HUNTSMAN LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Millions)

	December 31,			December 31,
	2004			2003
ASSETS

Current assets:
Cash and cash equivalents	$	11.7		$	19.5
Restricted cash	8.9			10.5
Accounts and notes receivables (net of allowance for doubtful accounts of $7.7 and $6.3, respectively)	540.3			373.1
Accounts receivable from affiliates	64.4			55.6
Inventories	338.8			296.0
Prepaid expenses	21.9			25.0
Deferred income taxes	0.7			—
Other current assets	1.6			3.4
Total current assets	988.3			783.1

Property, plant and equipment, net	1,232.1			1,294.0
Investment in unconsolidated affiliates	196.0			233.6
Intangible assets, net	32.4			34.9
Goodwill	3.3			3.3
Deferred income taxes	8.2			12.0
Receivables from affilitates	12.8			11.7
Other noncurrent assets	179.2			156.7
Total assets	$	2,652.3		$	2,529.3

LIABILITIES AND MEMBER’S DEFICIT

Current liabilities:
Accounts payable	$	318.4		$	243.3
Accounts payable to affiliates	21.6			15.5
Accrued liabilities	233.7			204.6
Deferred income taxes	8.2			14.5
Current portion of long-term debt	25.3			132.2
Total current liabilities	607.2			610.1

Long-term debt	1,912.0			1,699.9
Long-term debt to affiliates	40.9			35.5
Deferred income taxes	1.0			—
Other noncurrent liabilities	272.0			234.3
Total liabilities	2,833.1			2,579.8

Commitments and contingencies (Notes 19 and 21)

Member’s deficit:
Member’s equity, 10,000,000 units	1,095.2			1,095.2
Accumulated deficit	(1,359.4		)	(1,182.5		)
Accumulated other comprehensive income	83.4			36.8
Total member’s deficit	(180.8		)	(50.5		)
Total liabilities and member’s deficit	$	2,652.3		$	2,529.3

See accompanying notes to consolidated financial statements.

HUNTSMAN LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(Dollars in Millions)

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2004			2003			2002

Revenues:
Trade sales	$	3,963.4		$	3,028.0		$	2,494.8
Related party sales	228.2			205.6			166.2
Total revenues	4,191.6			3,233.6			2,661.0
Cost of goods sold	3,875.9			3,019.1			2,421.0
Gross profit	315.7			214.5			240.0

Expenses:
Selling, general and administrative	154.2			143.9			151.9
Research and development	20.6			22.0			23.8
Other operating income	(11.6		)	(8.3		)	(1.0		)
Restructuring and plant closing costs (credits)	40.8			(1.7		)	(1.0		)
Total expenses	204.0			155.9			173.7
Operating income	111.7			58.6			66.3

Interest expense, net	(178.8		)	(150.3		)	(192.7		)
Equity in loss of investment in unconsolidated affiliates	(95.8		)	(139.5		)	(31.1		)
Other expense	(6.2		)	(0.9		)	(7.6		)
Loss before income taxes	(169.1		)	(232.1		)	(165.1		)
Income tax expense	(7.8		)	(16.1		)	(8.5		)
Loss before minority interest and cumulative effect of accounting change	(176.9		)	(248.2		)	(173.6		)
Minority interest in subsidiaries’ income	—			—			(28.8		)
Cumulative effect of accounting changes	—			—			169.7
Net loss	(176.9		)	(248.2		)	(32.7		)
Other comprehensive income	46.6			167.6			10.5
Comprehensive loss	$	(130.3	)	$	(80.6	)	$	(22.2	)

See accompanying notes to consolidated financial statements.

HUNTSMAN LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY (DEFICIT)

(Dollars in Millions)

	Member’s equity				Common Stock					Preferred Stock					Accumulated			Accumulated other comprehensive
	Units	Amount			Shares		Amount			Shares		Amount			Deficit			income (loss)			Total

Balance, January 1, 2002	—	$	—		17,998,000		$	181.0		114,500		$	100.0		$	(901.5	)	$	(141.3	)	$	(761.8	)
Recapitalization of the Company (Note 1)	10,000,000	281.1			(17,998,000	)	(181.0		)	(114,500	)	(100.0		)	(0.1		)	—			—
Capital contribution from Parent related to exchange of debt for parent company equity		753.1																			753.1
Expenses of exchange of debt	—	(10.1		)	—		—			—		—			—			—			(10.1		)
Capital contribution from Parent related to acquisition of minority interest in affiliates (Note 1)	—	71.1			—		—			—		—			—			—			71.1
Net loss	—	—			—		—			—		—			(32.7		)	—			(32.7		)
Other comprehensive income	—	—			—		—			—		—			—			10.5			10.5
Balance, December 31, 2002	10,000,000	1,095.2			—		—			—		—			(934.3		)	(130.8		)	30.1
Net loss	—	—			—		—			—		—			(248.2		)	—			(248.2		)
Other comprehensive income	—	—			—		—			—		—			—			167.6			167.6
Balance, December 31, 2003	10,000,000	1,095.2			—		—			—		—			(1,182.5		)	36.8			(50.5		)
Net loss	—	—			—		—			—		—			(176.9		)	—			(176.9		)
Other comprehensive income	—	—			—		—			—		—			—			46.6			46.6
Balance, December 31, 2004	10,000,000	$	1,095.2		—		$	—		—		$	—		$	(1,359.4	)	$	83.4		$	(180.8	)

See accompanying notes to consolidated financial statements.

HUNTSMAN LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Millions)

	Year ended December 31,
	2004			2003			2002
Operating Activities:
Net loss	$	(176.9	)	$	(248.2	)	$	(32.7	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cumulative effect of accounting change	—			—			(169.7		)
Equity in losses of investment in unconsolidated affiliates	95.8			139.5			31.1
Depreciation and amortization	133.1			130.0			152.7
Provision for (recoveries of) losses on accounts receivable	—			1.3			(1.8		)
Loss on disposal of assets	2.7			1.5			0.5
Loss on early extinguishment of debt	6.1			—			6.7
Noncash interest expense	10.5			13.4			7.6
Noncash restructuring and plant closing costs (credits)	21.6			(1.7		)	(5.3		)
Deferred income taxes	(4.4		)	2.8			—
Unrealized gain on foreign currency transactions	(5.3		)	(2.5		)	—
Minority interest in subsidiaries	—			—			28.8
Other	(1.0		)	—			—
Changes in operating assets and liabilities:
Accounts and notes receivables	(118.0		)	(22.5		)	(48.2		)
Inventories	(42.4		)	2.1			1.3
Prepaid expenses	36.5			6.9			16.1
Other current assets	(14.3		)	(0.6		)	(28.4		)
Other noncurrent assets	(34.1		)	(30.0		)	(6.4		)
Accounts payable	33.1			16.2			56.9
Accrued liabilities	54.8			5.9			65.2
Other noncurrent liabilities	2.6			9.1			14.3
Net cash provided by operating activities	0.4			23.2			88.7

Investing Activities:
Capital expenditures	(68.3		)	(89.7		)	(70.2		)
Proceeds from sale of plant & equipment	0.4			0.2			—
Investment in unconsolidated affiliates	(0.2		)	—			(2.5		)
Cash paid for intangible asset	—			(2.3		)	—
Change in restricted cash	1.6			(1.4		)	53.2
Net cash used in investing activities	(66.5		)	(93.2		)	(19.5		)

