stock. Since our announcement of the proposedsale of the Company to Basell more than a month ago, we have not received anycompeting proposals from any parties other than the offer from Hexion which weaccepted and announced on July 12, 2007. Under the terms of the MergerAgreement with Hexion, we are not permitted to, among other things and subjectto certain specified exceptions where our board of directors makes certaindeterminations, (i) initiate, solicit or knowingly encourage or facilitate anyinquiries, proposals or offers that constitute, or could reasonably be expectedto lead to, a competing proposal, (ii) enter into, participate or engage indiscussions or negotiations with third parties regarding any inquiries,proposals or offers that constitute, or could reasonably be expected to leadto, a competing proposal, or (iii) furnish or provide any non-publicinformation to any third parties with respect to, any inquiries, proposals oroffers that constitute, or could reasonably be expected to lead to, a competingproposal.

Consummation of the Merger is not subject to afinancing condition, but is subject to various other conditions. We and Hexionare required to complete the Merger unless certain specified conditions are notsatisfied or waived. These conditions include, among others (i) adoption of theMerger Agreement by the holders of a majority of our outstanding shares ofcommon stock, (ii) receipt of certain regulatory approvals or expiration ofrequired waiting periods under U.S. and other competition laws, and (iii) nomaterial adverse effect occurring with respect to us or our business prior tothe effective time of the Merger. There can be no assurance the conditions toconsummation of the Merger will be satisfied or waived. For a complete list ofthe conditions that must be satisfied or waived prior to the effective time ofthe Merger, please review the Merger Agreement filed as an exhibit to ourCurrent Report on Form 8-K on July 13, 2007.

For the purposesof the Merger Agreement, a "material adverse effect" with respect tous means any occurrence, condition, change, event or effect that is materiallyadverse to the financial condition, business, or results of operations of ourCompany and its subsidiaries, taken as a whole, subject to certain specifiedexceptions relating to or resulting from:

·      changesin general economic or financial market conditions or in the chemical industrygenerally (including changes in commodity prices, general market prices andregulatory changes affecting the chemical industry generally), except and onlyto the extent that such change has had a disproportionate effect on us and oursubsidiaries compared to other persons engaged in the chemical industry; 

·      theoutbreak or escalation of hostilities involving the United States, thedeclaration by the United States of war or the occurrence of any naturaldisasters and acts of terrorism, except in the event, and only to the extent,of any damage or destruction to or loss of our physical properties; 

·      theannouncement or pendency of the Merger; 

·      anychange in GAAP, or in the interpretation thereof, or any change in law, or inthe interpretation thereof; 

·      complianceby us with the terms of the Merger Agreement or actions permitted by the MergerAgreement (or otherwise consented to by Hexion) or effectuating Hexion's debtfinancing; or 

·      anydivestiture action taken to ensure regulatory clearance.

51

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The Merger Agreement provides that Hexion will have upto nine months (and an additional three months at Hexion's election), plusunder certain circumstances a further 90-day extension, to close the Merger.The Merger Agreement generally can be terminated by either party if the Mergeris not consummated within that time. We cannot predict the exact timing of theeffective time of the Merger or whether the Merger will be consummated becauseit is subject to certain conditions which are not within our control, such asexpiration of waiting periods or grants of approvals under competition laws incertain jurisdictions, including the United States and the European Union. Wedo not expect the Merger to occur prior to the end of the 2007 calendar year.

The Merger Agreement also contains certain terminationrights, including if our board of directors or a committee thereof changes itsrecommendation to our stockholders in connection with a superior proposal (asdefined in the Merger Agreement), and provides for break-up fees in variouscircumstances. Pursuant to the Merger Agreement, we have agreed to pay Hexion afee of $225 million plus an amount equal to $100 million, representing theportion of the $200 million termination fee paid to Basell that was funded byHexion, if we or Hexion terminates the Merger Agreement in certaincircumstances, including where (i) our board of directors or the transactioncommittee thereof has withdrawn, modified or changed, in any manner that isadverse to Hexion, its approval or recommendation that holders of our commonstock approve and adopt the Merger Agreement and the Merger; (ii) a tender orexchange offer that would constitute a competing proposal (as defined in theMerger Agreement) is commenced and our board of directors or the transactioncommittee thereof fails to recommend against acceptance of such tender orexchange offer within 10 business days; or (iii) we, our board of directors orthe transaction committee thereof has approved or recommended any competingproposal or approves any agreement relating to any competing proposal (otherthan a permitted confidentiality agreement).

We have alsoagreed that if either we or Hexion terminates the Merger Agreement afterfailure of our common stockholders to adopt the Merger Agreement and, within 12months after the date of the stockholders' meeting, we enter into a definitiveagreement with respect to or consummate a competing proposal, then we haveagreed to pay Hexion at the closing or other consummation of such competingproposal: 

·      theReimbursement Amount if, at the time of the meeting, less than 50.1% of thetotal issued and outstanding voting power of our common stock is contractuallycommitted to vote in favor of the adoption of the Merger Agreement; or 

·      a feeof $225 million plus the Reimbursement Amount if, at the time of the meeting,there existed a publicly announced bona fide competing proposal that was notwithdrawn at least five business days prior to the date of the meeting.

Hexion has agreedin the Merger Agreement to pay us a fee of $325 million if: 

·      (i) eitherwe or Hexion terminate the Merger Agreement because a governmental agency hasissued a final non-appealable order, decree, ruling or injunction or taken anyother action permanently restraining, enjoining or otherwise prohibiting theconsummation of the Merger or any law or regulation is adopted that makesconsummation of the Merger illegal or otherwise prohibited and (ii) at the sametime there exists an Antitrust Prohibition prohibiting the consummation of theMerger; 

·      eitherwe or Hexion terminate the Merger Agreement because the Merger has not beenconsummated by the termination date and the condition to consummation of theMerger related to the receipt of regulatory approvals has not been met or thereexists an Antitrust Prohibition; 

·      weterminate the Merger Agreement due to a breach by Hexion or Merger Sub of theircovenants related to making filings and seeking and obtaining approval ofregulatory authorities or their covenants related to obtaining the requiredfinancing; or 

·      weterminate the Merger Agreement because Hexion fails to consummate the Mergerwhen all of the conditions to its obligations to close have been satisfied orwaived (except those conditions that, by their nature, can only be satisfied atclosing) and the Merger has not been consummated on or prior to the terminationdate.

52

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We and Hexion have agreed that the non-terminatingparty will pay to the terminating party the Reimbursement Amount if the MergerAgreement is terminated by either party as a result of a willful or intentionalbreach by the other party. In addition, no termination of the Merger Agreementwill relieve any party from liability for damages for a knowing and intentionalbreach of any covenant under the Merger Agreement.

In connection with the execution of the MergerAgreement, Hexion entered into the Voting Agreements with certain stockholders,including MatlinPatterson, the Huntsman family and the Fidelity Charitable GiftFund, who at the time of signing collectively owned approximately 57% of ouroutstanding common stock. Pursuant to the terms of the Voting Agreements, thestockholders that are a party thereto have agreed to vote the shares of commonstock that they hold as of the record date in favor of the adoption of theMerger Agreement and against any competing proposal. The Voting Agreementbinding MatlinPatterson requires it to retain in HMP Equity Trust at least19,870,000 shares (or 9.0% of our outstanding common stock) through the closingof the Merger. Such 19,870,000 shares, however, may be sold if we agree thatcertain criteria are satisfied or if the new owner grants all voting rightswith respect to the purchased shares to HMP Equity Trust or to Jon M. Huntsman.At present, HMP Equity Trust continues to hold such 19,870,000 shares. However,on August 6, 2007, MatlinPatterson sold 56,979,062 shares. Accordingly, lessthan a majority of our shares of outstanding common stock are subject to theVoting Agreements.

***PendingMetrochem Acquisition***

On June 29, 2007, we signed an agreement to acquire the Baroda divisionof Metrochem Industries Ltd for $46.5 million in cash.  The division to be acquired by us is atextile dyes and intermediates manufacturer based in Baroda, India. Thetransaction, which is subject to regulatory approvals, is expected to close inJanuary 2008.

***North AmericanBase Chemicals and Polymers Business Assets***

On February 15, 2007, we entered into the OriginalAgreement pursuant to which FHR agreed to acquire our North American basechemicals and polymers business assets for approximately $456 million in cash,plus the value of inventory on the date of closing. We will retain otherelements of working capital, including accounts receivable, 

53

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**accountspayable and certain accrued liabilities, which will be liquidated for cash inthe ordinary course of business.  On June22, 2007, we entered into the Amended and Restated Agreement with FHR thatamends certain terms of the Original Agreement to, among other things, providefor the closing of the North American Polymers Disposition on August 1, 2007for $150 million plus the value of associated inventory on an average actualcost basis.  We received totalconsideration for the North American Polymers Disposition of approximately $348million, which is subject to post-closing adjustments.  The net proceeds from the North AmericanPolymers Disposition were used to repay debt. As of June 22, 2007, the North American polymers business was classifiedas held for sale and its results of operations for current and prior periodshave been classified as discontinued operations in our financial statements inaccordance with SFAS No. 144.  Werecorded a pretax impairment charge of $240.0 million during the three monthsended June 30, 2007 related to the North American Polymers Disposition.**

The Amended and Restated Agreement also provides forthe separate closing of the Pending U.S. Base Chemicals Disposition for theremaining $306 million of sales price plus the value of associated inventory onan average actual cost basis (approximately $60 million at June 30, 2007),following the re-start of our Port Arthur, Texas olefins manufacturing facilitywhich is expected during the fourth quarter of 2007. For more information, see“Note 4. Business Dispositions and Combinations – Agreement to Sell U.S. BaseChemicals Business” and “Note 17. Casualty Losses and Insurance Recoveries—PortArthur, Texas Plant Fire” to our condensed consolidated financial statements(unaudited) included elsewhere in this report. As of June 30, 2007, theseassets were classified as held and used in accordance with SFAS No. 144 becausethese assets were not immediately available for sale in their present conditiondue to the required repair and restart of the Port Arthur, Texas facility. Wetested these assets for recoverability using expected future cash flows,including the expected proceeds from the Port Arthur fire insurance recovery,and concluded that the expected future cash flows were in excess of thecarrying value of the business expected to be sold. Therefore, we did notrecognize an impairment charge as of June 30, 2007. We will continue to assessthese assets for recoverability during 2007 through the sale date. Upon therestart of the Port Arthur facility, we expect that the carrying value of thebusiness to be sold, which will increase as we rebuild the plant, will exceedthe sales price and we will recognize a loss on disposal. We expect to incur anestimated pretax loss in connection with the Pending U.S. Base ChemicalsDisposition of between $150 million and $175 million.

**RESULTS OF OPERATIONS**

For each of ourCompany and Huntsman International, the following tables set forth the unauditedcondensed consolidated results of operations for the six months ended June 30,2007 and 2006 (dollars in millions):

54

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**Huntsman Corporation**
| ** **                                                                       | ** ** | **Three months ended** | ** ** | ** **  | ** ** | **Six months ended** | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------|------------|--------------------------------|------------|-------------|------------|
| ** **                                                                       | ** ** | **June 30,**                | ** ** | **Percent** | ** ** | **June 30,**              | ** ** | **Percent** | ** ** |
| ** **                                                                       | ** ** | **2007**                         | ** ** | **2006**    | ** ** | **Change**                     | ** ** | **2007**    | ** ** | **2006** | ** ** | **Change** | ** ** |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total  revenues**                                                              |       | $                                | 2,517.6    |        | $          | 2,389.0                        |       | 5           | %          | $ | 4,804.5 |   | $ | 4,688.0 |   | 2 | % |
| **Cost of  goods sold**                                                          |       | 2,137.9                          |       | 1,993.6     |       | 7                              | %          | 4,032.8     |       | 3,934.7 |   | 2 | % |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Gross  profit**                                                                |       | 379.7                            |       | 395.4       |       | (4                             | )%         | 771.7       |       | 753.3 |   | 2 | % |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expense                                                               |       | 257.7                            |       | 102.8       |       | 151                            | %          | 504.4       |       | 291.5 |   | 73 | % |
| Restructuring,  impairment and plant closing costs                               |       | 13.2                             |       | 8.8         |       | 50                             | %          | 24.4        |       | 17.1 |   | 43 | % |
| **Operating  income**                                                            |       | 108.8                            |       | 283.8       |       | (62                            | )%         | 242.9       |       | 444.7 |   | (45 | )% |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense, net                                                           |       | (70.0                            | )          | (94.6       | )          | (26                            | )%         | (143.8      | )          | (181.4 | ) | (21 | )% |
| Loss on sale of  accounts receivable                                             |       | (4.7                             | )          | (3.6        | )          | 31                             | %          | (9.0        | )          | (5.9 | ) | 53 | % |
| Equity in income  of investment in unconsolidated affiliates                     |       | 5.1                              |       | 1.4         |       | 264                            | %          | 7.3         |       | 2.1 |   | 248 | % |
| Other (expense)  income                                                          |       | (1.3                             | )          | 0.6         |       | NM                             |       | (2.1        | )          | 0.1 |   | NM |   |
| **Income  from continuing operations before income taxes and minority interest** |       | 37.9                             |       | 187.6       |       | (80                            | )%         | 95.3        |       | 259.6 |   | (63 | )% |
| Income tax  benefit (expense)                                                    |       | 8.0                              |       | (17.4       | )          | NM                             |       | (4.4        | )          | (32.3 | ) | (86 | )% |
| Minority  interests in subsidiaries’ loss (income)                          |       | 11.1                             |       | (0.3        | )          | NM                             |       | 10.7        |       | (0.7 | ) | NM |   |
| **Income  from continuing operations**                                           |       | 57.0                             |       | 169.9       |       | (66                            | )%         | 101.6       |       | 226.6 |   | (55 | )% |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| (Loss) income  from discontinued operations, net of tax                          |       | (119.0                           | )          | 42.5        |       | NM                             |       | (119.4      | )          | 54.8 |   | NM |   |
| Extraordinary  (loss) gain on the acquisition of a business, net of tax of nil   |       | (8.9                             | )          | 50.5        |       | NM                             |       | (6.5        | )          | 50.5 |   | NM |   |
| **Net  (loss) income**                                                           |       | (70.9                            | )          | 262.9       |       | NM                             |       | (24.3       | )          | 331.9 |   | NM |   |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense, net                                                           |       | 70.0                             |       | 94.6        |       | (26                            | )%         | 143.8       |       | 181.4 |   | (21 | )% |
| Income tax  (benefit) expense—continuing operations                         |       | (8.0                             | )          | 17.4        |       | NM                             |       | 4.4         |       | 32.3 |   | (86 | )% |
| Income tax  (benefit) expense—discontinued operations                       |       | (76.3                            | )          | 6.9         |       | NM                             |       | (76.3       | )          | 0.4 |   | NM |   |
| Depreciation and  amortization                                                   |       | 107.8                            |       | 117.5       |       | (8                             | )%         | 217.0       |       | 234.5 |   | (7 | )% |
| **EBITDA****(1)**                                                                |       | $                                | 22.6       |        | $          | 499.3                          |       | (95         | )%         | $ | 264.6 |   | $ | 780.5 |   | (66 | )% |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash  provided by operating activities                                       |       |                             |       |        |       |                           |       | $           | 85.3       |   | $ | 323.5 |   | (74 | )% |
| Net cash used in  investing activites                                            |       |                             |       |        |       |                           |       | (250.1      | )          | (186.3 | ) | 34 | % |
| Net cash provided by  (used in) financing activities                             |       |                             |       |        |       |                           |       | 63.9        |       | (78.0 | ) | NM |   |

