UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)
ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

OR

o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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

333-85141	Huntsman International LLC 500 Huntsman Way Salt Lake City, Utah 84108 (801) 584-5700	Delaware	87-0630358

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer ý

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

YES o NO ý

On May 9, 2006, 221,569,596 shares of common stock of Huntsman Corporation were outstanding and 2,113 units of membership interests of Huntsman International LLC were outstanding. There is no established trading market for Huntsman International LLC’s units of membership interests. All of Huntsman International LLC’s units of membership interests are held by Huntsman Corporation.

This Quarterly Report on Form 10-Q presents information for two registrants: Huntsman Corporation and Huntsman International LLC (“Huntsman International”). Huntsman International is a wholly owned subsidiary of Huntsman Corporation and is the principal operating company of Huntsman Corporation. The information reflected in this Quarterly Report on Form 10-Q is equally applicable to both Huntsman Corporation and Huntsman International, except where otherwise indicated. Huntsman International meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and, to the extent applicable, is therefore filing this form with a reduced disclosure format.

HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD

ENDED MARCH 31, 2006

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 Income (Loss) (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 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 2.	Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 4.	Submission of Matters to a Vote of Security Holders
ITEM 5.	Other Information
ITEM 6.	Exhibits

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Millions, Except Share and Per Share Amounts)

	March 31, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	150.3		$	142.8
Accounts receivable (net of allowance for doubtful accounts of $34.6 and $33.7, respectively)	1,352.9			1,475.2
Accounts receivable from affiliates	6.6			7.4
Inventories, net	1,311.0			1,309.2
Prepaid expenses	43.4			46.2
Deferred income taxes	31.2			31.2
Other current assets	42.1			84.0
Current assets held for sale	79.9			—
Total current assets	3,017.4			3,096.0

Property, plant and equipment, net	4,585.6			4,643.2
Investment in unconsolidated affiliates	197.3			175.6
Intangible assets, net	208.7			216.3
Goodwill	91.2			91.2
Deferred income taxes	99.4			94.2
Notes receivable from affiliates	1.0			3.0
Other noncurrent assets	540.1			551.0
Noncurrent assets held for sale	86.4			—
Total assets	$	8,827.1		$	8,870.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	994.0		$	1,093.5
Accrued liabilities	589.8			747.2
Deferred income taxes	2.5			2.4
Current portion of long-term debt	43.9			44.6
Current liabilities held for sale	39.2			—

Total current liabilities	1,669.4			1,887.7

Long-term debt	4,465.9			4,413.3
Deferred income taxes	271.0			258.3
Other noncurrent liabilities	769.7			770.2
Noncurrent liabilities held for sale	1.3			—
Total liabilities	7,177.3			7,329.5

Minority interests	27.4			20.4

Commitments and contingencies (Notes 12 and 13)

Stockholders’ equity:
Common stock $0.01 par value, 1,200,000,000 shares authorized, 221,569,596 issued and 220,639,333 outstanding in 2006 and 221,200,997 issued and 220,451,484 outstanding in 2005	2.2			2.2
Mandatory convertible preferred stock $0.01 par value, 100,000,000 shares authorized, 5,750,000 issued and outstanding in 2006 and 2005	287.5			287.5
Additional paid-in capital	2,790.2			2,779.8
Unearned stock-based compensation	(19.0		)	(11.8		)
Accumulated deficit	(1,438.2		)	(1,505.8		)
Accumulated other comprehensive loss	(0.3		)	(31.3		)
Total stockholders’ equity	1,622.4			1,520.6
Total liabilities and stockholders’ equity	$	8,827.1		$	8,870.5

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In Millions, Except Per Share Amounts)

	Three months ended March 31,
	2006			2005

Revenues:
Trade sales, services and fees	$	3,173.7		$	3,324.6
Related party sales	14.0			24.7
Total revenues	3,187.7			3,349.3
Cost of goods sold	2,809.3			2,760.1

Gross profit	378.4			589.2

Operating expenses:
Selling, general and administrative	173.2			161.7
Research and development	27.3			24.3
Other operating expense	2.6			44.7
Restructuring, impairment and plant closing costs	7.8			10.4
Total expenses	210.9			241.1
Operating income	167.5			348.1

Interest expense, net	(86.8		)	(139.6		)
Loss on accounts receivable securitization program	(2.8		)	(3.2		)
Equity in income of unconsolidated affiliates	0.7			2.3
Loss on early extinguishment of debt	—			(233.0		)
Other (expense) income	(0.3		)	3.7

Income (loss) from continuing operations before income taxes, minority interest and accounting change	78.3			(21.7		)
Income tax expense	(8.4		)	(32.1		)
Minority interest in subsidiaries’ income	(0.4		)	—

Income (loss) from continuing operations	69.5			(53.8		)
Loss from discontinued operations, net of tax of nil	(0.5		)	(2.6		)