Financing Activities:
Net borrowings (repayment) under revolving loan facilities	135.8			(19.9		)	32.1
Repayment of long-term debt	(1,187.0		)	(339.3		)	(121.6		)
Proceeds from long-term debt	1,145.7			450.5			—
Payments on notes payable	(19.6		)	—			—
Net borrowings from affiliate	2.2			—			—
Debt issuance costs paid	(18.4		)	(27.9		)	(16.6		)
Cash acquired in acquisition of equity method affiliate	—			—			7.9
Net cash provided by (used in) financing activities	58.7			63.4			(98.2		)

Effect of exchange rate changes on cash	(0.4		)	3.8			3.6

Decrease in cash and cash equivalents	(7.8		)	(2.8		)	(25.4		)
Cash and cash equivalents at beginning of period	19.5			22.3			47.7
Cash and cash equivalents at end of period	$	11.7		$	19.5		$	22.3

Supplemental cash flow information:
Cash paid for interest	$	154.4		$	131.7		$	104.4
Cash paid for (received from) income taxes	10.7			(1.4		)	(1.5		)

See accompanying notes to consolidated financial statements.

HUNTSMAN LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

Company

Huntsman LLC is a Utah limited liability company and all of its units of interest are owned by Huntsman Corporation. In this report, the term the “Company” refers to Huntsman LLC and its consolidated subsidiaries, unless the context indicates otherwise.

On February 16, 2005, Huntsman Corporation, the Company’s parent corporation, completed an initial public offering of shares of its common stock and shares of its 5% Mandatory Convertible Preferred Stock. Net proceeds to Huntsman Corporation from the offering were approximately $1,500 million, substantially all of which has been used to repay outstanding indebtedness of certain of Huntsman Corporation’s subsidiaries, including HMP Equity Holdings Corporation (“HMP”), the Company and Huntsman International Holdings LLC (“HIH”). In connection with this offering, Huntsman Corporation and certain affiliates engaged in a series of reorganization transactions such that the Company became a direct, 100% owned subsidiary of Huntsman Corporation.

Prior to its conversion into a Utah limited liability company on September 9, 2002, the Company, then named Huntsman Corporation, was a Utah corporation. As part of the conversion to a limited liability company, the holders of shares of preferred and common stock exchanged their shares in the Company for units of membership interest. Because these exchange transactions were between related entities, the exchange was recorded at the historical carrying value of the stock and no gain or loss was recognized.

Prior to September 30, 2002, the Company was owned by members of the Huntsman family and by certain affiliated entities. On September 30, 2002, the Company and its subsidiary, Huntsman Polymers Corporation (“Huntsman Polymers”), completed debt for equity exchanges (the “Restructuring”). Pursuant to the Restructuring, the Huntsman family contributed all of their equity interests in the Company and its subsidiaries, including minority interests acquired from Consolidated Press (Finance) Limited (“CPH”) and the interests described in the second following paragraph, to Huntsman Holdings in exchange for equity interests in Huntsman Holdings. MatlinPatterson Global Opportunities Partners, L.P. (“GOP”) and CPH exchanged approximately $679 million in principal amount of the Company’s outstanding subordinated notes and Huntsman Polymers’ 113¤4% senior unsecured notes (the “Huntsman Polymers Notes”) they held into equity interests in Huntsman Holdings. There was also approximately $84 million in accrued interest that was cancelled as a result of the exchange. The net book value of the $763 million of principal and accrued interest exchanged for equity, after considering debt issuance costs, was $753 million. Until February 16, 2005, Huntsman Holdings indirectly owned all the equity of the Company.

In connection with the Restructuring, the effective cancellation of debt was recorded as a capital contribution by the Company because GOP and CPH received equity of Huntsman Holdings, the Company’s indirect parent, in exchange. The fair value of the equity received approximated the carrying value of the debt exchanged. No gain was recorded on the Restructuring.

As mentioned above, on September 30, 2002, the Company effectively acquired the following interests from Huntsman Holdings: (1) the remaining 20% interest in JK Holdings Corporation (“JK Holdings”) and the remaining 20% interest in Huntsman Surfactants Technology Corporation, both previously accounted for as consolidated subsidiaries; (2) the remaining 50% interest in Huntsman Chemical Australia Unit Trust (“HCA Trust”) and HCPH Holdings Pty Limited (“HCPH”), formerly accounted for as an investment in unconsolidated affiliates using equity method of accounting; and (3) the remaining 19.9% interest in Huntsman Specialty Chemicals Holdings Corporation (“HSCHC”). The Company accounted for the acquisition of the minority interests from Huntsman Holdings as an equity contribution with a value of $71.1 million (including cash of $7.9 million and net of debt assumed of $35.3 million).

Prior to February 16, 2005, the Company owned 60% of the membership interests of Huntsman International Holdings LLC (“HIH”). HIH is a global manufacturer and marketer of polyurethanes, amines, surfactants, titanium dioxide (“TiO2”) and basic petrochemicals. HIH and its subsidiaries are non-guarantor, unrestricted subsidiaries of the Company pursuant to the Company’s various debt agreements. HIH and its subsidiaries, including Huntsman International LLC (“HI”), are separately financed from the Company, their debt is non-recourse to the Company, and the Company is not obligated to make cash contributions to, or investments in, HIH and its subsidiaries.

In connection with Huntsman Corporation’s initial public offering of common and mandatory convertible preferred stock on February 16, 2005 and the related reorganization transactions among certain affiliates, the Company’s ownership of HIH was reduced to 42%

effective February 16, 2005 from 60% as of December 31, 2004. For financial reporting purposes this was considered a reorganization of entities under common control, and beginning in March 2005, the Company no longer consolidated HIH with its results of operations and has reclassified its financial statements to reflect its membership interest in HIH using the equity method for all periods presented.

Merger into Huntsman International LLC and New Credit Facility

In July 2005, the Company obtained the required consents from the holders of its senior secured notes (the “HLLC Senior Secured Notes”) and its senior notes (the “HLLC Senior Notes”) to amend certain provisions in the indentures governing these notes. The amendments facilitated the merger of the Company and HIH with and into HI. The amendments included, among other things, an increase in the amount of secured indebtedness the Company can incur. In addition, with respect to the HLLC Senior Secured Notes, the amendment also provided for the elimination of stock pledges of subsidiaries as collateral under the applicable indentures.

On August 16, 2005, the Company merged with and into HI. The separate existence of the Company ceased at the time of the merger, and HI succeeded to all the rights and obligations of the Company. The merger of the Company and HIH with and into HI simplified the financing and reporting structure of Huntsman Corporation and facilitated other organizational efficiencies. The Company recently completed the syndication of the new secured credit facility for the merged company. The secured credit facility was comprised of a $1.85 billion term loan due 2012 and a $650 million revolving loan facility due 2011. Interest rate margins under the secured credit facility are at LIBOR plus 1.75%. Proceeds from the new credit facility were used to repay outstanding borrowings under the Company’s existing senior secured credit facilities, HI’s senior secured credit facilities and certain other debt. The Company completed the merger and related financing on August 16, 2005.