 

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NM—Not Meaningful

55

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**Huntsman International**
| ** **                                                                       | ** ** | **Three months ended** | ** ** | ** **  | ** ** | **Six months ended** | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------|------------|--------------------------------|------------|-------------|------------|
| ** **                                                                       | ** ** | **June 30,**                | ** ** | **Percent** | ** ** | **June 30,**              | ** ** | **Percent** | ** ** |
| ** **                                                                       | ** ** | **2007**                         | ** ** | **2006**    | ** ** | **Change**                     | ** ** | **2007**    | ** ** | **2006** | ** ** | **Change** | ** ** |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total  revenues**                                                              |       | $                                | 2,517.6    |        | $          | 2,389.0                        |       | 5           | %          | $ | 4,804.5 |   | $ | 4,688.0 |   | 2 | % |
| **Cost of  goods sold**                                                          |       | 2,131.3                          |       | 1,990.3     |       | 7                              | %          | 4,024.7     |       | 3,927.4 |   | 2 | % |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Gross  profit**                                                                |       | 386.3                            |       | 398.7       |       | (3                             | )%         | 779.8       |       | 760.6 |   | 3 | % |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expense                                                               |       | 257.5                            |       | 102.1       |       | 152                            | %          | 504.2       |       | 290.0 |   | 74 | % |
| Restructuring,  impairment and plant closing costs                               |       | 13.2                             |       | 8.8         |       | 50                             | %          | 24.4        |       | 17.1 |   | 43 | % |
| **Operating  income**                                                            |       | 115.6                            |       | 287.8       |       | (60                            | )%         | 251.2       |       | 453.5 |   | (45 | )% |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense, net                                                           |       | (70.1                            | )          | (95.7       | )          | (27                            | )%         | (144.4      | )          | (183.7 | ) | (21 | )% |
| Loss on sale of  accounts receivable                                             |       | (4.7                             | )          | (3.6        | )          | 31                             | %          | (9.0        | )          | (5.9 | ) | 53 | % |
| Equity in income  of investment in unconsolidated affiliates                     |       | 5.1                              |       | 1.4         |       | 264                            | %          | 7.3         |       | 2.1 |   | 248 | % |
| Other (expense)  income                                                          |       | (1.3                             | )          | 0.6         |       | NM                             |       | (2.6        | )          | 0.1 |   | NM |   |
| **Income  from continuing operations before income taxes and minority interest** |       | 44.6                             |       | 190.5       |       | (77                            | )%         | 102.5       |       | 266.1 |   | (61 | )% |
| Income tax  expense                                                              |       | (18.6                            | )          | (58.2       | )          | (68                            | )%         | (42.1       | )          | (78.4 | ) | (46 | )% |
| Minority  interests in subsidiaries’ loss (income)                          |       | 11.1                             |       | (0.3        | )          | NM                             |       | 10.7        |       | (0.7 | ) | NM |   |
| **Income  from continuing operations**                                           |       | 37.1                             |       | 132.0       |       | (72                            | )%         | 71.1        |       | 187.0 |   | (62 | )% |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| (Loss) income  from discontinued operations, net of tax                          |       | (119.0                           | )          | 42.5        |       | NM                             |       | (119.4      | )          | 54.8 |   | NM |   |
| Extraordinary  (loss) gain on the acquisition of a business, net of tax of nil   |       | (8.9                             | )          | 46.1        |       | NM                             |       | (6.5        | )          | 46.1 |   | NM |   |
| **Net  (loss) income**                                                           |       | (90.8                            | )          | 220.6       |       | NM                             |       | (54.8       | )          | 287.9 |   | NM |   |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense, net                                                           |       | 70.1                             |       | 95.7        |       | (27                            | )%         | 144.4       |       | 183.7 |   | (21 | )% |
| Income tax  expense—continuing operations                                   |       | 18.6                             |       | 58.2        |       | (68                            | )%         | 42.1        |       | 78.4 |   | (46 | )% |
| Income tax  (benefit) expense—discontinued operations                       |       | (76.3                            | )          | 6.9         |       | NM                             |       | (76.3       | )          | 0.4 |   | NM |   |
| Depreciation and  amortization                                                   |       | 102.0                            |       | 110.7       |       | (8                             | )%         | 205.6       |       | 220.9 |   | (7 | )% |
| **EBITDA****(1)**                                                                |       | $                                | 23.6       |        | $          | 492.1                          |       | (95         | )%         | $ | 261.0 |   | $ | 771.3 |   | (66 | )% |
| ** **                                                                       | ** ** | ** **                       | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash  provided by operating activities                                       |       |                             |       |        |       |                           |       | $           | 60.0       |   | $ | 318.1 |   | (81 | )% |
| Net cash used in  investing activites                                            |       |                             |       |        |       |                           |       | (257.3      | )          | (193.5 | ) | 33 | % |
| Net cash provided by  (used in) financing activities                             |       |                             |       |        |       |                           |       | 113.6       |       | (69.0 | ) | NM |   |

 

----

NM—Not Meaningful

56

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For each of ourCompany and Huntsman International, the following tables set forth certainitems of (expense) income included in EBITDA (dollars in millions):

**Huntsman Corporation**
| ** **                                                    | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Loss on early  extinguishment of debt                         |       | $                                                   | (0.4       | )                                                 | $          | — |   | $ | (1.8 | ) | $ | — |   |
| Loss on accounts  receivable securitization program           |       | (4.7                                                | )          | (3.6                                              | )          | (9.0 | ) | (5.9 | ) |
| Legal and  contract settlement charges, net                   |       | (6.3                                                | )          | —                                            |       | (6.3 | ) | — |   |
| Amounts included  in discontinued operations                  |       | (184.6                                              | )          | 75.0                                              |       | (174.3 | ) | 107.1 |   |
| (Loss) gain on  sale of businesses/assets, net                |       | (0.7                                                | )          | 92.4                                              |       | 1.6 |   | 92.4 |   |
| Recovery of  property losses                                  |       | —                                              |       | 8.8                                               |       | — |   | 8.8 |   |
| Extraordinary (loss)  gain on the acquisition of a business   |       | (8.9                                                | )          | 50.5                                              |       | (6.5 | ) | 50.5 |   |
|                                                          |       |                                                |       |                                              |       |   |   |   |   |
| Restructuring,  impairment and plant closing (costs) credits: |       |                                                |       |                                              |       |   |   |   |   |
| Polyurethanes                                                 |       | —                                              |       | —                                            |       | — |   | 2.2 |   |
| Materials and Effects                                         |       | (8.6                                                | )          | 0.3                                               |       | (14.4 | ) | (2.0 | ) |
| Performance Products                                          |       | (0.3                                                | )          | (0.5                                              | )          | (0.4 | ) | (1.5 | ) |
| Pigments                                                      |       | 1.0                                                 |       | (0.1                                              | )          | 1.5 |   | (2.6 | ) |
| Polymers                                                      |       | —                                              |       | —                                            |       | — |   | — |   |
| Base Chemicals - Port Arthur outage                           |       | —                                              |       | (9.4                                              | )          | — |   | (9.4 | ) |
| Base Chemicals - other                                        |       | —                                              |       | 1.6                                               |       | — |   | 1.1 |   |
| Corporate and other                                           |       | (5.3                                                | )          | (0.7                                              | )          | (11.1 | ) | (4.9 | ) |
| Total restructuring, impairment and plant closing  costs      |       | (13.2                                               | )          | (8.8                                              | )          | (24.4 | ) | (17.1 | ) |
|                                                          |       |                                                |       |                                              |       |   |   |   |   |
| **Total**                                                     |       | $                                                   | (218.8     | )                                                 | $          | 214.3 |   | $ | (220.7 | ) | $ | 235.8 |   |

 

**Huntsman International**
| ** **                                                    | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Loss on early  extinguishment of debt                         |       | $                                                   | (0.4       | )                                                 | $          | — |   | $ | (2.2 | ) | $ | — |   |
| Loss on accounts  receivable securitization program           |       | (4.7                                                | )          | (3.6                                              | )          | (9.0 | ) | (5.9 | ) |
| Legal and  contract settlement charges, net                   |       | (6.3                                                | )          | —                                            |       | (6.3 | ) | — |   |
| Amounts included  in discontinued operations                  |       | (184.6                                              | )          | 75.0                                              |       | (174.3 | ) | 107.1 |   |
| (Loss) gain on  sale of business/assets, net                  |       | (0.7                                                | )          | 92.4                                              |       | 1.6 |   | 92.4 |   |
| Recovery of  property losses                                  |       | —                                              |       | 8.8                                               |       | — |   | 8.8 |   |
| Extraordinary (loss)  gain on the acquisition of a business   |       | (8.9                                                | )          | 46.1                                              |       | (6.5 | ) | 46.1 |   |
|                                                          |       |                                                |       |                                              |       |   |   |   |   |
| Restructuring,  impairment and plant closing (costs) credits: |       |                                                |       |                                              |       |   |   |   |   |
| Polyurethanes                                                 |       | —                                              |       | —                                            |       | — |   | 2.2 |   |
| Materials and Effects                                         |       | (8.6                                                | )          | 0.3                                               |       | (14.4 | ) | (2.0 | ) |
| Performance Products                                          |       | (0.3                                                | )          | (0.5                                              | )          | (0.4 | ) | (1.5 | ) |
| Pigments                                                      |       | 1.0                                                 |       | (0.1                                              | )          | 1.5 |   | (2.6 | ) |
| Polymers                                                      |       | —                                              |       | —                                            |       | — |   | — |   |
| Base Chemicals - Port Arthur outage                           |       | —                                              |       | (9.4                                              | )          | — |   | (9.4 | ) |
| Base Chemicals - other                                        |       | —                                              |       | 1.6                                               |       | — |   | 1.1 |   |
| Corporate and other                                           |       | (5.3                                                | )          | (0.7                                              | )          | (11.1 | ) | (4.9 | ) |
| Total restructuring, impairment and plant closing  costs      |       | (13.2                                               | )          | (8.8                                              | )          | (24.4 | ) | (17.1 | ) |
|                                                          |       |                                                |       |                                              |       |   |   |   |   |
| **Total**                                                     |       | $                                                   | (218.8     | )                                                 | $          | 209.9 |   | $ | (221.1 | ) | $ | 231.4 |   |

 

57

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----

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

We believe that net income (loss) is the performance measure calculatedand presented in accordance with GAAP that is most directly comparable toEBITDA and that cash provided by operating activities is the liquidity measurecalculated and presented in accordance with GAAP that is most directlycomparable to EBITDA.

For each of our Company and Huntsman International, the followingtables reconcile EBITDA to net (loss) income and to net cash provided byoperations (dollars in millions):

58

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**Huntsman Corporation**
| ** **                                                              | ** ** | **Six months ended June 30,** | ** ** | **Percent** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------|------------|
| ** **                                                              | ** ** | **2007**                                          | ** ** | **2006**    | ** ** | **Change** | ** ** |
| ** **                                                              | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| EBITDA                                                                  |       | $                                                 | 264.6      |        | $          | 780.5 |   | (66 | )% |
| Depreciation and  amortization                                          |       | (217.0                                            | )          | (234.5      | )          | (7 | )% |
| Interest  expense, net                                                  |       | (143.8                                            | )          | (181.4      | )          | (21 | )% |
| Income tax  expense - continuing operations                             |       | (4.4                                              | )          | (32.3       | )          | (86 | )% |
| Income tax  benefit (expense) -  discontinued operations                |       | 76.3                                              |       | (0.4        | )          | NM |   |
| Net (loss)  income                                                      |       | (24.3                                             | )          | 331.9       |       | NM |   |
| Extraordinary  loss (gain) on the acquisition of a business, net of tax |       | 6.5                                               |       | (50.5       | )          | NM |   |
| Equity in income  of investment in unconsolidated affiliates            |       | (7.3                                              | )          | (2.1        | )          | 248 | % |
| Depreciation and  amortization                                          |       | 217.0                                             |       | 234.5       |       | (7 | )% |
| Gain on disposal  of businesses/assets                                  |       | (1.6                                              | )          | (92.4       | )          | (98 | )% |
| Noncash  restructuring, impairment and plant closing costs              |       | 251.7                                             |       | 12.3        |       | NM |   |
| Loss on early  extinguishment of debt                                   |       | 1.8                                               |       | —      |       | NM |   |
| Noncash interest  expense                                               |       | 2.0                                               |       | 2.1         |       | (5 | )% |
| Deferred income  taxes                                                  |       | (88.6                                             | )          | 18.4        |       | NM |   |
| Unrealized  (gain) loss on foreign currency transactions                |       | (7.5                                              | )          | 26.9        |       | NM |   |
| Other, net                                                              |       | 15.4                                              |       | 2.0         |       | 670 | % |
| Changes in  operating assets and liabilites                             |       | (279.8                                            | )          | (159.6      | )          | 75 | % |
| Net cash  provided by operating activities                              |       | $                                                 | 85.3       |        | $          | 323.5 |   | (74 | )% |

 