Income (loss) before accounting change	69.0			(56.4		)
Cumulative effect of change in accounting principle, net of tax of $1.9	—			4.0

Net income (loss)	69.0			(52.4		)
Preferred stock dividends	—			(43.1		)
Net income (loss) available to common stockholders	$	69.0		$	(95.5	)

Net income (loss)	$	69.0		$	(52.4	)
Other comprehensive income (loss)	31.0			(46.6		)
Comprehensive income (loss)	$	100.0		$	(99.0	)

Basic income (loss) per share:
Income (loss) from continuing operations	$	0.31		$	(0.44	)
Loss from discontinued operations, net of tax	—			(0.01		)
Cumulative effect of change in accounting principle, net of tax	—			0.02

Net income (loss)	$	0.31		$	(0.43	)

Weighted average shares	220.6			220.5

Diluted income (loss) per share:
Income (loss) from continuing operations	$	0.30		$	(0.44	)
Loss from discontinued operations, net of tax	—			(0.01		)
Cumulative effect of change in accounting principle, net of tax	—			0.02

Net income (loss)	$	0.30		$	(0.43	)

Weighted average shares	233.1			220.5

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

	Three months ended March 31,
	2006			2005
Operating Activities:
Net income (loss)	$	69.0		$	(52.4	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax	—			(4.0		)
Equity in income of unconsolidated affiliates	(0.7		)	(2.3		)
Depreciation and amortization	117.0			125.9
Provision for (reversal of) losses on accounts receivable	2.2			(1.0		)
(Gain) loss on disposal of assets	(0.2		)	1.1
Loss on early extinguishment of debt	—			233.0
Noncash interest (income) expense	(1.7		)	29.4
Noncash restructuring, impairment and plant closing costs	2.0			—
Deferred income taxes	7.3			17.0
Net unrealized loss on foreign currency transactions	6.7			23.6
Stock-based compensation	3.5			1.0
Minority interest in subsidiaries’ income	0.4			—
Other, net	(1.3		)	(11.0		)
Changes in operating assets and liabilities:
Accounts receivable	114.8			(47.4		)
Change in receivables sold, net	(45.4		)	64.9
Inventories, net	(12.7		)	(115.1		)
Prepaid expenses	6.6			2.9
Other current assets	46.9			(16.4		)
Other noncurrent assets	10.5			20.4
Accounts payable	(71.2		)	106.2
Accrued liabilities	(156.6		)	(96.1		)
Other noncurrent liabilities	(16.8		)	(39.0		)
Net cash provided by operating activities	80.3			240.7
Investing Activities:
Capital expenditures	(104.1		)	(59.8		)
Investment in unconsolidated affiliates, net	(17.1		)	(8.9		)
Proceeds from sale of assets	8.5			4.7
Net proceeds from (investment in) government securities, restricted as to use	3.6			(40.9		)
Change in restricted cash	—			(0.4		)
Net cash used in investing activities	(109.1		)	(105.3		)
Financing Activities:
Net borrowings (repayments) under revolving loan facilities	34.0			(60.9		)
Net borrowings on overdraft	8.1			—
Repayment of long-term debt	(0.8		)	(1,437.8		)
Proceeds from long-term debt	2.5			—
Call premiums related to early extinguishment of debt	—			(105.3		)
Repayment of notes payable	(11.4		)	(11.5		)
Dividend paid to preferred stockholders	(3.6		)	—
Net proceeds from issuance of common and preferred stock	—			1,491.9
Contribution from minority shareholder	6.2			3.6
Other, net	2.0			0.1
Net cash provided by (used in) financing activities	37.0			(119.9		)
Effect of exchange rate changes on cash	(0.7		)	(2.3		)
Increase in cash and cash equivalents	7.5			13.2
Cash and cash equivalents at beginning of period	142.8			243.2
Cash and cash equivalents at end of period	$	150.3		$	256.4
Supplemental cash flow information:
Cash paid for interest	$	123.2		$	146.8
Cash paid for income taxes	5.0			5.1

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions)

	March 31, 2006			December 31, 2005
ASSETS

Current assets:
Cash and cash equivalents	$	136.6		$	132.5
Accounts receivable (net of allowance for doubtful accounts of $34.6 and $33.7, respectively)	1,352.9			1,475.2
Accounts receivable from affiliates	12.1			10.4
Inventories, net	1,311.0			1,309.2
Prepaid expenses	40.6			45.9
Deferred income taxes	31.2			31.2
Other current assets	28.0			69.9
Current assets held for sale	79.9			—
Total current assets	2,992.3			3,074.3

Property, plant and equipment, net	4,286.0			4,336.7
Investment in unconsolidated affiliates	197.3			175.6
Intangible assets, net	214.5			222.0
Goodwill	91.2			91.2
Deferred income taxes	99.4			94.2
Notes receivable from affiliates	1.0			3.0
Other noncurrent assets	627.7			636.0
Noncurrent assets held for sale	86.4			—
Total assets	$	8,595.8		$	8,633.0