Description of Business

The Company is a leading manufacturer and marketer of a wide range of chemical products that are sold to diversified consumer and industrial end markets. The Company has primary manufacturing facilities located in North America, Europe, and Australia and sells its products globally through its three principal business segments: Performance Products, Polymers, and Base Chemicals.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of Huntsman LLC and its wholly-owned and majority-owned subsidiaries where the Company has a controlling financial interest, with the exception of HIH (see discussion in Note 1). All intercompany accounts and transactions have been eliminated.

Revenue Recognition

The Company generates substantially all of its revenues through sales in the open market and long-term supply agreements. The Company recognizes revenue when it is realized or realizable, and earned. Revenue for product sales is recognized when a sales arrangements exists, risk and title to the product transfer to the customer, collectibility is reasonably assured, and pricing is fixed or determinable. This occurs at the time shipment is made.

Cost of Goods Sold

The Company classifies the costs of manufacturing and distributing its products as cost of goods sold. Manufacturing costs include variable costs, primarily raw materials and energy, and fixed expenses directly associated with production. Manufacturing costs include, among other things, plant site operating costs and overhead, production planning and logistics costs, repair and maintenance costs, plant site purchasing costs, and engineering and technical support costs. Distribution, freight and warehousing costs are also included in cost of goods sold.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers cash in checking accounts and cash in short-term highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.

Inventories

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

Property, Plant and Equipment

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

Buildings and equipment		3-25 years
Transportation equipment		3-7 years
Furniture, fixtures and leasehold improvements		5-6 years

Until January 1, 2003, approximately $1.3 billion of the total plant and equipment was depreciated using the straight-line method on a group basis at a 4.7% composite rate. When capital assets representing complete groups of property were disposed of, the difference between the disposal proceeds and net book value was credited or charged to income. When miscellaneous assets were disposed of, the difference between asset costs and salvage value was charged or credited to accumulated depreciation. Effective January 1, 2003, the Company changed its method of accounting for depreciation for the assets previously recorded on a group basis to the component method. Specifically, the net book value of all the assets on January 1, 2003 were allocated to individual components and are being depreciated over their remaining useful lives and gains and losses are recognized when a component is retired. This change encompassed both a change in accounting method and a change in estimate and resulted in a decrease to depreciation expense for the year ended December 31, 2003 by $43.0 million. The change from the group method to the composite method was made in order to reflect more precisely overall depreciation expense based on the lives of individual components rather than overall depreciation expense based on the average lives for large groups of related assets.

Interest expense capitalized as part of plant and equipment was $2.2 million, $0.9 million and $3.3 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Periodic maintenance and repairs applicable to major units of manufacturing facilities are accounted for on the prepaid basis by capitalizing the costs of the turnaround and amortizing the costs over the estimated period until the next turnaround. Normal maintenance and repairs of plant and equipment are charged to expense as incurred. Renewals, betterments and major repairs that materially extend the useful life of the assets are capitalized, and the assets replaced, if any, are retired.

Investment in Unconsolidated Affiliates

Investments in companies in which the Company exercises significant management influence, are accounted for using the equity method.

Intangible Assets and Goodwill

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

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

Prior to January 2002, the Company amortized goodwill over periods ranging from 10-20 years. Effective January 1, 2002, the Company ceased amortizing goodwill in accordance with SFAS No. 142.

Other Noncurrent Assets

Other non-current assets consist primarily of spare parts, debt issuance costs, prepaid pension costs and capitalized turnaround costs. Debt issuance costs are amortized using the interest method over the term of the related debt.

Carrying Value of Long-Term Assets

Upon the occurrence of a triggering event, the Company evaluates the carrying value of long-term assets based upon current and anticipated undiscounted cash flows and recognizes an impairment when such estimated cash flows are less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. Fair value is generally estimated by discounting estimated future cash flows using a discount rate commensurate with the risks involved. See “Note 10—Restructuring and Plant Closing Costs.”

Financial Instruments

The carrying amount reported in the balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying value of the Company’s senior credit facilities approximates fair value since they bear interest at a variable rate plus an applicable margin. The fair value of the Company’s senior subordinated notes is estimated based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. See “Note 20—Fair Value of Financial Instruments.”

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. The Company evaluates the resulting deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances have been established against the entire domestic and certain of the non-U.S. deferred tax assets due to the uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether a change in circumstances has occurred to provide enough positive evidence to support a change in judgment about the realizability of the related deferred tax asset in future years.

The Company does not provide for income taxes or benefits on the undistributed earnings of its non-U.S. subsidiaries as earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. The undistributed earnings of non-U.S. subsidiaries that are deemed to be permanently invested were $12.8 million at December 31, 2004. It is not practicable to determine the unrecognized deferred tax liability on those earnings.

Effective September 9, 2002, the Company converted to a limited liability company. The Company, for U.S. federal income tax purposes, is disregarded as a separate entity and combined with HMP, its sole member through February 16, 2005. Therefore, the Company is not separately subject to U.S. federal tax on income, but is taxed in combination with HMP’s items of income and expense. The Company’s subsidiaries are generally corporations and continue to be subject to U.S. federal income tax.

The Company was party to a tax sharing agreement with HMP through February 16, 2005. The terms of the agreement require the Company to make payment to HMP for taxes that are attributable to the Company’s operations, or any of the Company’s subsidiaries’ operations, as well as for taxes that are attributable to HMP’s items of income and expense. The Company is also a party to tax sharing agreements with its subsidiaries. The terms of those agreements require the subsidiaries to make payment to the Company for taxes that are attributable to the subsidiaries’ operations

The Company has a valuation allowance against its entire domestic and a portion of its foreign net deferred tax assets. Included in the deferred tax assets at December 31, 2004 and 2003 is approximately $7.7 million of cumulative tax benefit related to equity transactions which will be credited to stockholders’ equity, if and when realized, after the other tax deductions in the carryforwards have been realized.

Derivatives and Hedging Activities

The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting For Derivative Instruments And Hedging Activities.” SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the hedged items are recognized in earnings. If the derivative is designated in a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and will be recognized in the income statement when the hedged item affects earnings.

SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings.

Asset Retirement Obligations

The Company accrues for asset retirement obligations in the period in which the obligations are incurred and the Company has sufficient information to estimate a range of potential settlement dates for the obligation. These costs are accrued at estimated fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company will recognize a gain or loss for any difference between the settlement amount and the liability recorded.

The Company has identified asset retirement obligations that have indeterminate settlement dates and therefore, the fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate a range of potential settlement dates for the obligation. An asset retirement obligation related to these assets will be recognized when the Company knows such information.

Environmental Expenditures

Environmental related restoration and remediation costs are recorded as liabilities when site restoration and environmental remediation and clean-up obligations are either known or considered probable and the related costs can be reasonably estimated. Other environmental expenditures that are principally maintenance or preventative in nature are recorded when expended and expensed or capitalized as appropriate. See “Note 21—Environmental Matters.”

Earnings per Unit of Membership Interest

Earnings per unit of membership interest is not presented because it is not considered meaningful information due to the Company’s ownership by a single equity holder.

Research and Development

Research and development costs are expensed as incurred.

Foreign Currency Translation

The accounts of the Company’s subsidiaries outside of the United States, except for those operating in highly inflationary economic environments, consider local currency to be the functional currency. Accordingly, assets and liabilities are translated at rates prevailing at the balance sheet date. Revenues, expenses, gains and losses are translated at a weighted average rate for the period. Cumulative translation adjustments are recorded to member’s equity as a component of accumulated other comprehensive loss.