**HuntsmanInternational**
| ** **                                                              | ** ** | **Six months ended June 30,** | ** ** | **Percent** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------|------------|
| ** **                                                              | ** ** | **2007**                                          | ** ** | **2006**    | ** ** | **Change** | ** ** |
| ** **                                                              | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| EBITDA                                                                  |       | $                                                 | 261.0      |        | $          | 771.3 |   | (66 | )% |
| Depreciation and  amortization                                          |       | (205.6                                            | )          | (220.9      | )          | (7 | )% |
| Interest  expense, net                                                  |       | (144.4                                            | )          | (183.7      | )          | (21 | )% |
| Income tax  expense - continuing operations                             |       | (42.1                                             | )          | (78.4       | )          | (46 | )% |
| Income tax  benefit (expense) -  discontinued operations                |       | 76.3                                              |       | (0.4        | )          | NM |   |
| Net (loss)  income                                                      |       | (54.8                                             | )          | 287.9       |       | NM |   |
| Extraordinary  loss (gain) on the acquisition of a business, net of tax |       | 6.5                                               |       | (46.1       | )          | NM |   |
| Equity in income  of investment in unconsolidated affiliates            |       | (7.3                                              | )          | (2.1        | )          | 248 | % |
| Depreciation and  amortization                                          |       | 205.6                                             |       | 220.9       |       | (7 | )% |
| Gain on disposal  of businesses/assets                                  |       | (1.6                                              | )          | (92.4       | )          | (98 | )% |
| Noncash  restructuring, impairment and plant closing costs              |       | 251.7                                             |       | 12.3        |       | NM |   |
| Loss on early  extinguishment of debt                                   |       | 2.2                                               |       | —      |       | NM |   |
| Noncash interest  expense                                               |       | 2.3                                               |       | 4.1         |       | (44 | )% |
| Deferred income  taxes                                                  |       | (50.9                                             | )          | 64.5        |       | NM |   |
| Unrealized  (gain) loss on foreign currency transactions                |       | (7.5                                              | )          | 26.9        |       | NM |   |
| Other, net                                                              |       | (13.2                                             | )          | 4.4         |       | NM |   |
| Changes in  operating assets and liabilites                             |       | (273.0                                            | )          | (162.3      | )          | 68 | % |
| Net cash provided by operating  activities                              |       | $                                                 | 60.0       |        | $          | 318.1 |   | (81 | )% |

 

----

NM—Not Meaningful

59

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**Three Months Ended June 30, 2007 Compared withThree Months Ended June 30, 2006**

For the three monthsended June 30, 2007, we had a net loss of $70.9 million on revenues of $2,517.6million, compared with net income of $262.9 million on revenues of $2,389.0million for the 2006 period. For the three months ended June 30, 2007, HuntsmanInternational had a net loss of $90.8 million on revenues of $2,517.6 millioncompared with net income of $220.6 million on revenues of $2,389.0 million forthe 2006 period. The decrease of $333.8 million in our net income and thedecrease of $311.4 million in Huntsman International’s net income were theresult of the following items:

·                  Revenuesfor the three months ended June 30, 2007 increased by $128.6 million as comparedwith the 2006 period due principally to higher sales volumes in ourPolyurethanes, Pigments and Materials and Effects segments and higher averageselling prices in our Polyurethanes, Materials and Effects and PerformanceProducts segments.  Higher volumes andselling prices in the above segments were partially offset by lower salesvolumes in our Performance Products and Base Chemicals segments and loweraverage selling prices in our Pigments and Base Chemicals segments. For moreinformation, see “—Segment Analysis” below.

·                  Ourgross profit and the gross profit of Huntsman International for the threemonths ended June 30, 2007 decreased by $15.7 million and $12.4 million, or 4%and 3%, respectively, as compared with the 2006 period.  Higher gross profit in our Materials andEffects segment resulting from the Textiles Effects Acquisition on June 30,2006 was more than offset by decreased gross profit in our Polyurethanes,Performance Products, Pigments, Polymers and Base Chemicals segments. For more information,see “—Segment Analysis” below.

·                  Ouroperating expenses and the operating expenses of Huntsman International for thethree months ended June 30, 2007 increased by $154.9 million and $155.4million, respectively, as compared with the 2006 period. The increase wasprimarily due to the Textile Effects Acquisition on June 30, 2006, partiallyoffset by a reduction in operating expenses and gain on disposal as a result ofthe sale of our U.S. butadiene and MTBE business on June 27, 2006.

·                  Restructuring,impairment and plant closing costs for the three months ended June 30, 2007increased to $13.2 million from $8.8 million in the 2006 period. For moreinformation concerning restructuring activities, see “Note 6. Restructuring,Impairment and Plant Closing Costs” to our condensed consolidated financialstatements (unaudited) included elsewhere in this report.

·                  Our net interest expense and the netinterest expense of Huntsman International for the three months endedJune 30, 2007 decreased by $24.6 million and $25.6 million, or 26% and 27%,respectively, as compared with the 2006 period. This decrease was primarily dueto lower average debt balances which resulted from the repayment of debt andfrom lower average interest rates.

·                    Our income tax benefit increased by $25.4million to a benefit of $8.0 million for the three months ended June 30, 2007as compared with an expense of $17.4 million for the same period in 2006.Huntsman International’s income tax expense decreased by $39.6 million to anexpense of $18.6 million for the three months ended June 30, 2007 as comparedwith an expense of $58.2 million for the same period in 2006.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate.  Our tax expense decreased largely due todecreased pre-tax income and the release of the valuation allowance on U.S. netdeferred tax assets.  HuntsmanInternational’s tax expense decreased largely due to decreased pre-taxincome.  On July 19, 2007, theUnited Kingdom reduced its statutory tax rate from 30% to 28% for periodsbeginning after April 1, 2008.  Thischange in statutory rate will result in a decrease to our United Kingdomdeferred tax assets of approximately $7.7 million with a corresponding increaseto income tax expense in the third quarter of 2007.

·                  Lossfrom discontinued operations for the three months ended June 30, 2007 increasedby $161.5 million as compared with the same period in 2006. The loss from discontinued operations representsthe 

60

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operating results and impairmentof our North American polymers business, our European base chemicals andpolymers business and our TDI business. For more information, see “Note 3.Discontinued Operations” to our condensed consolidated financial statements(unaudited) included elsewhere in this report.

·                  OnJune 30, 2006, we completed the Textile Effects Acquisition. Because the fairvalue of the acquired assets and liabilities assumed exceeded the acquisitionprice, the values of all long-lived assets were reduced to zero and we recordedan extraordinary gain on the acquisition of this business in 2006. During thethree months ended June 30, 2007, we adjusted the preliminary purchase price allocationand recorded a reduction to our extraordinary gain on the acquisition of $8.9million. For more information, see “Note 4. Business Dispositions andCombinations—Textile Effects Acquisition” to our condensed consolidatedfinancial statements (unaudited) included elsewhere in this report.

61

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**Segment Analysis**

Beginning in the secondquarter of 2007, our Australian styrenics business was transferred from ourPolymers segment to Corporate and other. All segment information for prior periods has been restated to reflectthis transfer.

Thefollowing table sets forth the revenues and EBITDA for each of our operatingsegments (dollars in millions):
| ** **                  | ** ** | **Three months ended June 30,** | ** ** | **Percent** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **                  | ** ** | **2007**                                            | ** ** | **2006**    | ** ** | **Change** | ** ** |
| **Revenues**                | ** ** | ** **                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
| Polyurethanes               |       | $                                                   | 1,010.2    |        | $          | 925.1 |   | 9 | % |
| Materials and  Effects      |       | 621.5                                               |       | 335.3       |       | 85 | % |
| Performance  Products       |       | 548.4                                               |       | 543.4       |       | 1 | % |
| Pigments                    |       | 293.2                                               |       | 276.0       |       | 6 | % |
| Polymers                    |       | —                                              |       | —      |       | — |   |
| Base Chemicals              |       | 141.3                                               |       | 350.6       |       | (60 | )% |
| Eliminations and  other     |       | (97.0                                               | )          | (41.4       | )          | 134 | % |
| **Total**                   |       | $                                                   | 2,517.6    |        | $          | 2,389.0 |   | 5 | % |
| ** **                  | ** ** | ** **                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Huntsman  Corporation**   | ** ** | ** **                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
|                        |       |                                                |       |        |       |   |   |
| **Segment  EBITDA**         | ** ** | ** **                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
| Polyurethanes               |       | $                                                   | 158.6      |        | $          | 180.5 |   | (12 | )% |
| Materials and  Effects      |       | 52.5                                                |       | 34.2        |       | 54 | % |
| Performance  Products       |       | 33.2                                                |       | 77.5        |       | (57 | )% |
| Pigments                    |       | 21.9                                                |       | 31.8        |       | (31 | )% |
| Polymers                    |       | (219.9                                              | )          | 35.2        |       | NM |   |
| Base Chemicals              |       | 34.9                                                |       | 138.1       |       | (75 | )% |
| Corporate and  other        |       | (58.6                                               | )          | 2.0         |       | NM |   |
| **Total**                   |       | $                                                   | 22.6       |        | $          | 499.3 |   | (95 | )% |
|                        |       |                                                |       |        |       |   |   |
| **Huntsman  International** | ** ** | ** **                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
|                        |       |                                                |       |        |       |   |   |
| **Segment  EBITDA**         | ** ** | ** **                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
| Polyurethanes               |       | $                                                   | 158.6      |        | $          | 180.5 |   | (12 | )% |
| Materials and  Effects      |       | 52.5                                                |       | 34.2        |       | 54 | % |
| Performance  Products       |       | 33.2                                                |       | 77.5        |       | (57 | )% |
| Pigments                    |       | 21.9                                                |       | 31.8        |       | (31 | )% |
| Polymers                    |       | (219.9                                              | )          | 35.2        |       | NM |   |
| Base Chemicals              |       | 34.9                                                |       | 138.1       |       | (75 | )% |
| Corporate and  other        |       | (57.6                                               | )          | (5.2        | )          | NM |   |
| **Total**                   |       | $                                                   | 23.6       |        | $          | 492.1 |   | (95 | )% |

----

NM—Not Meaningful

***Polyurethanes***

For the threemonths ended June 30, 2007, Polyurethanes segment revenues increased by $85.1million, or 9%, as compared with the 2006 period. This increase was primarily aresult of higher overall sales volumes and higher average selling prices. Thesales volume increase was due to a 4% increase in MDI volumes, partially offsetby 

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reduced MTBE volumes. The increase in MDI salesvolumes was driven by strong demand in insulation-related applications,primarily in Europe and Asia due to thecontinued drive for improved insulation.  MTBE sales volumes during the three monthsended June 30, 2007 declined by 10% as compared with the 2006 period, primarily due to an unplanned plant outagein June 2007.  Average MDI sellingprices in the three months ended June 30, 2007 increased by 7% as compared withthe same period in 2006. Higher average MDI selling prices were primarily in response to increased raw material costs. Average MTBE sellingprices in the three months ended June 30, 2007 increased by 20% as comparedwith the same period in 2006 primarily due to solid market demand and tight supply.

For the threemonths ended June 30, 2007, Polyurethanes segment EBITDA decreased by $21.9million, or 12%, as compared with the 2006 period. Segment EBITDA decreasedprimarily on lower MTBE and urethanes margins as raw material and energycosts increased more thanaverage selling prices. Segment EBITDA was also negatively impacted by increased operating costs in China.

***Materials and Effects***

Materials andEffects segment revenues for the three months ended June 30, 2007 increased by$286.2 million, or 85%, as compared with the same period in 2006. Thisincrease is primarily due to the Textile Effects Acquisition on June 30, 2006.The textile effects business contributed $260.7 million of revenue for thethree months ended June 30, 2007, while advanced materials revenues for thesame period increased by $25.5 million, or 8%, as compared with the 2006period. The increase in advanced materials revenues resulted from a 13%increase in average selling prices, partially offset by a 5% decrease insales volumes. Average selling prices increased due to price increaseinitiatives across most of our major markets and regions, a favorable productmix and the positive impact of currency fluctuations as the U.S. dollarweakened against the relevant European currencies. Sales volumes decreasedmainly in Europe and the Americas as a result of lower demand in our coatings,construction and sports market groups.

Materials andEffects segment EBITDA was $52.5 million for the three months ended June 30,2007, an increase of 54% as compared with segment EBITDA of $34.2 million forthe same period in 2006. Segment EBITDA increased primarily as a result of theTextile Effects Acquisition on June 30, 2006. Segment EBITDA from  the textile effects business increased by$14.2 million, while segment EBITDA resulting from advanced materialsoperations increased by $4.1 million, or 12%, as compared with the same periodin 2006 as a result of higher contribution margins on increased sales,partially offset by higher indirect costs. During the three months ended June 30, 2007 and 2006, our Materials andEffects segment recorded restructuring and plant closing charges of $8.6million and a credit of $0.3 million, respectively. For more informationconcerning restructuring activities, see “Note 6. Restructuring, Impairment andPlant Closing Costs” to our condensed consolidated financial statements(unaudited) included elsewhere in this report.

***Performance Products***

For the threemonths ended June 30, 2007, Performance Products revenues increased by $5.0million, or 1%, as compared with the 2006 period. Sales volumes decreased 2%,due principally to  lower sales ofethylene glycol and ethanolamines. Average selling prices overall increased by3% from the 2006 period, mainly due to a favorable foreign currency impact dueto the weakening of the U.S. dollar against the European and Australiancurrencies, which more than offset the impact of sales mix and lower ethylenederivative pricing.

For the threemonths ended June 30, 2007, Performance Products segment EBITDA decreased by$44.3 million, or 57%, as compared with the 2006 period. The decrease insegment EBITDA resulted primarily from lower margins in our U.S. intermediates operationswhere we incurred an 18 day unplanned outage at our Port Neches, Texasfacility, an $8.0 million adverse swing in LIFO adjustments and higher fixedcosts across the segments.  In addition,during the three months ended June 30, 2007, our Performance Productssegment  recorded a charge of $6.3million relating to the settlement of a legal dispute, whereas, during thethree months ended June 30, 2006, we recorded a gain on sale of real estate of$1.5 million.

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***Pigments***

For the three monthsended June 30, 2007, Pigments segment revenues increased by $17.2 million, or 6%, as compared with the 2006 period. This increaseresulted principally from a 7% increase in sales volumes, offset somewhat by a1% decrease in average selling prices. Sales volumes increased primarily due to higher global customerdemand.  Average selling prices decreasedin local currencies in the European and North American regions due tocompetitive markets, offset somewhat by favorable foreign currency exchangeimpacts on selling prices as the U.S. dollar weakened against the relevantEuropean currencies.

Pigments segmentEBITDA for the three months ended June 30, 2007 decreased by $9.9 million, or 31%, as compared with the 2006 period. Pigments segmentEBITDA was lower primarily due to lower local currency selling prices.

***Polymers***

The operating results of our North American polymers business areclassified as discontinued operations and, accordingly, the revenues of thisbusiness are excluded from the Polymers segment revenues for all periodspresented. The EBITDA of our North American polymers business is included inthe Polymers segment EBITDA for all periods presented.

For the three months ended June 30, 2007, Polymers segment EBITDAdecreased by $255.1 millionto a loss of $219.9 million as compared with EBITDA of $35.2 in the 2006period. This decrease in Polymers segment EBITDA resulted primarily from anincrease in restructuring, impairment and plant closing costs of $240.1million.  During the three months endedJune 30, 2007, the polymers segment recorded an impairment charge of $240.0million in discontinued operations related to the North American PolymersDisposition.  For further information see“Note 3. Discontinued Operations—North American Polymers Business” and “Note 6.Restructuring, Impairment and Plant Closing Costs” to our condensedconsolidated financial statements (unaudited) included elsewhere in thisreport.  Furthermore, EBITDA decreased by$15.0 million due to lower margins, driven primarily by lower average sellingprices.

***Base Chemicals***

The operating results of our European base chemicals and polymersbusiness are classified as discontinued operations and, accordingly, therevenues of this business are excluded from the Base Chemicals segment revenuesfor all periods presented. The EBITDA of our European base chemicals andpolymers business is included in the Base Chemicals segment EBITDA for all periodspresented.

For the threemonths ended June 30, 2007, Base Chemicals revenues decreased by $209.3million, or 60%, as compared with the 2006 period. This decrease was mainly dueto a 56.5% decrease in sales volumes. The sales volume decrease was drivenprincipally by the June 27, 2006 sale of the U.S. butadiene and MTBE business,which contributed revenues of $276.1 million in the second quarter of 2006.Additionally, sales volumes of olefins decreased by 29.3% as compared with thesame period in 2006 as a result of the fire at our Port Arthur, Texasmanufacturing plant. For more information on the Port Arthur fire, see “Note17. Casualty Losses and Insurance Recoveries—Port Arthur, Texas Plant Fire” toour condensed consolidated financial statements (unaudited) included elsewherein this report.

For the threemonths ended June 30, 2007, Base Chemicals segment EBITDA decreased by $103.2million as compared with the 2006 period. This was primarily due to the June27, 2006 sale of the U.S. butadiene and MTBE business, the sale of the Europeanbase chemicals and polymers business on December 29, 2006, and the decrease inthe sales volumes of olefins as a result of the fire at our Port Arthur, Texasmanufacturing plant, offset somewhat by favorable post-closing adjustments tothe loss on disposal of the European base chemicals and polymers business.Segment EBITDA from our discontinued European base chemicals and polymersbusiness was $37.2 million and $41.9 million for the three months ended June30, 2007 and 2006, respectively.

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***Corporate and Other***

Corporate and other items includes unallocatedcorporate overhead, foreign exchange gains and losses, loss on accountsreceivable securitization program, loss on the early extinguishment of debt,other non-operating income and expense, minority interest in subsidiaries’(income) loss, extraordinary gain (loss) on acquisition of a business and theoperating results of our Australian styrenics business. For the three monthsended June 30, 2007, our EBITDA from corporate and other items decreased by $60.6million to a loss of $58.6million from income of $2.0 million for the 2006 period while EBITDA fromcorporate and other items for Huntsman International decreased by $52.4 millionto a loss of $57.6 million from a loss of $5.2 million for the 2006 period.These decreases primarily resulted from a $8.9 million negative adjustment to the extraordinary gain related to theTextile Effects Acquisition in the second quarter of 2007, while in the secondquarter of 2006 we recorded an extraordinary gain of $50.5 million.  The decrease in EBITDA from the extraordinaryloss was partially offset by a reduction of incentive compensation costs.

**Six Months Ended June 30, 2007 Compared with Six MonthsEnded June 30, 2006**

For the six months endedJune 30, 2007, we had a net loss of $24.3 million on revenues of $4,804.5million, compared with net income of $331.9 million on revenues of $4,688.0million for the 2006 period. For the six months ended June 30, 2007, HuntsmanInternational had a net loss of $54.8 million on revenues of $4,804.5 millioncompared with net income of $287.9 million on revenues of $4,688.0 million forthe 2006 period. The decrease of $356.2 million in our net income and thedecrease of $342.7 million in Huntsman International’s net income were theresult of the following items:

·                  Revenuesfor the six months ended June 30, 2007 increased by $116.5 million as comparedwith the 2006 period due principally to higher sales volumes in ourPolyurethanes, Materials and Effects, Performance Products and Pigmentssegments and higher average selling prices in our Polyurethanes, Materials andEffects and Pigments segments.  Highervolumes and selling prices in the above segments were partially offset by lowersales volumes and lower average selling prices in our Base Chemicals segment.For more information, see “—Segment Analysis” below.

·                  Ourgross profit and the gross profit of Huntsman International for the six monthsended June 30, 2007 increased by $18.4 million and $19.2 million, or 2% and 3%,respectively, as compared with the 2006 period. This increase in gross profitwas primarily due to higher gross profit in our Materials and Effects segmentresulting from the Textiles Effects Acquisition on June 30, 2006, which waspartially offset by decreased gross profit in our Polyurethanes, PerformanceProducts, Pigments, Polymers and Base Chemicals segments.  For more information, see “—Segment Analysis”below.

·                  Ouroperating expenses and the operating expenses of Huntsman International for thesix months ended June 30, 2007 increased by $212.9 million and $214.2 million,respectively, as compared with the 2006 period. The increase was primarily dueto the Textile Effects Acquisition on June 30, 2006, partially offset by areduction in operating expenses and gain on disposal as a result of the sale ofour U.S. butadiene and MTBE business on June 27, 2006.

·                  Restructuring,impairment and plant closing costs for the six months ended June 30, 2007increased to $24.4 million from $17.1 million in the 2006 period. For moreinformation concerning restructuring activities, see “Note 6. Restructuring,Impairment and Plant Closing Costs” to our condensed consolidated financialstatements (unaudited) included elsewhere in this report.

·                  Our net interest expense and the netinterest expense of Huntsman International for the six months ended June30, 2007 decreased by $37.6 million and $39.3 million, or 21% and 21%,respectively, as compared with the 2006 period. This decrease was primarily dueto lower average debt balances which resulted from the repayment of debt andfrom lower average interest rates.

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·                    Our income tax expense decreased by $27.9million to an expense of $4.4 million for the six months ended June 30, 2007 ascompared with an expense of $32.3 million for the same period in 2006. HuntsmanInternational’s income tax expense decreased by $36.3 million to an expense of$42.1 million for the six months ended June 30, 2007 as compared with anexpense of $78.4 million for the same period in 2006.  Our tax obligations are affected by the mixof income and losses in the tax jurisdictions in which we operate.  Our tax expense decreased largely due todecreased pre-tax income and the release of the valuation allowance on U.S. netdeferred tax assets.  HuntsmanInternational’s tax expense tax expense decreased largely due to decreasedpre-tax income.  On July 19, 2007,the United Kingdom reduced its statutory tax rate from 30% to 28% for periodsbeginning after April 1, 2008.  Thischange in statutory rate will result in a decrease to our United Kingdomdeferred tax assets of approximately $7.7 million with a corresponding increaseto income tax expense in the third quarter of 2007.

·                  Lossfrom discontinued operations for the six months ended June 30, 2007 increasedby $174.2 million as compared with the same period in 2006. The loss from discontinued operations representsthe operating results and loss on disposal of our North American polymersbusiness, our European base chemicals and polymers business and our TDIbusiness. For more information, see “Note 3. Discontinued Operations” to ourcondensed consolidated financial statements (unaudited) included elsewhere inthis report.

·                  OnJune 30, 2006 we completed the Textile Effects Acquisition. Because the fairvalue of the acquired assets and liabilities assumed exceeded the acquisitionprice, the values of all long-lived assets were reduced to zero and we recordedan extraordinary gain on the acquisition of this business in 2006. During thesix months ended June 30, 2007, we adjusted the preliminary purchase priceallocation and recorded a reduction of the extraordinary gain on theacquisition of $6.5 million. For more information, see “Note 4. BusinessDispositions and Combinations—Textile Effects Acquisition” to our condensedconsolidated financial statements (unaudited) included elsewhere in this report.

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**Segment Analysis**

Beginning in the secondquarter of 2007, our Australian styrenics business was transferred from ourPolymers segment to Corporate and other. All segment information for prior periods has been restated to reflectthis transfer.

Thefollowing table sets forth the revenues and EBITDA for each of our operatingsegments (dollars in millions):
| ** **                 | ** ** | **Six months ended June 30,** | ** ** | **Percent** | ** ** |
|----------------------------|------------|---------------------------------------------------|------------|-------------|------------|
| ** **                 | ** ** | **2007**                                          | ** ** | **2006**    | ** ** | **Change** | ** ** |
| **Revenues**               | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| Polyurethanes              |       | $                                                 | 1,850.2    |        | $          | 1,734.2 |   | 7 | % |
| Materials and Effects      |       | 1,211.1                                           |       | 658.4       |       | 84 | % |
| Performance Products       |       | 1,100.3                                           |       | 1,053.3     |       | 4 | % |
| Pigments                   |       | 563.4                                             |       | 534.8       |       | 5 | % |
| Polymers                   |       | —                                            |       | —      |       | — |   |
| Base Chemicals             |       | 273.9                                             |       | 797.9       |       | (66 | )% |
| Eliminations and other     |       | (194.4                                            | )          | (90.6       | )          | 115 | % |
| **Total**                  |       | $                                                 | 4,804.5    |        | $          | 4,688.0 |   | 2 | % |
| ** **                 | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Huntsman Corporation**   | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
|                       |       |                                              |       |        |       |   |   |
| **Segment EBITDA**         | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| Polyurethanes              |       | $                                                 | 276.9      |        | $          | 339.7 |   | (18 | )% |
| Materials and Effects      |       | 109.6                                             |       | 69.1        |       | 59 | % |
| Performance Products       |       | 105.3                                             |       | 128.4       |       | (18 | )% |
| Pigments                   |       | 45.4                                              |       | 65.1        |       | (30 | )% |
| Polymers                   |       | (206.5                                            | )          | 75.6        |       | NM |   |
| Base Chemicals             |       | 34.4                                              |       | 152.9       |       | (78 | )% |
| Corporate and other        |       | (100.5                                            | )          | (50.3       | )          | 100 | % |
| **Total**                  |       | $                                                 | 264.6      |        | $          | 780.5 |   | (66 | )% |
|                       |       |                                              |       |        |       |   |   |
| **Huntsman International** | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
|                       |       |                                              |       |        |       |   |   |
| **Segment EBITDA**         | ** ** | ** **                                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| Polyurethanes              |       | $                                                 | 276.9      |        | $          | 339.7 |   | (18 | )% |
| Materials and Effects      |       | 109.6                                             |       | 69.1        |       | 59 | % |
| Performance Products       |       | 105.3                                             |       | 128.4       |       | (18 | )% |
| Pigments                   |       | 45.4                                              |       | 65.1        |       | (30 | )% |
| Polymers                   |       | (206.5                                            | )          | 75.6        |       | NM |   |
| Base Chemicals             |       | 34.4                                              |       | 152.9       |       | (78 | )% |
| Corporate and other        |       | (104.1                                            | )          | (59.5       | )          | 75 | % |
| **Total**                  |       | $                                                 | 261.0      |        | $          | 771.3 |   | (66 | )% |

----

NM—Not Meaningful

***Polyurethanes***

For the six monthsended June 30, 2007, Polyurethanes segment revenues increased by $116.0million, or 7%, as compared with the 2006 period. This increase was primarily aresult of higher overall sales volumes andselling prices. The sales volume increase is****due to a 4%increase in MDI sales volumes, partially offset by reduced MTBE sales volumes.The increase in MDI  volumes was drivenby strong demand in insulation-related applications,

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primarily in Europe andAsia where mild weather and the continued drive for improved insulation have****bothcontributed to increased sales. Average MDI selling prices in the six monthsended June 30, 2007 increased by 5% as compared with the same period in 2006.Higher average MDI selling prices were primarilyin response to increased raw material costs.  Average MTBE selling prices in the six monthsended June 30, 2007 increased by 4% as compared with the same period in 2006****dueto solid****market demand and tightsupply.

For the six monthsended June 30, 2007, Polyurethanes segment EBITDA decreased by $62.8 million,or 18%, as compared with the 2006 period. Segment EBITDA decreased primarily onlower MTBE and urethanes margins as raw material and energycosts increased more than average selling prices. Segment EBITDA was alsonegatively impacted by increased operatingcosts in China.

***Materials and Effects***

Materials andEffects segment revenues for the six months ended June 30, 2007 increased by$552.7 million, or 84%, as compared with the same period in 2006. Thisincrease is primarily due to the Textile Effects Acquisition on June 30, 2006.The textile effects business contributed $503.4 million of revenue for the sixmonths ended June 30, 2007, while advanced materials revenues for the sameperiod increased by $49.3 million, or 7%, as compared with the 2006 period. Theincrease in advanced materials revenues resulted from a 11% increase in averageselling prices, partially offset by a 4% decrease in sales volumes.Average selling prices increased due to price increase initiatives across mostof our major markets and regions, a favorable product mix and the positiveimpact of currency fluctuations as the U.S. dollar weakened against therelevant European currencies. Sales volumes decreased mainly in Europe and theAmericas as a result of lower demand in coatings, construction, sport andelectronics market groups. This was partially offset by sales volume growth inpower, electronics and commoditized market groups in Asia

Materials andEffects segment EBITDA was $109.6 million for the six months ended June 30,2007, an increase of 59% as compared with segment EBITDA of $69.1 million forthe same period in 2006. Segment EBITDA increased primarily as a result of theTextile Effects Acquisition on June 30, 2006. Segment EBITDA from the textileeffects business increased by $27.4 million, while segment EBITDA resultingfrom advanced materials operations increased by $13.1 million, or 19%, ascompared with the same period in 2006 as a result of higher contributionmargins on increased sales, partially offset by higher operating expenses whichwere incurred in part to support new business developments.  During the six months ended June 30, 2007 and2006, our Materials and Effects segment recorded restructuring and plantclosing charges of $14.4 million and $2.0 million, respectively. For more information concerningrestructuring activities, see “Note 6. Restructuring, Impairment and PlantClosing Costs” to our condensed consolidated financial statements (unaudited)included elsewhere in this report.

***Performance Products***

For the six monthsended June 30, 2007, Performance Products revenues increased by $47.0 million,or 4%, as compared with the 2006 period. Sales volumes increased 4% due toincreased demand across almost all product lines.  However, sales volumes of ethylene glycolfell by 32% due to lower feedstock availability and maleic anhydride volumeswere 7% lower, reflecting the slowdown in the U.S. housing market. Averageselling prices overall  were  unchanged with lower pricing in some of ourintermediate products, driven by lower ethylene prices and weaker sales mix,offset by a favorable foreign currency impact due to the weakening of the U.S.dollar against the  European andAustralian currencies.

For the six monthsended June 30, 2007, Performance Products segment EBITDA decreased by $23.1million, or 18%, as compared with the 2006 period.  The decrease in segment EBITDA resultedprimarily from lower margins in our U.S. intermediates operations where weincurred  an 18 day unplanned outage atour Port Neches, Texas facility and higher fixed costs across allbusinesses.  In addition, during the sixmonths ended June 30, 2007, our Performance Products segment  recorded a charge of $6.3 million relating tothe settlement of a legal dispute, whereas, during the six months ended June30, 2006, we recorded a gain on sale of real estate of $1.5 million.