Transaction gains and losses are recorded in the statement of operations and were a net gain of $4.9 million, a net gain of $2.2 million and a net loss of $3.2 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Recently Issued Accounting Standards

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

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

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29.” SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this standard are effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. We will apply this standard prospectively.

In December 2004, the FASB issued SFAS No. 123R, “Share Based Payment.” SFAS No. 123R requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which the employee is required to provide services in exchange for the award. This standard eliminates the alternative to use the intrinsic value method of accounting for share based payments as previously provided in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” We adopted SFAS No. 123R effective January 1, 2005, and have applied this standard prospectively to share-based awards issued to our employees in connection with Huntsman Corporation’s initial public offering. In connection with Huntsman Corporation’s initial public offering of common and mandatory convertible preferred stock on February 16, 2005, certain of our employees received Huntsman Corporation stock options and restricted stock. We did not have share-based awards prior to the awards issued in connection with Huntsman Corporation’s initial public offering.

In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies the term conditional asset retirement obligation used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of December 2005. We are reviewing FIN 47 to determine its impact on our financial statements.

In September 2005, the Emerging Issues Task Force reached a consensus on issue 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty,” that requires companies to recognize an exchange of finished goods for raw materials or work-in-process within the same line of business at fair value. All other exchanges of inventory would be reflected at the recorded amount. We are evaluating the impact of this consensus to determine its impact on our results of operations.

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

3. INVENTORIES

Inventories consisted of the following (dollars in millions):

	December 31,			December 31,
	2004			2003
Raw materials and supplies	$	106.0		$	77.0
Work in progress	16.7			14.7
Finished goods	297.5			221.1
Total	420.2			312.8

LIFO reserves	(81.0		)	(15.5		)
Lower of cost or market reserves	(0.4		)	(1.3		)
Net	$	338.8		$	296.0

As of December 31, 2004 and 2003, approximately 56.2% and 54.3%, respectively, of inventories were recorded using the last-in, first-out cost method (“LIFO”). At December 31, 2004 and 2003, the excess of current cost over the stated LIFO value was $81.0 million and $15.5 million, respectively.

For the year ended December 31, 2004, 2003, and 2002, inventory quantities were reduced resulting in a liquidation of certain LIFO inventory layers carried at costs that were lower than the cost of current purchases, the effect of which reduced the net loss by approximately $2.0 million, $1.0 million, and $1.7 million, respectively.

In the normal course of operations, the Company at times exchanges raw materials and finished goods with other companies for the purpose of reducing transportation costs. The net open exchange positions are valued at the Company’s cost. Net amounts deducted from or added to inventory under open exchange agreements, which represent the net amounts payable or receivable by the Company under open exchange agreements, were approximately $6.4 million payable and $1.6 million payable (10.8 million and 8.2 million pounds) at December 31, 2004 and 2003, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

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

	December 31,			December 31,
	2004			2003

Land	$	65.9		$	51.3
Buildings	233.9			182.4
Plant and equipment	2,009.0			2,043.4
Construction in progress	65.7			92.9
Total	2,374.5			2,370.0
Less accumulated depreciation	(1,142.4		)	(1,076.0		)
Net	$	1,232.1		$	1,294.0

Depreciation expense for the years ended December 31, 2004, 2003 and the 2002 was $117.6 million, $113.4 million and $132.0 million, respectively.

Property, plant and equipment includes gross assets acquired under capital leases of $4.9 million for both December 31, 2004 and 2003; related amounts included in accumulated depreciation were $1.5 million and $0.1 million at December 31, 2004 and 2003, respectively.

5. INVESTMENT IN UNCONSOLIDATED AFFILIATES

The Company’s ownership percentage and investment in unconsolidated affiliates were as follows (dollars in millions):

	December 31,		December 31,
	2004		2003
Equity Method:
Polystyrene Australia Pty Ltd.(50%)	$	4.7	$	3.6
Sasol-Huntsman GmbH and Co. KG (50%)	17.5		13.2
HIH (60%)	171.3		214.3
Total	193.5		231.1
Cost Method:
Gulf Advanced Chemicals Industry Corporation (4%)	2.5		2.5
Total Investment	$	196.0	$	233.6

The following is summarized statement of operations information for HIH for the years ended December 31, 2004, 2003 and 2002 (dollars in millions):

	Year ended December 31,
	2004			2003			2002

Revenues	$	6,444.0		$	5,183.2		$	4,452.8
Cost of goods sold	5,611.3			4,596.2			3,845.9
Gross profit	832.7			587.0			606.9
Operating expenses	641.3			408.5			387.3
Operating income	191.4			178.5			219.6
Interest expense, net	(369.7		)	(354.7		)	(334.0		)
Other non-operating expense	(35.1		)	(33.7		)	(4.2		)

Loss from continuing operations before income taxes and minority interest	(213.4		)	(209.9		)	(118.6		)
Income tax benefit (expense)	58.6			(21.6		)	41.5
Minority interest	—			—			0.1
Loss from continuing operations	(154.8		)	(231.5		)	(77.0		)
(Loss) income from discontinued operations	(7.8		)	(2.6		)	8.5
Net loss	$	(162.6	)	$	(234.1	)	$	(68.5	)

The following is the summarized balance sheet information for HIH as of December 31, 2004 and 2003 (dollars in millions):

	December 31,		December 31,
	2004		2003
ASSETS
Current assets	$	1,771.1	$	1,369.3
Non current assets	4,044.3		4,087.6
Total assets	$	5,815.4	$	5,456.9
LIABILITIES AND MEMBER’S EQUITY
Current liabilities	1,120.3		952.6
Non current liabilities	4,431.2		4,177.5
Total liabilities	5,551.5		5,130.1
Minority interests	8.8		3.6
Member’s equity:
Total member’s equity	255.1		323.2
Total liabilities and member’s equity	$	5,815.4	$	5,456.9

Summarized Financial Information of Other Unconsolidated Affiliates

Summarized financial information of Sasol-Huntsman GmbH and Co. KG (“Sasol-Huntsman”), and Polystyrene Australia Pty Ltd. as of December 31, 2004 and for the three years then ended is presented below (dollars in millions):

	December 31,		December 31,		December 31,
	2004		2003		2002

Assets	$	118.9	$	79.2	$	75.8
Liabilities	77.0		78.5		67.5
Revenues	137.5		100.0		85.8
Net income	8.0		3.7		11.7

The Company’s equity in:
Net assets	$	22.2	$	16.8	$	12.2
Net income	4.0		2.1		10.0

6. INTANGIBLE ASSETS

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

	December 31, 2004						December 31, 2003
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net

Patents, trademarks, and technology	$	57.4	$	33.0	$	24.4	$	57.4	$	32.0	$	25.4
Licenses and other agreements	18.3		10.9		7.4		18.3		9.5		8.8
Other intangibles	1.3		0.7		0.6		2.4		1.7		0.7
Total	$	77.0	$	44.6	$	32.4	$	78.1	$	43.2	$	34.9

Amortization expense was $5.6 million, $5.9 million and $9.8 million for the years ended December 31, 2004, 2003 and 2002, respectively. Estimated future amortization expense for intangible assets over the next five years is as follows (dollars in millions):

Year ending December 31:
2005	$	6.4
2006	6.3
2007	6.3
2008	6.3
2009	6.2

7. OTHER NONCURRENT ASSETS

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

	December 31,		December 31,
	2004		2003

Prepaid pension costs	$	1.2	$	1.0
Debt issuance costs, net	28.9		29.1
Capitalized turnaround costs, net	43.9		31.3
Catalyst assets, net	15.2		11.3
Spare parts inventory	46.3		44.9
Deposits	16.7		14.7
Other noncurrent assets	27.0		24.4
Total	$	179.2	$	156.7

Amortization expense of catalyst assets was $9.9 million, $10.7 million and $10.9 million for the years ended December 31, 2004, 2003 and 2002, respectively.