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***Pigments***

For the six months endedJune 30, 2007, Pigments segment revenues increased by $28.6 million, or 5%, as compared with the 2006 period. This increaseresulted principally from a 5% increase in sales volumes and a 1% increase inaverage selling prices.  Sales volumesincreased primarily due to higher global customer demand. Average selling pricesincreased primarily in Europe as lower local currency selling prices were morethan offset by favorable foreign currency exchange impacts on selling prices asthe U.S. dollar weakened against the relevant European currencies.

Pigments segmentEBITDA for the six months ended June 30, 2007 decreased by $19.7 million, or 30%, as compared with the 2006 period. Pigments segmentEBITDA was lower primarily due to lower local currency selling prices.

***Polymers***

The operating results of our North American polymers business areclassified as discontinued operations and, accordingly, the revenues of thisbusiness are excluded from the Polymers segment revenues for all periodspresented. The EBITDA of our North American polymers business is included inthe Polymers segment EBITDA for all periods presented.

For the six months ended June 30, 2007, Polymers segment EBITDAdecreased by $282.1 millionto a loss of $206.5 million as compared with EBITDA of $75.6 in the 2006period. This decrease in Polymers segment EBITDA resulted primarily from anincrease in restructuring, impairment and plant closing costs of $241.7million.  During the six months endedJune 30, 2007, the polymers segment recorded an impairment charge of $240.0million related to the North American Polymers Disposition.  For further information see “Note 3.Discontinued Operations—North American Polymers Business” and “Note 6.Restructuring, Impairment and Plant Closing Costs” to our condensedconsolidated financial statements (unaudited) included elsewhere in thisreport.  Furthermore, EBITDA decreased by$42.0 million due to lower margins, driven primarily by lower average sellingprices.

***Base Chemicals***

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

For the six monthsended June 30, 2007, Base Chemicals revenues decreased by $524.0 million, or66%, as compared with the 2006 period. This decrease was mainly due to a 64.3%decrease in sales volumes. The sales volume decrease was driven principally bythe June 27, 2006 sale of the U.S. butadiene and MTBE business, whichcontributed revenues of $473.5 million in the first half of 2006. Additionally,sales volumes of olefins decreased by 45.9% as compared with the same period in2006 as a result of the fire at our Port Arthur, Texas manufacturing plant. Formore information on the Port Arthur fire, see “Note 17. Casualty Losses andInsurance Recoveries—Port Arthur, Texas Plant Fire” to our condensedconsolidated financial statements (unaudited) included elsewhere in thisreport.

For the six monthsended June 30, 2007, Base Chemicals segment EBITDA decreased by $118.5 millionas compared with the 2006 period. This was primarily due to the June 27, 2006sale of the U.S. butadiene and MTBE business, the sale of the European basechemicals and polymers business on December 29, 2006, and the decrease in thesales volumes of olefins as a result of the fire at our Port Arthur, Texas manufacturingplant, offset somewhat by favorable post-closing adjustments to the loss ondisposal of the European base chemicals and polymers business. Segment EBITDAfrom our discontinued European base chemicals and polymers business was $35.6million and $35.0 million for the six months ended June 30, 2007 and 2006,respectively.

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***Corporate and Other***

Corporate and other items includes unallocatedcorporate overhead, foreign exchange gains and losses, loss on accountsreceivable securitization program, loss on the early extinguishment of debt,other non-operating income and expense, minority interest in subsidiaries’(income) loss and extraordinary gain (loss) on acquisition of a business. Forthe six months ended June 30, 2007, our EBITDA from corporate and other items decreasedby $50.2 million to a lossof $100.5 million from a loss of $50.3million for the 2006 period while EBITDAfrom corporate and other items for Huntsman International decreased by $44.6million to a loss of $104.1 million from a loss of $59.5 million for the 2006 period. These decreasesprimarily resulted from a $6.5 millionnegative adjustment to the extraordinary gain related to the Textile EffectsAcquisition in the 2007 period while in the 2006 period we recorded a gain of$50.5 million. The decrease in EBITDA from the extraordinary loss was partiallyoffset by a reduction of incentive compensation costs.

**LIQUIDITY AND CAPITAL RESOURCES**

The following is a discussion of our liquidity andcapital resources. Pursuant to General Instructions H(1)(a) and (b) ofForm 10-Q, Huntsman International is filing this report with a reduceddisclosure format.

**Cash**

Net cash provided by operating activities for the six months ended June30, 2007 and 2006 was $85.3 million and $323.5 million,respectively. The decrease in cash provided by operations was primarilyattributable to a decrease in operating income, as described in “Results ofOperations” above.

Net cash used in investing activities for the six months ended June 30,2007 and 2006 was $250.1 million and $186.3 million,respectively. During the six months ended June 30, 2007 and 2006, we invested $282.8 million and $211.3 million, respectively, in capitalexpenditures. The increase in capital expenditures was largely attributable tothe $85.0 million of capital expenditures spent during the first six monthsof  2007 ($106.8 million incurred, whichincludes capital expenditures accrued in accounts payable and capitalizedinterest totaling $21.8 million) for the rebuild of our Port Arthur, Texasolefins facility that was damaged by fire. During the six months ended June 30, 2006, we acquired theTextile Effects business for $168.9 million, net of cash acquired, of which$32.9 million was funded on July 3, 2006. During the six months endedJune 30, 2007 we finalized our post-closing working capital adjustmentswith respect to the Textile Effects Acquisition, resulting in a reduction tothe purchase price of $26.9 million. Also during the six months ended June 30,2007 and 2006, we sold assets and received proceeds of $15.8 million and $201.1million, respectively.  On June 27, 2006,we sold the assets comprising our former U.S. butadiene and MTBE business for$274.0 million, of which $204.0 million was paid to us during 2006.  The additional $70.0 million will be payableto us after the restart of our Port Arthur, Texas olefins unit that was damagedby fire in 2006.  For furtherinformation, see “Note 4. Business Dispositions and Combinations” to ourcondensed consolidated financial statements (unaudited) included elsewhere inthis report.

Net cash provided by (used in) financing activities for the six monthsended June 30, 2007 was $63.9 million as compared with $(78.0) million in the 2006 period. This increase in net cash provided byfinancing activities is mainly a result of an increase in our RevolvingFacility borrowings of $218.0 millionduring the six months ended June 30, 2007 as compared with the 2006 period. Inthe first quarter 2007 we made a voluntary repayment on our term loans underour Senior Credit Facilities of $75.0 million and a repayment in full of ourremaining 10.125% subordinated notes due 2009 of $150.1 with proceeds of ouroffering of 7.875% subordinated notes due 2014 of $151.7 million. Additionally, in the second quarter2007 we amended our Senior Credit Facilities, increasing our Dollar Term Loanby $96.6 million, of which the proceeds were used to repay in full the Euro TermLoan.  Also, we paid dividends on ourcommon stock of $44.2 millionduring the six months ended June 30, 2007.

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**Changes inFinancial Condition**

Thefollowing information summarizes our working capital position as of June 30,2007 (after giving effect to the classification of our North American polymersbusiness as held for sale) and December 31, 2006 (dollars in millions):
| ** **                         | ** ** | **June 30,** | ** ** | ** **             | ** ** | ** **   | ** ** | **December 31,** | ** ** | **Increase**   | ** ** | **Percent** | ** ** |
|------------------------------------|------------|-------------------|------------|------------------------|------------|--------------|------------|-----------------------|------------|----------------|------------|-------------|------------|
| ** **                         | ** ** | **2007**          | ** ** | **U.S. Polymers** | ** ** | **Subtotal** | ** ** | **2006**              | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
|                               |       |              |       |                   |       |         |       |                  |       |           |       |        |       |
| Cash and cash  equivalents         |       | $                 | 167.5      |                   | $          | —       |       | $                     | 167.5      |           | $          | 263.2       |       | $ | (95.7 | ) | (36 | )% |
| Accounts  receivable, net          |       | 1,456.8           |       | —                 |       | 1,456.8      |       | 1,257.3               |       | 199.5          |       | 16          | %          |
| Inventories, net                   |       | 1,348.0           |       | 175.3                  |       | 1,523.3      |       | 1,520.1               |       | 3.2            |       | —      |       |
| Prepaid expenses                   |       | 31.0              |       | 0.5                    |       | 31.5         |       | 55.7                  |       | (24.2          | )          | (43         | )%         |
| Deferred income  taxes             |       | 68.0              |       | —                 |       | 68.0         |       | 64.6                  |       | 3.4            |       | 5           | %          |
| Other current  assets              |       | 128.2             |       | —                 |       | 128.2        |       | 175.7                 |       | (47.5          | )          | (27         | )%         |
| Current assets  held for sale      |       | 175.8             |       | (175.8                 | )          | —       |       | —                |       | —         |       | —      |       |
| Total current  assets              |       | 3,375.3           |       | —                 |       | 3,375.3      |       | 3,336.6               |       | 38.7           |       | 1           | %          |
|                               |       |              |       |                   |       |         |       |                  |       |           |       |        |       |
|                               |       |              |       |                   |       |         |       |                  |       |           |       |        |       |
| Accounts payable                   |       | 1,096.4           |       | —                 |       | 1,096.4      |       | 1,018.2               |       | 78.2           |       | 8           | %          |
| Accrued  liabilities               |       | 802.9             |       | 10.1                   |       | 813.0        |       | 857.6                 |       | (44.6          | )          | (5          | )%         |
| Deferred income  taxes             |       | 19.3              |       | —                 |       | 19.3         |       | 9.4                   |       | 9.9            |       | 105         | %          |
| Current portion  of long-term debt |       | 258.8             |       | —                 |       | 258.8        |       | 187.9                 |       | 70.9           |       | 38          | %          |
| Current liabilities  held for sale |       | 10.1              |       | (10.1                  | )          | —       |       | —                |       | —         |       | —      |       |
| Total current  liabilities         |       | 2,187.5           |       | —                 |       | 2,187.5      |       | 2,073.1               |       | 114.4          |       | 6           | %          |
| Working capital                    |       | $                 | 1,187.8    |                   | $          | —       |       | $                     | 1,187.8    |           | $          | 1,263.5     |       | $ | (75.7 | ) | (6 | )% |

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NM—Not Meaningful

Our working capital decreased by $75.7 million as a result of the net impact of thefollowing significant changes:

·                  Thedecrease in cash and cash equivalents of $95.7 million resulted from the matters identifiedin the Condensed Consolidated Statements of Cash Flows contained in ourcondensed consolidated financial statements (unaudited) included elsewhere in this report.

·                  Theincrease in accounts receivable, net of $199.5 million was primarily due to increasedrevenues during the second quarter of 2007 compared with the fourth quarter of2006.

·                  Thedecrease in prepaid expenses of $24.2 million was principally attributable to theamortization of prepaid insurance.

·                  Other current assets decreased by$47.5 million primarily as a result of the collection of a $26.9 millionreceivable for post-closing working capital adjustments related to the TextileEffects acquisition during the first six months of 2007 (see “Note 4. BusinessDispositions and Combinations — Textile Effects Acquisition” to our condensedconsolidated financial statements (unaudited) included elsewhere in thisreport) and a reduction in income taxes receivable.

·                  Currentportion of long term debt increased $70.9 million primarily due to an increasein revolver borrowings under the Revolving Facility substantially used forfunding the increase in working capital, partially offset by a reclassificationof our current portion of long term debt to long term debt of our AustralianCredit Facilities that were amended in the second quarter 2007.

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*SubsidiaryDebt*

Withthe exception of our guarantees of certain debt of our Chinese joint venturesand certain indebtedness incurred from time to time to finance certaininsurance premiums, we have no direct debt or guarantee obligations.  Substantially all of our debt has beenincurred by our subsidiaries (primarily Huntsman International); such debt isnon-recourse to us and we have no contractual obligation to fund oursubsidiaries’ respective operations.

*TransactionsAffecting our Senior Credit Facilities*

As of June 30, 2007, our senior secured creditfacilities (“Senior Credit Facilities”) consisted of (i) a$650 million revolving facility (the “Revolving Facility”) and (ii) a$1,640.0 million term loan B facility (the “Dollar Term Loan”).  As of June 30, 2007, there were $218.0million borrowings outstanding under our Revolving Facility, and we had $33.1million in U.S. dollarequivalents of letters of credit and bank guarantees issued and outstandingunder our Revolving Facility.

During the sixmonths ended June 30, 2007, we completed the following transactions relating toour Senior Credit Facilities:

·                  OnJanuary 16, 2007, we made a voluntary repayment of $75.0 million U.S.dollar equivalents on our term loans with available liquidity.

·                  On April 19,2007, we entered into an amendment to our Senior Credit Facilities (the “Amendment”).Pursuant to the Amendment, the maturity of the Dollar Term Loan was extended toApril 2014 and the loan amount was increased to $1,640.0 million. We used theincreased amount to repay, in full, the Euro Term Loan.

As of June 30,2007, borrowings under the Revolving Facility and Dollar Term Loan boreinterest at LIBOR plus 1.75%. The Amendment made no changes to the applicableinterest rate of the Revolving Facility. However, pursuant to the Amendment,the applicable interest rate of the Dollar Term Loan is currently set at LIBORplus 1.75%, subject to a reduction to LIBOR plus 1.50% upon achieving certainsecured leverage ratio thresholds defined in the Amendment. The Amendment containsone financial covenant, which is applicable only to the Revolving Facility, andthis covenant is only in effect when loans or letters of credit are outstandingunder the Revolving Facility. The Amendment, among other things, also increasedthe restricted payments basket for certain types of payments, and, subject tocertain conditions, increased our capacity for additional term loan borrowings.The Amendment provides for continuing customary restrictions and limitations onour ability to incur liens, incur additional debt, merge or sell assets, makecertain restricted payments, prepay other indebtedness, make investments orengage in transactions with affiliates, and it contains other customary defaultprovisions.

*OtherTransactions Affecting our Deb**t***

During the sixmonths ended June 30, 2007, we have also completed the following othertransactions relating to our debt:

·                  Onor about February 28, 2007, we completed a direct private placement of$147.0 million in aggregate principal amount of dollar denominated 7.875%senior subordinated notes due November 15, 2014. These notes were issuedat a premium of 104% of principal amount for a yield of 7.01% and were issuedunder the same indenture and are of the same series as an original placement ofdollar denominated notes issued by us in November 2006. We used the netproceeds of $151.7 million to redeem all (approximately €114 million) ofour remaining outstanding euro denominated 10.125% senior subordinated notesdue 2009, which were called for redemption on March 27, 2007 at a callprice of 101.688% plus accrued interest.

·                    OnMay 29, 2007, we amended the Australian Credit Facilities.  The amendment, among other things, amendedthe interest rate to be the 

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Australian index rate plus a margin of 2.4%, and thematurity was extended for three years to May 29, 2010. The aggregateoutstanding balance as of June 30, 2007 under the Australian Credit Facilitiesis A$60.5 million ($50.7 million, of which $3.7 million is classified ascurrent portion of long term debt).

*Compliance with Covenants*

Our management believes that we are in compliancewith the covenants contained in the agreements governing the Senior CreditFacilities, the Australian Credit Facilities, the A/R Securitization Program and theindentures governing our notes.

**Short-Term and Long-Term Liquidity**

We depend upon ourcredit facilities and other debt instruments to provide liquidity for ouroperations and working capital needs. As of June 30, 2007, we had$581.4 million of combined cash and combined unused borrowing capacity,consisting of $167.5 million in cash, $398.9 million in availabilityunder our Revolving Facility, $15.0 million attributable to our Europeanoverdraft facility and nil in availability under our A/R SecuritizationProgram.

Our liquiditydecreased during the six months ended June 30, 2007 by $306.3 million from$887.7 million as of December 31, 2006 to $581.4 million as of June 30,2007. This decrease was primarily attributed to higher capital spendingassociated with the rebuild of our Port Arthur, Texas facility, net ofinsurance recoveries, and to a net increase in certain working capitalcomponents, including an increase of $199.5 million in receivables, partiallyoffset by an increase of $78.2 million in accounts payable. For moreinformation, see “—Changes in Financial Condition” above. In addition, duringthe six months ended June 30, 2007, we made a voluntary repayment of $75.0 millionU.S. dollar equivalents on our Term from available liquidity.

Our liquidity hasbeen significantly impacted by recent transactions. We anticipate that, goingforward, our liquidity will be impacted as follows:

·                    Asa result of the fire damage at our Port Arthur, Texas facility that occurred onApril 29, 2006, we have received and anticipate receiving additionalsettlements of insurance claims, as well as incurring significant expendituresto rebuild the facility. See “Note 17. Casualty Losses and InsuranceRecoveries—Port Arthur, Texas Plant Fire” to our condensed consolidatedfinancial statements (unaudited) included elsewhere in this report.

·                    Inconnection with the sale of our U.S. butadiene and MTBE business,$70 million of the purchase price will be payable to us after the restartof our Port Arthur, Texas facility that was damaged by fire and the relatedresumption of crude butadiene supply, provided that we achieve certainintermediate steps toward restarting the facility within 30 months of thesale. See “Note 17. Casualty Losses and Insurance Recoveries—Port Arthur, TexasPlant Fire” to our condensed consolidated financial statements (unaudited)included elsewhere in this report.

·                    OnFebruary 15, 2007, we entered into the Original Agreement pursuant towhich FHR agreed to acquire our U.S. base chemicals and polymers businessassets for approximately $456 million in cash, plus the value of inventory onthe date of closing. We will retain other elements of working capital,including accounts receivable, accounts payable and certain accruedliabilities, which will be liquidated for cash in the ordinary course ofbusiness.  On June 22, 2007, we enteredinto the Amended and Restated Agreement with FHR that amends certain terms ofthe Original Agreement to, among other things, provide for the closing of the NorthAmerican Polymers Disposition on August 1, 2007 for $150.0 million plusthe value of associated inventory on an average actual cost basis, net of otheradjustments. The total consideration for the North American PolymersDisposition is approximately $348 million, which is subject to post-closingadjustments. We used the net proceeds from the North American Polymers Dispositionto repay debt.

·                    TheAmended and Restated Agreement also provides for the separate closing of thePending U.S. Base Chemicals Disposition for the remaining $306.0 million ofsales price plus the value of associated inventory on an average actual costbasis (approximately $60 million at June 30, 2007),

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following the re-start of our Port Arthur, Texasolefins manufacturing facility which is expected during the fourth quarter of2007. For more information, see “Note 4. Business Dispositions and Combinations— Agreement to Sell U.S. Base Chemicals Business” and “Note 17. Casualty Lossesand Insurance Recoveries—Port Arthur, Texas Plant Fire.” To our condensedconsolidated financial statements (unaudited) included elsewhere in thisreport.

·                    Asa result of the North American Polymers Disposition which closed on August 1,2007, we anticipate that our capacity under the A/R Securitization Program willdecrease by approximately $100 million to $400 million.  After the close of the Pending U.S. BaseChemicals Disposition, we anticipate our capacity under the A/R SecuritizationProgram will be further reduced by approximately $25 million to $375 million.

·                    Inconnection with the U.K. Petrochemical Disposition, we agreed to make paymentsto SABIC of approximately £0.5 million (approximately $1 million) relatedto the transfer of pension plan assets and liabilities. Finalization of therequired payment to SABIC is expected during the third quarter of 2007, at whichtime we expect to fund the obligation.

·                    Thefinal sales price of the U.K. Petrochemical Disposition is also subject toadjustments relating to working capital and investment in the LDPE plant underconstruction in Wilton U.K. We have accrued a liability relating to theseadjustments of $14.5 million and expect to finalize these adjustments and fundthis obligation in the third quarter of 2007.

·                    On July 12,2007, we sent notice to Basell that, pursuant to the terms of the BasellAgreement, we had terminated the Basell Agreement in order to enter into theAgreement. As a result, we paid Basell a break-up fee in the amount of $200million, of which Hexion funded $100 million. The Hexion Agreement contains certain termination rights, including ifour board of directors changes its recommendation to the stockholders inconnection with a Superior Proposal (as defined in the Agreement), and providesthat, upon the termination of the Agreement, under specified circumstances, wewill be required to pay Hexion a termination fee of $325 million.  If Hexion terminates the Agreement, underspecified circumstances, Hexion will be required to pay us $325 million.

**Capital Expenditures**

Excluding capitalexpenditures relating to the fire damage at our Port Arthur, Texas facility, weexpect to spend approximately $550 million on capital projects in 2007. We expectto finance our capital expenditure commitments through a combination of cashflows from operations and financing arrangements. We currently estimate that wewill incur approximately $218 million of total capital expenditures related tothe fire damage at our Port Arthur, Texas facility during 2007, of which $85.0 millionhas been spent in the first and second quarter 2007 ($106.8 million incurred, which includescapital expenditures accrued in accounts payable and capitalized interesttotaling $21.8 million). In addition, we currently estimate that totalrepair and maintenance expenses and other non-capital costs associated with thefire damage will be approximately $57 million during 2007, of whichapproximately $43 million has been spent during the first and second quartersof 2007.

**Off-Balance Sheet Arrangements**

***Receivables Securitization***

Fora discussion of our A/R Securitization Program, see “Note 9. Securitization of Accounts Receivable” to our condensed consolidated financial statements(unaudited) included elsewhere in this report.

***Financing of Chinese MDI Facilities***

On September 19, 2003, our unconsolidated Chinese joint venture,SLIC, obtained secured financing for the construction of production facilities.SLIC obtained various committed loans in the aggregate amount of approximately$230 million in U.S. dollar equivalents. As of June 30, 2007, there were $84.4million and RMB 1,055

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million ($138.5 million) in outstanding borrowings underthese facilities. The interest rate on these facilities is LIBOR plus 0.48% forU.S. dollar borrowings and 90% of the Peoples Bank of China rate for RMBborrowings. The loans are secured by substantially all the assets of SLIC andwill be paid in 16 semiannual installments, which began on June 30, 2007. Weunconditionally guarantee 35% of any amounts due and unpaid by SLIC under theloans described above (except for a $1.5 million VAT facility which is notguaranteed). Our guarantee remains in effect until SLIC has commencedproduction of at least 70% of capacity for at least 30 days, achieved a debtservice coverage ratio of at least 1:1.

**Restructuring,Impairment and Plant Closing Costs**

For a discussion of restructuring, impairment and plant closing costs,see “Note 6. Restructuring, Impairment and Plant Closing Costs” to ourcondensed consolidated financial statements (unaudited) included elsewhere inthis report.

**LegalProceedings**

For a discussionof legal proceedings, see “Note 14. Commitments and Contingencies—Legal Matters”to our condensed consolidated financial statements (unaudited) includedelsewhere in this report.

**Environmental,Health and Safety Matters**

For adiscussion of environmental, health and safety matters, see “Note 15.Environmental, Health and Safety Matters” to our condensed consolidatedfinancial statements (unaudited) included elsewhere in this report.

**Recently Issued AccountingPronouncements**

For a discussion ofrecently issued accounting pronouncements, see “Note 2. Recently IssuedAccounting Pronouncements” toour condensed consolidated financial statements (unaudited) included elsewherein this report.

**Critical Accounting Policies**

Our critical accountingpolicies are presented in Management’s Discussion and Analysis of FinancialCondition and Results of Operations included in our Annual Report onForm 10-K for the year ended December 31, 2006. For a discussion of developmentsrelated to long-lived asset impairments see “Note 3. Discontinued Operations—NorthAmerican Polymers Business” and “Note 4. Business Dispositions andCombinations—Agreement to Sell U.S. Base Chemicals Business” to our condensedconsolidated financial statements (unaudited) and “Recent Developments—NorthAmerican Base Chemicals and Polymers Business Assets” included elsewhere inthis report.

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We are exposed tomarket risks, such as changes in interest rates, foreign exchange rates and commoditypricing risks. From time to time, we enter into transactions, includingtransactions involving derivative instruments, to manage certain of theseexposures.

In conjunctionwith the redemption of our remaining 10.125% euro denominated subordinated notesdue 2009 in the first quarter 2007 discussed in “Note 7. Debt” above, and in aneffort to maintain approximately the same amount of euro denominated debtexposure, on March 27, 2007 we entered into a cross currency rate interest rateswap pursuant to which we have agreed to swap $152.6 million of LIBOR floatingrate debt payments for €115.9 million of EURIBOR floating rate debt payments.On maturity, August 15, 2012, we are required to pay principal of €115.9million and will receive principal of $152.6 million. During the life of thisswap, we will receive floating rate interest (LIBOR) in dollars and we will payfloating rate interest (EURIBOR) in euros. This swap is currently notdesignated as a hedge for financial reporting purposes.  As of June 30, 2007, the fair value of thisswap was $4.4 million and was recorded in other noncurrent liabilities in ourbalance sheet.

In conjunctionwith the Amendment as discussed in “Note 7. Debt” to our condensed consolidatedfinancial statements (unaudited) included elsewhere in this report, and in aneffort to maintain approximately the same amount of euro denominated debtexposure, on April 19, 2007 we entered into a cross currency rate interest rateswap pursuant to which we have agreed to swap $95.8 million of LIBOR floatingrate debt

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payments for €70.7million of EURIBOR floating rate debt payments. On maturity, April 19, 2010, weare required to pay principal of €70.7 million and will receive principal of$95.8 million. During the life of this swap, we will receive floating rate interest(LIBOR) in dollars and we will pay floating rate interest (EURIBOR) in euros.This swap was designated as a hedge of a net investment for financial reportingpurposes.  As of June 30, 2007, the fairvalue of this swap was $0.7 million and was recorded in other noncurrent assetsin our balance sheet.

On July 12, 2007we unwound a cross currency interest rate swap pursuant to which we had swapped$31.3 million of 11.0% fixed rate debt for €25 million of 9.4% fixed ratedebt.   The swap was not designated as ahedge for financial reporting purposes. As of June 30, 2007, the fair value of this swap was $2.4 million andwas recorded in other current accrued liabilities in our balance sheet.

From time to time,we review our non-U.S. dollar denominated debt and swaps to determine theappropriate amounts designated as hedges. As of June 30, 2007, we havedesignated approximately €430.7 million of debt as a net investment hedge. Asof June 30, 2007, we had approximately €1,106.0 million in net euro assets.

**ITEM 4.CONTROLS AND PROCEDURES**

Our management,with the participation of our chief executive officer and chief financialofficer, has evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2007.Based on this evaluation, our chief executive officer and chief financial officerhave concluded that, as of June 30, 2007, our disclosure controls andprocedures were effective, in that they ensure that information required to bedisclosed by us in the reports that we file or submit under the Exchange Act is(1) recorded, processed, summarized and reported within the time periodsspecified in the Commission’s rules and forms, and (2) accumulated andcommunicated to our management, including our chief executive officer and chieffinancial officer, as appropriate to allow timely decisions regarding requireddisclosure.

No changes to ourinternal control over financial reporting occurred during the quarter endedJune 30, 2007 that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act). As we havepreviously reported, as of December 31, 2006, we had a material weakness in thefinancial reporting process related to the accounting for a complex, non-routinetransaction.  In response, we madechanges to our internal controls over financial reporting as noted in our Form10-Q for the quarterly period ended March 31, 2007.  Our management believes that the changes wemade are effective and that we do not currently have a material weakness withregard to our financial reporting. However, we cannot give any assurance thatour internal controls over financial reporting will be completely effective.Ineffective internal controls over financial reporting could cause investors tolose confidence in our reported financial information and could result in alower trading price for our securities.

 

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**PART II. OTHER INFORMATION**

**ITEM 1. LEGAL PROCEEDINGS**

**ENVIRONMENTALENFORCEMENT PROCEEDINGS**

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

In May 2003,the State of Texas settled an air enforcement case with us relating to our PortArthur plant. Under the settlement, we were required to pay a civil penalty of$7.5 million over more than four years, undertake environmental monitoringprojects totaling about $1.5 million in costs, and pay $0.4 million inattorneys’ fees to the Texas Attorney General. As of June 30, 2007, we havepaid the full penalty and attorneys’ fees. The monitoring projects have, webelieve, been completed and we are preparing our submittal to the State ofTexas for their approval. We do not expect to incur any further costs ofsignificance relating to this matter.

OnApril 29, 2006, there was a release of hydrocarbons followed by asignificant fire in the ethylene refrigeration area of our Base Chemicals LightOlefins Unit located in Port Arthur, Texas. See “Note 17. Casualty Losses andInsurance Recoveries—Port Arthur, Texas, Plant Fire.” There were no fatalitiesor serious injuries from the fire. An incident investigation team was formedimmediately. The cause of the fire was determined to be a sudden rupture of apipeline which had been weakened by undetected external corrosion. The TCEQ hasproposed, and we have accepted, a penalty of approximately $0.1 million foralleged excessive environmental releases occurring as a consequence of thefire. The settlement is awaiting approval of the TCEQ.

In May 2007, ouroperation in Wilton, U.K., allegedly caused a discharge of wastewater effluentto be made to Northumbrian Water’s Bran Sands treatment facility that containedelevated levels of nitrobenzene.  NorthumbrianWater alleges that this discharge caused a disruption of its treatment facilitywhich, in turn, exceeded its discharge consent from the U.K. Environment Agency.  The Environmental Agency is investigating apossible prosecution against Northumbrian Water for the breach.  Northumbrian Water has threatened toprosecute our subsidiary in the U.K.  Todate, however, no charges have been filed.