8. ACCRUED LIABILITIES

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

	December 31,		December 31,
	2004		2003
Payroll, severance and related costs	$	28.2	$	47.0
Interest	38.7		25.4
Volume rebate accruals	30.3		24.7
Income taxes	9.0		16.2
Taxes (other than income tax)	27.6		29.8
Restructuring and plant closing costs	11.2		0.1
Environmental accruals	2.0		2.9
Casualty loss reserves	13.7		17.2
Other accrued liabilities	73.0		41.3
Total	$	233.7	$	204.6

9. OTHER NONCURRENT LIABILITIES

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

	December 31,		December 31,
	2004		2003
Pension liabilities	$	142.6	$	122.4
Other postretirement benefits	69.3		67.2
Environmental accruals	11.9		14.7
Restructuring and plant closing costs	2.3		2.7
Other noncurrent liabilities	45.9		27.3
Total	$	272.0	$	234.3

10. RESTRUCTURING AND PLANT CLOSING COSTS

Accrued restructuring and plant closing costs by type of cost and activity consisted of the following (dollars in millions):

										Other
	Workforce			Demolition and			Noncancelable			restructuring
	reductions(1)			decommissioning			lease costs			costs			Total(2)

Accrued liabilities as of January 1, 2002	$	44.2		$	2.8		$	6.9		$	6.4		$	60.3
2002 charges (credits) for 2001 initiatives	—			1.0			(4.6		)	(1.7		)	(5.3		)
2002 charges for 2002 initiatives	1.6			2.7			—			—			4.3
2002 payments for 2001 initiatives (3)	(40.3		)	(0.5		)	(1.7		)	(4.7		)	(47.2		)
2002 payments for 2002 initiatives (3)	(1.6		)	(2.7		)	—			—			(4.3		)
Accrued liabilities as of December 31, 2002	3.9			3.3			0.6			—			7.8
2003 credits for 2001 initiatives	(2.0		)	(0.3		)	(0.2		)	—			(2.5		)
2003 payments for 2001 initiatives (3)	(1.9		)	(0.4		)	(0.2		)	—			(2.5		)
Accrued liabilities as of December 31, 2003	—			2.6			0.2			—			2.8
2004 charges for 2003 initiatives	0.6			—			—			—			0.6
2004 charges for 2004 initiatives	13.7			0.3			—			4.6			18.6
2004 payments for 2001 initiatives	—			—			(0.2		)	—			(0.2		)
2004 payments for 2003 initiatives	(0.6		)	—			—			—			(0.6		)
2004 payments for 2004 initiatives	(3.4		)	(0.4		)	—			(4.6		)	(8.4		)
Foreign currency effect on reserve balance	0.7			—			—			—			0.7
Accrued liabilities as of December 31, 2004	$	11.0		$	2.5		$	—		$	—		$	13.5

(1) Substantially all of the positions terminated in connection with the restructuring programs were terminated under ongoing termination benefit arrangements. Accordingly, the related liabilities were accrued as a one-time charge to earnings in accordance with SFAS No. 112, “Employers’ Accounting for Post employment Benefits.”

(2) Accrued liabilities by initiatives were as follows (in millions of dollars):

	December 31,		December 31,
	2004		2003
2001 activities	$	2.6	$	2.8
2004 activities	10.2		—
Foreign currency effect on reserve balance	0.7		—
Total	$	13.5	$	2.8

(3) Includes impact of foreign currency translation.

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

	Performance						Base			Corporate
	Products			Polymers			Chemicals			& Other			Total
Accrued liabilities as of January 1, 2002	$	—		$	25.1		$	35.2		$	—		$	60.3
Credits for 2001 activities	—			(5.3		)	—			—			(5.3		)
Charges for 2002 activities	4.3			—			—			—			4.3
Payments for 2001 activities(2)	—			(17.0		)	(30.2		)	—			(47.2		)
Payments for 2002 activities(2)	(4.3		)	—			—			—			(4.3		)
Accrued liabilities as of December 31, 2002	—			2.8			5.0			—			7.8
Credits for 2001 activities	—			—			(2.5		)	—			(2.5		)
Payments for 2001 activities(2)	—			—			(2.5		)				(2.5		)
Accrued liabilities as of December 31, 2003	—			2.8			—			—			2.8
Charges for 2003 activities	—			0.6			—			—			0.6
Charges for 2004 activities(1)	8.4			9.4			0.4			0.4			18.6
Payments for 2001 activities	—			(0.2		)	—			—			(0.2		)
Payments for 2003 activities	—			(0.6		)	—			—			(0.6		)
Payments for 2004 activities	(1.4		)	(6.2		)	(0.4		)	(0.4		)	(8.4		)
Foreign currency effect on reserve balance	0.7			—			—			—			0.7
Accrued liabilities as of December 31, 2004	$	7.7		$	5.8		$	—		$	—		$	13.5

Current portion of restructuring reserve	$	7.7		$	3.5		$	—		$	—		$	11.2
Noncurrent portion of restructuring reserve	—			2.3			—			—			2.3

Estimated additional future charges for current restructuring projects:
Estimated additional charges within one year
Cash charges	$	—		$	2.2		$	—		$	0.3		$	2.5
Noncash charges	—			—			—			—			—

Estimated additional charges beyond one year
Cash charges	$	—		$	—		$	—		$	—		$	—
Noncash charges	—			—			—			—			—

(1) Does not include non-cash charges of $21.6 million for asset impairments and write downs.

(2) Includes impact of foreign currency translation.

2004 Restructuring Activities

As of December 31, 2004 and December 31, 2003, the Company had reserves for restructuring and plant closing costs of $13.5 million and $2.8 million, respectively. During the year ended December 31, 2004, the Company, on a consolidated basis, recorded additional charges of $40.8 million, including $21.6 million of charges for asset impairment and write downs, and $19.2 million payable in cash for workforce reductions, demolition and decommissioning and other restructuring costs associated with closure or curtailment of activities at the Company’s smaller, less efficient manufacturing facilities. During the 2004 period, the Company made cash payments against these reserves of $9.2 million. For purposes of measuring impairment charges, the fair value of the assets was determined by using the present value of expected cash flows.