**SHAREHOLDER LITIGATION RELATINGTO THE PENDING SALE OF OUR COMPANY**

From July 5 toJuly 13, 2007, four shareholder class action complaints were filed against theCompany and its directors alleging breaches of fiduciary duty in connectionwith the then-proposed sale of the Company to Basell and the receipt of asuperior proposal from Hexion. Three actions were filed in Delaware: Cohen v.Archibald, et al., No. 3070, in the Court of Chancery for the State of Delaware(filed July 5, 2007); Augenstein v. Archibald, et al., No. 3076, in the Courtof Chancery for the State of Delaware (filed July 9, 2007); and Murphy v.Huntsman, et al., No. 3094, in the Court of Chancery for the State of Delaware(filed July 13, 2007). Another action was filed in Texas: Schwoegler v.Huntsman Corporation, et al., Cause No. 07-07-06993-CV, in the 9th JudicialDistrict Court of Montgomery County, Texas (filed July 6, 2007). Somecomplaints also named Basell entities as additional defendants alleging claimsof aiding and abetting breaches of fiduciary duty.

The complaintscollectively allege that the directors of the Company failed to conduct asufficient process to investigate and obtain maximum value for the Company’sshares, prematurely entered into a merger agreement with Basell at aninadequate price of $25.25 per share as evidenced by a superior proposal laterreceived from Hexion, improperly agreed to a $200 million termination fee toBasell, failed to make adequate disclosures concerning the Basell transaction,and engaged in self-dealing by manipulating the timing of the Baselltransaction to benefit officers and directors of the Company more thanshareholders. The complaints seek injunctive relief on behalf of a class ofshareholders to enjoin the proposed merger with Basell, rescission of theBasell merger agreement and the $200 million termination fee, and plaintiffs’costs including reasonable attorneys’ fees.

As discussedabove, since the cases were filed, the Company has terminated the BasellAgreement and entered into the Merger Agreement with Hexion. On July 30, 2007,the Delaware Chancery Court entered an order consolidating the three Delawareactions into the first-filed action, requiring the plaintiffs to file aconsolidated amended complaint as soon as practicable, and extending thedeadline for all defendants to answer or respond in the Delaware action until30 days after the consolidated amended complaint is filed. The Texas action wasonly recently served on the Company, and defendants’ answer or response is notdue until August 13, 2007.

The Companybelieves the cases are meritless and intends to defend them vigorously.

**OTHER LEGAL PROCEEDINGS**

Fora discussion of other legal proceedings, see “Note 14. Commitments andContingencies—Legal Matters” and “Note 15. Environmental, Health and SafetyMatters—Remediation Liabilities” to our condensed consolidated financialstatements (unaudited) included elsewhere in this report and incorporatedherein by reference.

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**ITEM 1A. RISK FACTORS**

Forinformation regarding risk factors, see “Part I. Item 1A. Risk Factors,” in ourAnnual Report on Form 10-K for the year ended December 31, 2006 and as follows:

**Risks Related to the Pending Sale of Our Company**

***Any failure to complete the pending sale of our Company couldmaterially adversely impact the market price of our common stock as well as ourbusiness, financial condition and results of operations.***

Consummation ofthe Merger is subject to our and Hexion's performance under the MergerAgreement and a number of closing conditions. If the Merger is not completedfor any reason, the price of our common stock will likely decline to the extentthat the market price of our common stock reflects market assumptions that theMerger will be completed and the premium implied by the Merger Considerationwill be realized. We may also be subject to additional risks, including: 

·                  theoccurrence of any event, change or other circumstances that could give rise tothe termination of the Merger Agreement with Hexion, or the failure of theMerger to close for any other reason; 

·                  underthe terms of the Merger Agreement, in certain circumstances we would berequired to pay significant termination fees in connection with a terminationof the Merger Agreement, which would be in addition to the termination feesthat we paid under the Basell Agreement, for which we would be solelyresponsible; 

·                  ourmanagement having spent a significant amount of their time and efforts directedtoward the Merger and the related transactions which time and efforts otherwisewould have been spent on our business and other opportunities that could havebeen beneficial to us; 

·                  costsrelating to the Merger and related transactions, such as legal, accounting andfiling fees, much of which must be paid regardless of whether the Merger iscompleted; 

·                  uncertaintiesrelating to the Merger and related transactions may adversely affect ourrelationships with our employees, vendors and customers; and 

·                  theoutcome of any litigation or judicial actions that have been or may beinstituted against us, our board of directors and others relating to the MergerAgreement or any settlement of such litigation or judicial actions. 

Accordingly, investors should not place undue relianceon the occurrence of the Merger. In addition, if the Merger does not occur,there can be no assurance that a comparable transaction will be consummatedthat results in your shares being purchased. The realization of any of theserisks may materially adversely affect our business, financial condition,results of operations or the market price of our common stock.

***Necessary consents and approvals from government entities may delay orprevent the closing of the Merger.***

The Merger is conditioned upon, among other things,receipt of regulatory approvals or expiration of required waiting periods inthe United States, the European Union and several other jurisdictions. Therecan be no assurance when any such approvals will be obtained or when such waitingperiods will expire, if at all. As a result, stockholders face the risk thatthe completion of the Merger may be delayed or that the Merger may not becompleted. 

***Theperiod of time expected before completing the Merger may increase the risk thatwe inadvertently fail to comply with our covenants, including those thatrestrict our conduct of business or that a material adverse effect occurs inour business which would permit Hexion to refuse to consummate the Merger.***

The Merger is subject to obtaining the requiredregulatory clearances and approvals and other conditions beyond our controlthat may delay or otherwise materially adversely affect its completion. Wecannot predict when these conditions will be satisfied. Further, the period oftime necessary to satisfy the requirements for obtaining the requiredclearances and approvals could significantly delay the effective time of theMerger which would increase 

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the risk that weinadvertently fail to comply with our covenants, including those that restrictour conduct of business or that there arises an occurrence, condition, changeor event that would constitute a material adverse effect under the terms of theMerger Agreement, which would permit Hexion to refuse to consummate the Merger.

***We could incur substantial merger-related costs in connection with theMerger.***

We expect to incur a number of non-recurring costsassociated with completing the Merger. These costs could be substantial andcould have an adverse effect on our reported results before the consummation ofthe Merger. 

***Thependency of the Merger could materially adversely affect our business andoperations.***

In connection with the pending Merger, some of ourvendors, customers and strategic partners may delay or defer decisions relatingto their ongoing and future relationships with us, which could negativelyaffect our revenues, earnings and cash flows and adversely effect our prospectswhich could be detrimental to our stockholders if the Merger is notconsummated. 

***Uncertaintiesassociated with the Merger may cause a loss of employees and may otherwisematerially adversely affect our business and operations.***

Our future results of operations will depend in partupon our ability to retain existing highly skilled and qualified employees andto attract new employees. A number of our employees are highly skilledscientists and highly trained technicians, and failure to continue to attractand retain such individuals could materially adversely affect our ability tocompete. In addition, current and prospective employees may experienceuncertainty about their roles following the effective time of the Merger. Thisuncertainty may materially adversely affect our ability to attract and retainkey management, sales, marketing, technical and other personnel. This inabilityto retain key personnel could have an adverse effect on our ability to operatethe business as a stand-alone enterprise in the event the Merger is notconsummated. 

***Incertain circumstances, the Merger Agreement requires us to pay Hexion atermination fee of $225 million plus the Reimbursement Amount of $100 millionand, generally, we must allow Hexion three business days to match anyalternative acquisition proposal prior to any change in our board'srecommendation. These terms could affect the likelihood of a third partyproposing an alternative transaction to the Merger.***

Under the Merger Agreement, we may be required to payto Hexion a termination fee of $225 million and the Reimbursement Amount of$100 million if the Merger Agreement is terminated under certain circumstances.Should the Merger Agreement be terminated in circumstances under which thetermination fee and Reimbursement Amount are payable, the payment could havematerial and adverse consequences to our financial condition and operationsafter such time. Additionally, under the Merger Agreement, in the event anotherparty makes a superior proposal, we must allow Hexion a three business dayperiod to make a revised proposal in response to the superior proposal, prior towhich our board of directors may not change its recommendation with respect tothe Merger Agreement. These terms could affect the structure, pricing and termsproposed by other parties seeking to acquire or merge with us, and could makeit less likely that another party would make a superior proposal.

***TheMerger Agreement contains restrictive covenants that may limit our ability torespond to changes in market conditions or pursue business opportunities.***

The MergerAgreement contains restrictive covenants that will limit our ability to, amongother things: 

·                  incuror guarantee additional indebtedness or raise additional capital; 

·                  purchaseequity interests or redeem indebtedness early; 

·                  createor incur certain liens; 

·                  enterinto transactions with affiliates; 

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·                  issueor sell capital stock of subsidiaries; and 

·                  sellor acquire assets or businesses. 

Although the MergerAgreement provides that Hexion will not unreasonably withhold its consent to ustaking otherwise prohibited actions, there can be no assurances that Hexionwill grant such consent. The requirement that we comply with these provisionsprior to the Merger may materially adversely affect our ability to react tochanges in market conditions, take advantage of business opportunities, obtainfuture financing, fund needed capital expenditures, or finance equipmentpurchases, any of which could have a material and adverse effect on theprospects of our business, which could be detrimental to our stockholders inthe event the Merger is not consummated. 

***Ifthe banks that have provided commitment letters for the funds to complete theMerger are not required or refuse to fund, Hexion will have to seek otherfinancing to complete the Merger, which financing may not be available.***

Hexion has obtained commitment letters for seniorsecured credit facilities and a senior secured bridge facility with CreditSuisse and Deutsche Bank to be made available to Hexion and/or one or more ofits subsidiaries for purposes of, among other things, financing the MergerConsideration. Hexion's ability to draw on the proposed loan facility issubject to the satisfaction of certain conditions. Under the Merger Agreement,Hexion's obligation to consummate the Merger, however, is not conditioned uponreceipt or availability of financing. Although Hexion expects that it will beable to draw on the proposed loan facility, in the event Hexion is unable to doso, Hexion will be forced to seek substitute financing to raise the necessaryfunds to pay the Merger Consideration. Such substitute financing may beunavailable. In addition, while Hexion owned by an affiliate of ApolloManagement L.P., Apollo Management L.P. is not obligated to contributeadditional equity to us or Hexion in order to consummate the Merger. 

***Ratingagencies could downgrade their corporate debt ratings for us before theeffective time of the Merger. Such downgrades could have a material adverseeffect on the ongoing cost of financing our business.***

Some rating agencies that provide corporate ratings onus or provide ratings on our debt may downgrade their corporate or debt ratingswith respect to us in light of the pending Merger and the financing thereof. Adowngrade could materially adversely affect our ability to finance ouroperations, including increasing the cost of obtaining financing under existingor future facilities or of debt securities, and may effect the payment termsoffered by vendors which could result in a negative impact on our liquidity.

**RisksRelated to the Pending U.S. Petrochemical Disposition**

***Inconnection with the Pending U.S. Petrochemical Disposition, we expect torecognize a material loss related to such sale. Such a loss could adverselyimpact the market price of our common stock. In addition, we cannot assure youthat we will be able to complete the sale in the timeframe anticipated, on itsoriginal terms, or at all, which could adversely impact the market price of ourcommon stock as well as our business, financial condition and results ofoperations.***

In connection with the Pending U.S. PetrochemicalDisposition, we agreed to sell our U.S. base chemicals and polymers businessfor approximately $456 million in cash, plus the value of inventory on therespective dates of closing. The Amended and Restated Agreement relating to thePending U.S. Petrochemical Disposition provides for, among other things, theclosing of the sale of our U.S. polymers business on August 1, 2007. For moreinformation, see “Note 3. Discontinued Operations—North American PolymersBusiness” to our condensed consolidated financial statements (unaudited)included elsewhere in this report. The Amended and Restated Agreement alsoprovides for the separate closing of the U.S. base chemicals business followingthe restart of our Port Arthur, Texas olefins manufacturing facility.

In connection with the North American PolymersDisposition pursuant to the Amended and Restated Agreement, during the threemonths ended June 30, 2007, we recorded a pretax impairment charge related to ourNorth American polymers assets of $240.0 million. We will continue toassess the U.S. base chemicals assets for recoverability during 2007 throughthe sale date, which is anticipated to be in the fourth quarter of 2007. Uponrestart of the Port Arthur 

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facility, we expect thatthe carrying value of the business to be sold, which will increase as werebuild the plant, will exceed the anticipated sale price. As a result, wecurrently expect to incur an estimated pretax loss in connection with the PendingU.S. Base Chemicals Disposition of between $150 million and $175 million.

The completion of the Pending U.S. Base ChemicalsDisposition is subject to customary closing conditions and operating covenants and,in addition, is contingent upon the re-start of the Port Arthur facility. If wecannot restart the Port Arthur facility as agreed upon with FHR, or if wecannot satisfy the other closing conditions, then the Pending U.S. BaseChemicals Disposition may not be completed within the anticipated timeframe oron its original terms, if at all. Such delay, alteration, or cancellation couldadversely impact the market price of our common stock as well as our business,financial condition and results of operations. 

**RisksRelated to the Ownership of Our Common Stock**

***Ourstock price has been and may continue to be subject to large fluctuations.***

We haveexperienced significant fluctuations in our stock price and share tradingvolume in the past and may continue to do so. The trading price of our commonstock has been and may continue to be subject to wide fluctuations in responseto a variety of issues, including broad market factors that may have a materialadverse impact on our stock price, regardless of actual performance. The mostsignificant factors that are likely to effect our stock price are eventsexpectations and market perceptions that relate to the likelihood and timing ofthe consummation of the Merger. In addition, the following factors could effectour stock price: 

·                  periodicvariations in the actual or anticipated financial results of our business orthat of our competitors; 

·                  downwardrevisions in securities analysts' estimates of our future operating results orof the future operating results of our competitors; 

·                  materialannouncements by us or our competitors; 

·                  publicsales of a substantial number of shares of our common stock; and 

·                  adversechanges in general market conditions or economic trends or in conditions ortrends in the markets in which we operate. 

***Sharesavailable for future sale may cause our common stock price to decline, whichmay negatively impact your investment.***

Sales of substantial numbers of additional shares ofour common stock, or the perception that such sales could occur, may causeprevailing market prices for shares of our common stock to decline. The termsof the agreement governing HMP Equity Trust permit MatlinPatterson to sell76,849,062 shares of our common stock (or approximately 34.6% of ouroutstanding common stock) prior to the completion of the Merger. On  August 6, 2007, MatlinPatterson sold56,979,062 shares of our common stock. MatlinPatterson has the right to disposeof the additional 19,870,000 shares, subject to a requirement in the applicableVoting Agreement that we agree that certain criteria are satisfied or if thenew owner grants all voting rights with respect to the purchased shares to HMPEquity Trust or to Jon M. Huntsman. In addition, we have filed a registrationstatement to permit sales of our common stock by other stockholders who hold anaggregate of 23,762,000 shares (or approximately 10.7%) of our outstandingshares of common stock. Any sales of our shares of common stock may negativelyimpact your investment. 

***Ifthe Merger Agreement is terminated, or with the consent of Hexion, we have theability to issue additional equity securities, which would lead to furtherdilution of our issued and outstanding common stock.***

The issuance of additional equity securities wouldresult in dilution of then-existing stockholders' equity interests in us. Ourcertificate of incorporation authorizes our board of directors, withoutstockholder approval, to establish one or more series of preferred stock and todetermine, with respect to any series of preferred stock, the 

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number of shares in thatseries and the terms, rights and limitations of that series. If we issueconvertible preferred stock, a subsequent conversion may dilute the currentcommon stockholders' interest. Our board of directors has no present intentionof issuing any such preferred stock, but reserves the right to do so in thefuture, subject to restrictions set forth in the Merger Agreement. In addition,subject to restrictions set forth in the Merger Agreement, we may issueadditional shares of common stock under our equity incentive plans. 

***Inaddition to provisions of the Merger Agreement, certain provisions contained inour certificate of incorporation and bylaws could discourage a takeoverattempt, which may reduce or eliminate the likelihood of a change of controltransaction other than the Merger and, therefore, your ability to sell yourshares at a price higher than contemplated by the Merger.***

In addition to provisions of the Merger Agreement,certain provisions contained in our certificate of incorporation and bylaws,such as a classified board of directors, limitations on stockholder proposalsat meetings of stockholders and the inability of stockholders to call specialmeetings and certain provisions of Delaware law, could make it more difficultfor a third party other than Hexion to acquire control of our company, even ifsome of our stockholders considered such a change of control to be beneficial.Our certificate of incorporation also authorizes our board of directors to issuepreferred stock without stockholder approval. Although the terms of the MergerAgreement restrict our ability to issue preferred stock, if the MergerAgreement is terminated, or if Hexion consents, our board of directors couldelect to issue preferred stock that has special voting or other rights thatcould make it even more difficult for a third party to acquire us, which mayreduce or eliminate your ability to sell your shares of common stock at a pricehigher than contemplated by the Merger. 

**RisksRelated to MTBE**

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

Weproduce MTBE, an oxygenate that is blended with gasoline to reduce vehicle airemissions and to enhance the octane rating of gasoline. Existing or futurelitigation or legislative initiatives restricting the use of MTBE in gasolinemay subject us or our products to environmental liability or materiallyadversely affect our sales and costs. Because MTBE has contaminated some watersupplies, its use has become controversial in the U.S. and elsewhere, and itsuse has been effectively eliminated in the U.S. market.

Asa result of these developments, we currently market, either directly or throughthird parties, MTBE to customers located outside the U.S. for use as a gasolineadditive, which has produced a lower level of cash flow than the previous saleof MTBE in the U.S. We may also elect to use all or a portion of our precursorTBA to produce saleable products other than MTBE. If we opt to produce productsother than MTBE, necessary modifications to our facilities will requiresignificant capital expenditures and the sale of such other products mayproduce a lower level of cash flow than that historically produced from thesale of MTBE.

Numerouscompanies, including refiners, manufacturers and sellers of gasoline, as wellas manufacturers of MTBE, have been named as defendants in approximately 150cases currently pending in U.S. courts that allege MTBE contamination ingroundwater.  We were recently named forthe first time as a defendant in eight of those lawsuits. The plaintiffs in theMTBE groundwater contamination cases generally seek compensatory damages,punitive damages, injunctive relief, such as monitoring and abatement, andattorney fees.  We currently haveinsufficient information to meaningfully assess our potential exposure in thesecases.  It is possible that we could benamed as a defendant in additional existing or future MTBE contamination cases.We cannot provide assurances that adverse results against us in existing orfuture MTBE contamination cases will not have a material adverse effect on ourbusiness, results of operations and financial position.

**ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**IssuerPurchases of Equity Securities**

The following table presents shares of restrictedstock granted under our stock incentive plan that we withheld upon vesting tosatisfy our tax withholding obligations during the second quarter of 2007. Wehave no publicly announced plans or programs to repurchase our common stock.
| **Period** | ** ** | **Total Number  of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number  of Shares  Purchased as Part of  Publicly Announced  Plans or Programs** | ** ** | **Maximum Number  (or Approximate Dollar  Value) of Shares that May  Yet Be Purchased Under  the Plans or Programs** | ** ** |
|------------|------------|----------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April      |       | —                                       |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                                                                |       |
| May        |       | 282                                          |       | $                                                | 19.98      |                                                                                                                             | —     |                                                                                                                                                                                  | —     |   |
| June       |       | 152                                          |       | 19.88                                            |       | —                                                                                                                           |       | —                                                                                                                                                                                |       |
| Total      |       | 434                                          |       | $                                                | 19.94      |                                                                                                                             | —     |                                                                                                                                                                                  | —     |   |

 

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

We held our annual meeting of stockholders on May3, 2007. The first item of business was the election of three Class IIIdirectors. The votes were tabulated as follows: 177,912,450 votes were cast forNolan D. Archibald and 20,128,211 votes were withheld; 173,293,919 votes werecast for H. William Lichtenberger and 24,746,742 votes were withheld; and187,156,683 votes were cast for Richard A. Michaelson and 10,883,978 votes werewithheld. The second item of business was a proposal to ratify the selection ofDeloitte & Touche LLP as our independent registered 

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public accounting firm for the year ending December31, 2007. The votes were tabulated as follows: 195,691,949 were cast for,551,504 were cast against, and 1,797,208 abstained.

**ITEM 5.OTHER INFORMATION**

**Action ofCompensation Committee**

On July 24, 2007,the Compensation Committee of the Board of Directors of our Company approvedthe payment of transaction bonuses to certain of our officers relating to oursuccessful completion of mergers and acquisitions activities in 2006.  These bonuses are payable in full upon theconsummation of the final sale of our U.S. base chemicals and polymersbusinesses, or, with respect to any person whose employment is involuntarilyterminated prior to the payment of the bonus, the date of such person’stermination of employment.  The amountspayable to our Chief Executive Officer, Chief Financial Officer and certainother officers are set forth in the table below.

| Name              | ** ** | **Title**                                    | ** ** | **Bonus Amount** |
|-------------------|------------|----------------------------------------------|------------|------------------|
| Peter R. Huntsman |       | President, Chief Executive Officer           |       | $750,000         |
| J. Kimo Esplin    |       | Executive Vice President and CFO             |       | $452,600         |
| Samuel D. Scruggs |       | Executive Vice President and General Counsel |       | $566,000         |
| Paul Hulme        |       | Division President, Materials & Effects  |       | $231,000         |

 

**InformationConcerning Sasol-Huntsman GmbH and Co. KG**

In our annual report on Form 10-K, we stated that ourinvestment in Sasol-Huntsman GmbH and Co. KG met certain significance testrequirements pursuant to Rule 3-09 of Regulation S-X for the year endedDecember 31, 2005 and that we intended to file by, June 30, 2007, an amendmentto our annual report on Form 10-K to include the separate financial statementsof Sasol-Huntsman GmbH and Co. KG.  Uponfurther review and analysis, we have determined that Sasol-Huntsman GmbH andCo. KG does not meet the applicable significance tests of Regulation S-X andthat we are not required to amend our annual report on Form 10-K to includeSasol-Huntsman GmbH and Co. KG’s financial statements.

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**ITEM 6. EXHIBITS**
| 1.1    |   | Underwriting Agreement, dated as of August 2, 2007,  by and among the Company, MatlinPatterson Global Opportunities Partners L.P.,  MatlinPatterson Global Opportunities Partners B, L.P., MatlinPatterson Global  Opportunities Partners (Bermuda) L.P. and Credit Suisse Securities (USA) LLC  (incorporated by reference to Exhibit 1.1 of our current report on  Form 8-K filed on August 6, 2007)                                                                                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1    |   | Amended and Restated Asset Purchase Agreement dated  June 22, 2007 among Flint Hills Resources, LP, Flint Hills Resources, LLC,  Huntsman International LLC, Huntsman Petrochemical Corporation, Huntsman International  Chemicals Corporation, Huntsman Polymers Holdings Corporation, Huntsman  Expandable Polymers Company, LC, Huntsman Polymers Corp. and Huntsman  Chemical Company of Canada, Inc. (incorporated by reference to  Exhibit 2.1 of our current report on Form 8-K filed on June 25,  2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.2    |   | Agreement and Plan of Merger, dated as of  July 12, 2007, among the Company, Hexion Specialty Chemicals, Inc. and  Nimbus Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of our  current report on Form 8-K filed on July 13, 2007)                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1    |   | Registration Rights Agreement, dated as of June 25,  2007, by and among Huntsman Corporation, Fidelity Charitable Gift Fund, and  Jon M. Huntsman (incorporated by reference to Exhibit 4.4 to our  registration statement on Form S-3 of Huntsman Corporation filed on June 26,  2007 (File No. 333-144043))                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2    |   | Registration Rights Agreement, dated as of June 25,  2007, by and among Huntsman Corporation, The Jon and Karen Huntsman  Foundation, and Jon M. Huntsman (incorporated by reference to  Exhibit 4.5 to our registration statement on Form S-3 of Huntsman  Corporation filed on June 26, 2007 (File No. 333-144043))                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3    |   | Amended and Restated Registration Rights Agreement  dated July 12, 2007 among the Company, Huntsman Family Holdings  Company LLC, MatlinPatterson Global Opportunities Partners, L.P.,  MatlinPatterson Global Opportunities Partners B, L.P., MatlinPatterson  Global Opportunities Partners (Bermuda), L.P. and the other stockholders  party thereto (incorporated by reference to Exhibit 4.1 of our current  report on Form 8-K filed on July 13, 2007)                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1   |   | Third Amendment to Credit Agreement dated April 19,  2007 by and among Huntsman International LLC, as Borrower, Deutsche Bank AG  New York Branch, as Administrative Agent and Collateral Agent, and the other  financial institutions party thereto (incorporated by reference to  Exhibit 10.1 of our current report on Form 8-K filed on April 24,  2007)                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 99.1   |   | Voting Agreement, dated as of July 12, 2007, by and  among Hexion Specialty Chemicals, Inc., The Jon and Karen Huntsman  Foundation, Fidelity Charitable Gift Fund and Jon M. Huntsman (incorporated  by reference to Exhibit 99.2 to our registration statement on Form S-3 of  Huntsman Corporation filed on July 31, 2007 (File No. 333-144989))                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 99.2   |   | Voting Agreement, dated as of July 12, 2007, by and  among Hexion Specialty Chemicals, Inc., MatlinPatterson Global Opportunities  Partners L.P., MatlinPatterson Global Opportunities Partners B, L.P. and  MatlinPatterson Global Opportunities Partners (Bermuda) L.P. (incorporated by  reference to Exhibit 99.3 to our registration statement on Form S-3 of  Huntsman Corporation filed on July 31, 2007 (File No. 333-144989))                                                                                    |

 

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrants have dulycaused this report to be signed on their behalf by the undersigned thereuntoduly authorized.

Dated: August 9, 2007

 
|   | HUNTSMAN CORPORATION       |
|--------|----------------------------|
|   | 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**
| 1.1    |   | Underwriting Agreement, dated as of August 2, 2007,  by and among the Company, MatlinPatterson Global Opportunities Partners L.P.,  MatlinPatterson Global Opportunities Partners B, L.P., MatlinPatterson Global  Opportunities Partners (Bermuda) L.P. and Credit Suisse Securities (USA) LLC  (incorporated by reference to Exhibit 1.1 of our current report on  Form 8-K filed on August 6, 2007)                                                                                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1    |   | Amended and Restated Asset Purchase Agreement dated  June 22, 2007 among Flint Hills Resources, LP, Flint Hills Resources, LLC,  Huntsman International LLC, Huntsman Petrochemical Corporation, Huntsman  International Chemicals Corporation, Huntsman Polymers Holdings Corporation,  Huntsman Expandable Polymers Company, LC, Huntsman Polymers Corp. and  Huntsman Chemical Company of Canada, Inc. (incorporated by reference to  Exhibit 2.1 of our current report on Form 8-K filed on June 25,  2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.2    |   | Agreement and Plan of Merger, dated as of  July 12, 2007, among the Company, Hexion Specialty Chemicals, Inc. and  Nimbus Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of our  current report on Form 8-K filed on July 13, 2007)                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1    |   | Registration Rights Agreement, dated as of June 25,  2007, by and among Huntsman Corporation, Fidelity Charitable Gift Fund, and  Jon M. Huntsman (incorporated by reference to Exhibit 4.4 to our  registration statement on Form S-3 of Huntsman Corporation filed on June 26,  2007 (File No. 333-144043))                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2    |   | Registration Rights Agreement, dated as of June 25,  2007, by and among Huntsman Corporation, The Jon and Karen Huntsman  Foundation, and Jon M. Huntsman (incorporated by reference to  Exhibit 4.5 to our registration statement on Form S-3 of Huntsman  Corporation filed on June 26, 2007 (File No. 333-144043))                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3    |   | Amended and Restated Registration Rights Agreement  dated July 12, 2007 among the Company, Huntsman Family Holdings  Company LLC, MatlinPatterson Global Opportunities Partners, L.P.,  MatlinPatterson Global Opportunities Partners B, L.P., MatlinPatterson  Global Opportunities Partners (Bermuda), L.P. and the other stockholders  party thereto (incorporated by reference to Exhibit 4.1 of our current  report on Form 8-K filed on July 13, 2007)                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1   |   | Third Amendment to Credit Agreement dated April 19,  2007 by and among Huntsman International LLC, as Borrower, Deutsche Bank AG  New York Branch, as Administrative Agent and Collateral Agent, and the other  financial institutions party thereto (incorporated by reference to  Exhibit 10.1 of our current report on Form 8-K filed on April 24,  2007)                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 99.1   |   | Voting Agreement, dated as of July 12, 2007, by and  among Hexion Specialty Chemicals, Inc., The Jon and Karen Huntsman  Foundation, Fidelity Charitable Gift Fund and Jon M. Huntsman (incorporated  by reference to Exhibit 99.2 to our registration statement on Form S-3 of  Huntsman Corporation filed on July 31, 2007 (File No. 333-144989))                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 99.2   |   | Voting Agreement, dated as of July 12, 2007, by and  among Hexion Specialty Chemicals, Inc., MatlinPatterson Global Opportunities  Partners L.P., MatlinPatterson Global Opportunities Partners B, L.P. and  MatlinPatterson Global Opportunities Partners (Bermuda) L.P. (incorporated by  reference to Exhibit 99.3 to our registration statement on Form S-3 of  Huntsman Corporation filed on July 31, 2007 (File No. 333-144989))                                                                                    |

 

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