During the year ended December 31, 2004, the Performance Products segment recorded additional restructuring charges of $24.5 million consisting of $8.4 million of charges payable in cash and $16.1 million of asset impairment charges. During 2004, the Performance Products segment announced the closure of its Guelph, Ontario, Canada Performance Products manufacturing facility, involving a restructuring charge of $20.4 million consisting of a $15.5 million asset impairment and $4.9 million of charges payable in cash. Production will be moved to the Company’s other larger, more efficient facilities. Workforce reductions of approximately 66 positions are anticipated. During 2004, the Performance Products segment also announced the closure of its maleic anhydride briquette facility in Queeny, Missouri and recorded a restructuring charge of $1.5 million which consisted of $0.7 million in asset impairment charges and $0.8 million in charges payable in cash. During 2004, this segment also announced the closure of its technical facility in Austin, Texas and recorded a restructuring charge of $2.0 million which is payable in cash. Restructuring charges of $0.7 million were recorded relating to various other cost reduction efforts. During the year ended December 31, 2004, the Performance Products segment made cash payments of $1.4 million related to restructuring activities. As of December 31, 2004, the balance of the Performance Products segment reserve totaled $7.7 million.

As of December 31, 2003, the Polymers segment reserve consisted of $2.8 million related to its demolition and decommissioning of the Odessa, Texas styrene manufacturing facility and non-cancelable lease costs. During 2004, the

Polymers segment recorded restructuring expenses related to the closure of an Australian manufacturing unit of $5.4 million consisting of $3.6 million in non-cash charges and $1.8 million of charges payable in cash. During 2004, the Polymers segment announced additional restructuring activities at its Odessa, Texas and Mansonville, Canada facilities and recorded a restructuring charge of $8.2 million, all of which is payable in cash. These restructuring activities are expected to result in additional charges of approximately $2.2 million through 2005 and in workforce reductions of approximately 100 positions. During 2004, the Polymers segment made cash payments of $7.0 million related to restructuring activities. The Polymers segment reserve totaled $5.8 million as of December 31, 2004.

During 2004, the Base Chemicals segment paid $0.4 million for consulting fees related to restructuring its Jefferson County, Tx facility.

During 2004, the Company recorded a restructuring charge in corporate and other of $2.3 million, of which $1.9 million related to non-cash charges and $0.4 million related to relocation costs.

2003 Restructuring Activities

As of December 31, 2002, the Base Chemicals segment reserve consisted of $5.0 million related to workforce reductions. During 2003, the Base Chemicals segment recorded credits and made payments totaling $5.0 million.

2002 Restructuring Activities

During 2002, the Company announced that it would be closing certain units at its Jefferson County and Canadian plants, primarily in the Performance Products business. As a result, the Company recorded accrued severance and shutdown costs of $4.3 million substantially all of which had been paid at December 31, 2002.

11. LONG-TERM DEBT

Long-term debt outstanding as of December 31, 2004 and December 31, 2003 is as follows (dollars in millions):

	December 31,		December 31,
	2004		2003
Senior secured credit facilities:
Term Loan A	$	—	$	606.3
Term Loan B	715.0		459.0
Revolving facility	125.0		12.2
Other debt:
Huntsman LLC senior secured notes	451.1		450.5
Huntsman Polymers senior unsecured notes	—		36.8
Huntsman LLC senior unsecured fixed rate notes	300.0		—
Huntsman LLC senior unsecured floating rate notes	100.0		—
Huntsman LLC senior subordinated fixed rate notes	44.2		44.2
Huntsman LLC senior subordinated floating rate notes	15.1		15.1
Huntsman Specialty Chemicals Corporation subordinated note	101.2		99.7
Huntsman Australia Holdings Pty Ltd (HCA) credit facilities	43.2		44.5
Huntsman Corporation Chemical Company Australia (HCCA) credit facilities	16.0		48.7
Subordinated note and accrued interest - affiliate	40.9		35.5
Term note payable to a bank	9.0		9.5
Other	17.5		5.6
Total debt	$	1,978.2	$	1,867.6
Current portion of long-term debt	$	25.3	$	132.2
Long-term debt	1,912.0		1,699.9
Long-term debt - affiliate	40.9		35.5
Total debt	$	1,978.2	$	1,867.6

As a result of the Merger, HI succeeded to the assets, rights and obligations of the Company. In particular, HI entered into supplemental indentures under which it assumed the obligations of the Company under its outstanding 11.625% senior secured notes due 2010 ($296 million outstanding principal amount) (the “HLLC Senior Secured Notes”), 11.5% senior notes due 2012 ($198 million outstanding principal amount) and senior floating rate notes due 2011 ($100 million outstanding principal amount).

Prior to the Merger, on June 27, 2005, we made a voluntary repayment of $50 million on the HLLC Term Facility.

Senior Secured Credit Facilities (HLLC Credit Facilities)

Prior to the October 14, 2004 refinancing of the Company’s credit facilities described below, the Company’s senior secured credit facilities consisted of a $275 million revolving credit facility maturing in 2006 and two term loan facilities maturing in 2007 in the amount of $606.3 million and $96.1 million. On October 14, 2004, the Company completed a $1,065 million refinancing of its senior secured credit facilities (as refinanced, the “HLLC Credit Facilities”). The HLLC Credit Facilities consisted of a $350 million revolving credit facility due October 2009 (the “HLLC Revolving Facility”) and a $715 million term loan B facility due March 2010 (the “HLLC Term Facility”). Proceeds of the refinancing were used to repay in full the outstanding borrowings under the Company’s prior senior secured credit facilities. The HLLC Term Facility had scheduled annual amortization payments of approximately $7 million, with the remaining balance due at maturity.

The HLLC Revolving Facility was secured by a first priority lien on substantially all the current and intangible assets of the Company and its domestic restricted subsidiaries; and was secured by a second priority lien on substantially all the property, plant and equipment of the Company and its restricted domestic subsidiaries and its indirect equity interest in HIH. The HLLC Term Facility was secured by a first priority lien on substantially all of the property, plant and equipment of the Company and its restricted domestic subsidiaries and its indirect equity interest in HIH; and by a second priority lien on substantially all of the current and intangible assets of the Company and its restricted domestic subsidiaries. The HLLC Credit Facilities was also guaranteed by HSCHC and Huntsman Specialty and by the Company’s domestic restricted subsidiaries (collectively, the “HLLC Guarantors”). Neither HIH nor HI are restricted subsidiaries of the Company or HLLC Guarantors.

The HLLC Revolving Facility was subject to a borrowing base of accounts receivable and inventory and was available for general corporate purposes. Borrowings under the HLLC Revolving Facility bore interest, at the Company’s option, at a rate equal to (i) a LIBOR-based eurocurrency rate plus an applicable margin of 2.25%, or (ii) a prime-based rate plus an applicable margin of 1.25%. The HLLC Revolving Facility allowed the Company to borrow up to $50 million secured by letters of credit; however, the $350 million revolving credit facility was reduced dollar-for-dollar by any letters of credit outstanding.

As of December 31, 2004 and 2003, the weighted average interest rates on the Company’s senior credit facilities were 5.8% and 7.3%, respectively, excluding the impact of interest rate hedges. As of December 31, 2004, the HLLC Revolving Facility and HLLC Term Facility bore interest at LIBOR plus 2.25% per year and LIBOR plus 3.50% per year, respectively. However, in accordance with the HLLC Term Facility agreement, as a result of the initial public offering by Huntsman Corporation completed on February 16, 2005 and the amount of permanent reduction of indebtedness from the use of initial public offering proceeds at the HLLC restricted group, the HLLC Term Facility interest rate margin reduced to LIBOR plus 3.0% as of February 28, 2005.

See “Recent Transactions” above.

Senior Secured Notes (2003 Secured Notes)

On September 30, 2003, the Company sold $380 million aggregate principal amount of 11.625% senior secured notes due October 15, 2010 at an issue price of 98.8% (the “September 2003 Offering”). On December 3, 2003, the Company sold an additional $75.4 million aggregate principal amount of its senior secured notes (collectively with the notes sold in the September 2003 Offering, the “HLLC Senior Secured Notes”) at an issue price of 99.5%. Interest on the HLLC Senior Secured Notes is payable semi-annually on April 15 and October 15. The effective interest rate is 11.9%. The HLLC Senior Secured Notes are effectively subordinated to all the Company’s obligations under the HLLC Revolving Facility and rank pari passu with the HLLC Term Facility. The HLLC Senior Secured Notes are guaranteed by the HLLC Guarantors.

The HLLC Senior Secured Notes are redeemable after October 15, 2007 at 105.813% of the principal amount thereof, declining ratably to par on and after October 15, 2009. At any time prior to October 15, 2006, the Company may redeem up to

35% of the aggregate principal amount of the HLLC Senior Secured Notes at a redemption price of 111.625% with net cash proceeds of a qualified equity offering. As a result of Huntsman Corporation’s initial public offering of common and mandatory convertible preferred stock, we redeemed 35%, or approximately $159.4 million, of the aggregate principal amount of the HLLC Senior Secured Notes on February 28, 2005 and paid a call premium of approximately $18.5 million. Following this partial redemption of the HLLC Senior Secured Notes, there remain approximately $296.0 million in aggregate principal amount of the HLLC Senior Secured Notes outstanding.

The indenture governing the HLLC Senior Secured Notes contains covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among other things. The indenture also requires the Company to offer to repurchase the HLLC Secured Notes upon a change of control. Management believes that the Company is in compliance with the covenants of the HLLC Secured Notes as of December 31, 2004.

See “Recent Transactions” above.

Senior Unsecured Notes (HLLC Senior Notes)

On June 22, 2004, the Company sold $300 million of senior unsecured fixed rate notes that bear interest at 11.5% and mature on July 15, 2012 (the “HLLC Unsecured Fixed Rate Notes”) and $100 million of senior unsecured floating rate notes that bear interest at a rate equal to LIBOR plus 7.25% and mature on July 15, 2011 (the “HLLC Unsecured Floating Rate Notes,” and together with the HLLC Unsecured Fixed Rate Notes, the “HLLC Senior Notes”). The interest rate on the HLLC Unsecured Floating Rate Notes as of December 31, 2004 was 9.3% before additional interest as discussed below. The proceeds from the offering were used to repay $362.9 million on Huntsman LLC’s prior term loan B and $25 million to repay indebtedness at HCCA. See “Other Debt” below. The HLLC Senior Notes are unsecured obligations of Huntsman LLC and are guaranteed by the HLLC Guarantors.

The HLLC Unsecured Fixed Rate Notes are redeemable after July 15, 2008 at 105.75% of the principal amount thereof, declining ratably to par on and after July 15, 2010. The HLLC Unsecured Floating Rate Notes are redeemable after July 15, 2006 at 104.0% of the principal amount thereof, declining ratably to par on and after July 15, 2008. At any time prior to July 15, 2007, we may redeem up to 40% of the original aggregate principal amount of the HLLC Unsecured Fixed Rate Notes at a redemption price of 111.5% with proceeds of a qualified equity offering. At any time prior to July 15, 2006, we may redeem up to 40% of the original aggregate principal amount of the HLLC Unsecured Floating Rate Notes with the proceeds of a qualified equity offering at a redemption price equal to the par value plus LIBOR plus 7.25%. As a result of Huntsman Corporation’s initial public offering of common and mandatory convertible preferred stock, we redeemed 34%, or approximately $102.0 million of combined aggregate principal amount of the HLLC Unsecured Fixed Rate Notes on March 14 and March 17, 2005 with combined call premiums of approximately $11.7 million. Following this partial redemption, there remain approximately $198.0 million in aggregate principal amount of the HLLC Unsecured Fixed Rate Notes outstanding.

The indenture governing the HLLC Senior Notes contains covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among other things. The indenture also requires the Company to offer to repurchase the HLLC Senior Notes upon a change of control. Management believes that the Company is in compliance with the covenants of the HLLC Senior Notes as of December 31, 2004.

See “Recent Transactions” above.

Senior Subordinated Fixed And Floating Rate Notes (HLLC Notes) And Huntsman Polymers Senior Unsecured Notes (Huntsman Polymers Notes)

The Company’s 9.5% fixed and variable subordinated notes due 2007 (the “HLLC Notes”) with an outstanding principal balance of $59.3 million as of December 31, 2004 are unsecured subordinated obligations of Huntsman LLC and are

junior in right of payment to all existing and future secured or unsecured senior indebtedness of Huntsman LLC and effectively junior to any secured indebtedness of the Company to the extent of the collateral securing such indebtedness. Interest is payable on the HLLC Notes semiannually on January 1 and July 1 at an annual rate of 9.5% on the fixed rate notes and LIBOR plus 3.25% on the floating rate notes. The HLLC Notes are redeemable at the option of the Company after July 2002 at a price declining from 104.75% to 100% of par value as of July 1, 2005. The weighted average interest rate on the floating rate notes was 5.2% and 4.4% as of December 31, 2004 and 2003, respectively. As a result of previously executed amendments to the indentures, virtually all the restrictive covenants contained in the indentures have been eliminated.

On January 28, 2004, the Company used $37.5 million of the net cash proceeds from the December 2003 Offering to redeem, in full, Huntsman Polymers’ senior unsecured notes (the “Huntsman Polymers Notes”) with a principal amount of $36.8 million plus accrued interest. The Huntsman Polymers Notes were unsecured senior obligations of Huntsman Polymers; they had an original maturity of December 2004, and a fixed interest rate of 11.75%.

On August 2, 2005, we issued a notice of redemption for all of the outstanding HLLC Notes in accordance with the amended and restated indenture governing the HLLC Notes. Accordingly, at the time of the merger of the Company with and into HI, we delivered funds to the trustee sufficient to redeem the HLLC notes in full on September 1, 2005. See “Recent Transactions” above.

Other Debt

Huntsman Specialty’s subordinated note, in the aggregate principal amount of $75.0 million, accrued interest until April 15, 2002 at 7% per annum. Pursuant to the note agreement, effective April 15, 2002, all accrued interest was added to the principal of the note for a total principal amount of $106.6 million. Such principal balance will be payable in a single installment on April 15, 2008. Interest has been payable quarterly in cash, commencing July 15, 2002. For financial reporting purposes, the note was initially recorded at its estimated fair value of $58.2 million, based on prevailing market rates as of the effective date. As of December 31, 2004 and December 31, 2003, the unamortized discount on the note was $5.4 million and $6.9 million, respectively. On August 16, 2005, in connection with the merger of the Company and HIH with and into HI, the Company repaid the Huntsman Specialty’s subordinated note in full.

Huntsman Corporation Australia Pty Ltd. (“HCA”), the Company’s indirect Australian subsidiary that holds its Australian surfactants assets, maintains credit facilities (the “HCA Facilities”). As of December 31, 2004, borrowings under the HCA Facilities totaled A$55.5 million ($43.2 million), which include A$42.9 million ($33.4 million) on the term loan facility and A$12.6 million ($9.8 million) on the revolving credit line. On August 31, 2004, HCA refinanced the previously existing debt facilities with an A$30.0 million ($23.4 million) revolving credit line supported by a borrowing base of eligible accounts receivable and inventory and an A$44.0 million ($34.2 million) term facility.

Huntsman Chemical Company Australia Pty Ltd. (“HCCA”) and certain Australian affiliates hold the Company’s Australian styrenics assets. On August 31, 2004, HCCA refinanced the previously existing debt facilities of HCCA with an A$30.0 million ($23.4 million) revolving credit line supported by a borrowing base of eligible accounts receivable (the “HCCA Facility”). As of December 31, 2004 borrowings under the HCCA Facility totaled A$20.6 million ($16.0 million).

The HCA Facilities and the HCCA Facility are secured by a lien on substantially all their respective assets, bear interest at a rate of 2.9% above the Australian base rate, mature in August 2007 and are non-recourse to the Company. As of December 31, 2004, the interest rate on the HCA Facilities and the HCCA Facility was 8.3%. On June 24, 2004, the Company used $25 million of proceeds from the offering of the HLLC Senior Unsecured Notes to repay a portion of the previously existing debt facilities of HCCA. Management believes that HCA and HCCA are in compliance with the covenants of the HCA Facilities and the HCCA Facility as of December 31, 2004.

On July 2, 2001, the Company entered into a 15% note payable with an affiliated entity in the amount of $25.0 million. The note is due and payable on the earlier of: (1) the tenth anniversary of the issuance date, or (2) the date of the repayment in full in cash of all indebtedness of the Company under its senior secured credit facilities. Interest is not paid in cash, but is accrued at a designated effective rate of 15% per annum, compounded annually. As of December 31, 2004 and December 31, 2003, accrued interest added to the principal balance was $15.9 million and $10.5 million, respectively. On February 16, 2005, the Affiliate Note was satisfied in full from proceeds of the initial public offering completed by Huntsman Corporation. See “Recent Transactions” above.

As of December 31, 2004, the Company has $13.6 million outstanding on short term notes payable for financing a portion of its insurance premiums. Such notes have monthly scheduled amortization payments through April 1, 2005, bear interest at rates ranging from 3.65% to 4.0%, and are secured by unearned insurance premiums.

Scheduled Maturities

The scheduled maturities of long-term debt by year at December 31, 2004 (amounts do not include the impact of voluntary prepayments made in 2005) are as follows (dollars in millions):

Year ending December 31:
2005	$	25.3
2006	19.2
2007	119.4
2008	109.0
2009	132.8
Later years	1,572.5
Total	$	1,978.2

12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to market risks, such as changes in interest rates, foreign exchange rates and commodity pricing risks. From time to time, the Company enters into transactions, including transactions involving derivative instruments, to manage interest rate exposure, but does not currently hedge for movements in commodities or foreign exchange rates. The Company manages interest rate exposure through a program designed to reduce the impact of fluctuations in variable interest rates and to meet the requirements of certain credit agreements.

Interest Rate Hedging

Through the Company’s borrowing activities, it is exposed to interest rate risk. Such risk arises due to the structure of the Company’s debt portfolio, including the duration of the portfolio and the mix of fixed and floating interest rates. Actions taken to reduce interest rate risk include managing the mix and rate characteristics of various interest bearing liabilities as well as entering into interest rate swaps, collars and options.

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

	December 31, 2004			December 31, 2003

Pay fixed swaps
Notional amount	$	184.3		$	234.8
Fair value	(3.2		)	(9.6		)
Weighted average pay rate	4.44		%	4.82		%
Maturing	2005-2007			2004-2007

The Company purchases both interest rate swaps and interest rate collars to reduce the impact of changes in interest rates on its floating-rate long-term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount.

Interest rate contracts with a fair value of $3.2 million and $9.6 million were recorded as a component of other noncurrent liabilities as of December 31, 2004 and 2003, respectively. The fair value of cash flow hedges and interest rate contracts not designated as hedges were $2.0 million and $1.2 million as of December 31, 2004 and $6.9 million and $2.7 as of December 31, 2003. The changes in the fair value of cash flow hedges resulted in a $0.1 million decrease, a $2.5 million decrease and a $3.4 million increase in interest expense, and a $4.9 million decrease, a $5.3 million decrease and a $3.5 million increase in other comprehensive income for the years ended December 31, 2004, 2003 and 2002, respectively. The changes in the fair value of interest rate contracts not designated as hedges resulted in a $1.5 million increase, a $3.0 million decrease and a $3.5 million increase in interest expense for the years ended December 31, 2004, 2003 and 2002, respectively.

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

13. OPERATING LEASES

The Company leases certain railcars, aircraft, equipment and facilities under long-term lease agreements. The total expense recorded under operating lease agreements in the accompanying consolidated statements of operations is approximately $40.8 million, $38.0 million and $36.5 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Future minimum lease payments under operating leases as of December 31, 2004 are as follows (dollars in millions):

Year ending December 31:
2005	$	26.5
2006	25.3
2007	22.1
2008	19.7
2009	18.3
Thereafter	58.9
	$	170.8

14. INCOME TAXES

The following is a summary of domestic and international provisions for current and deferred income taxes and a reconciliation of the U.S. statutory income tax rate to the effective income tax rate (dollars in millions):

	2004			2003		2002
Income tax expense (benefit):
U.S.:
Current	$	10.7		$	8.1	$	8.1
Deferred	(2.4		)	5.6		—
Non-U.S.:
Current	1.7			—		0.4
Deferred	(2.2		)	2.4		—

Total	$	7.8		$	16.1	$	8.5

The effective income tax rate reconciliation is as follows (dollars in millions):

	2004			2003			2002

Loss before income taxes	$	(169.1	)	$	(232.1	)	$	(165.1	)

Expected benefit at U.S. statutory rate of 35%	$	(59.2	)	$	(81.2	)	$	(57.8	)

Change resulting from:
State taxes net of federal benefit	2.2			(6.8		)	(5.0		)
Effect of equity method accounting	19.2			31.4			14.9
Cancellation of indebtedness income	—			—			32.9
Tax authority audits	2.3			3.6			22.9
Other - net	2.2			5.2			13.1
Effect of non-U.S. operations	9.7			(6.4		)	5.3
Change in valuation allowance	31.4			70.3			(17.8		)
Total income tax expense	$	7.8		$	16.1		$	8.5

The domestic and foreign components of losses before income taxes were as follows (dollars in millions):

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

	December 31,			December 31,
	2004			2003
Deferred income tax assets:
Net operating loss carryforward	$	524.2		$	488.4
Employee benefits	77.3			65.1
Alternative minimum tax carryforward	36.9			36.9
Intangible assets	25.1			30.8
Other	63.7			49.8
Total	727.2			671.0

Deferred income tax liabilities:
Tax depreciation in excess of book depreciation	(313.0		)	(314.6		)
Inventory costing	(11.0		)	(15.9		)
Basis difference in investment in HIH	(85.1		)	(144.5		)
Total	(409.1		)	(475.0		)

Net deferred tax asset before valuation allowance	318.1			196.0
Valuation allowance	(318.4		)	(198.5		)
Net deferred tax liability	$	(0.3	)	$	(2.5	)

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2004, 2003 and 2002
Consolidated Statements of Member’s Equity for the Years Ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements

/s/ DELOITTE & TOUCHE LLP


Houston, Texas
September 21, 2005