LIABILITIES AND MEMBERS’ EQUITY

Current liabilities:
Accounts payable	$	994.0		$	1,092.7
Accounts payable to affiliates	6.3			8.7
Accrued liabilities	574.3			732.3
Deferred income taxes	2.5			2.4
Current portion of long-term debt	42.0			44.6
Current liabilities held for sale	39.2			—
Total current liabilities	1,658.3			1,880.7

Long-term debt	4,465.9			4,413.3
Deferred income taxes	231.1			216.9
Other noncurrent liabilities	775.1			770.0
Noncurrent liabilities held for sale	1.3			—
Total liabilities	7,131.7			7,280.9

Minority interests	27.4			20.4

Commitments and contingencies (Notes 12 and 13)

Members’ equity:
Members’ equity, 2,113 units issued and outstanding	2,797.5			2,794.0
Accumulated deficit	(1,316.8		)	(1,384.0		)
Accumulated other comprehensive loss	(44.0		)	(78.3		)
Total members’ equity	1,436.7			1,331.7
Total liabilities and members’ equity	$	8,595.8		$	8,633.0

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in Millions)

	Three Months Ended March 31,
	2006			2005

Revenues:
Trade sales, services and fees	$	3,173.7		$	3,324.6
Related party sales	14.0			24.7
Total revenues	3,187.7			3,349.3
Cost of goods sold	2,805.3			2,754.4

Gross profit	382.4			594.9

Operating expenses:
Selling, general and administrative	172.4			157.0
Research and development	27.3			24.3
Other operating expense	2.6			44.7
Restructuring, impairment and plant closing costs	7.8			10.4
Total expenses	210.1			236.4
Operating income	172.3			358.5

Interest expense, net	(88.0		)	(134.7		)
Loss on accounts receivable securitization program	(2.8		)	(3.2		)
Equity in income of unconsolidated affiliates	0.7			2.3
Loss on early extinguishment of debt	—			(74.0		)
Other expense	(0.3		)	(0.2		)

Income from continuing operations before income taxes, minority interest and accounting change	81.9			148.7

Income tax expense	(13.7		)	(28.2		)
Minority interest in subsidiaries’ income	(0.4		)	—
Income from continuing operations	67.8			120.5
Loss from discontinued operations, net of tax of nil	(0.5		)	(2.6		)
Income before accounting change	67.3			117.9
Cumulative effect of change in accounting principle, net of tax of $1.5	—			4.2
Net income	67.3			122.1
Other comprehensive income (loss)	34.3			(50.3		)

Comprehensive income	$	101.6		$	71.8

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

	Three Months ended March 31,
	2006			2005
Operating Activities:
Net income	$	67.3		$	122.1
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax	—			(4.2		)
Equity in income of unconsolidated affiliates	(0.7		)	(2.3		)
Depreciation and amortization	110.2			118.9
Provision for (reversal of) losses on accounts receivable	2.2			(1.1		)
(Gain) loss on disposal of assets	(0.2		)	1.1
Loss on early extinguishment of debt	—			74.0
Noncash interest (income) expense	(0.7		)	24.4
Noncash restructuring, impairment and plant closing costs	2.0			—
Deferred income taxes	12.7			16.9
Net unrealized loss on foreign currency transactions	6.7			23.5
Other, net	2.4			1.7
Minority interest in subsidiaries’ income	0.4			—
Changes in operating assets and liabilities:
Accounts receivable	114.8			(47.4		)
Change in receivables sold, net	(45.4		)	64.9
Inventories, net	(12.7		)	(115.1		)
Prepaid expenses	6.1			6.7
Other current assets	46.9			(16.4		)
Other noncurrent assets	2.0			12.9
Accounts payable	(71.2		)	106.2
Accrued liabilities	(157.3		)	(110.2		)
Other noncurrent liabilities	(9.6		)	(37.9		)
Net cash provided by operating activities	75.9			238.7

Investing Activities:
Capital expenditures	(104.1		)	(59.8		)
Investment in unconsolidated affiliates, net	(17.1		)	(8.9		)
Proceeds from sale of assets	8.5			4.7
Change in restricted cash	—			(0.4		)
Net cash used in investing activities	(112.7		)	(64.4		)

Financing Activities:
Net borrowings (repayment) under revolving loan facilities	34.0			(60.9		)
Net borrowings on overdraft	8.1			—
Repayment of long-term debt	(0.8		)	(886.7		)
Proceeds from long-term debt	2.5			2.5
Call premiums related to early extinguishment of debt	—			(65.5		)
Repayment of notes payable	(10.4		)	(11.5		)
Contribution from minority shareholder	6.2			3.6
Contribution from parent	—			837.6
Other, net	2.0			(0.1		)
Net cash provided by (used in) financing activities	41.6			(181.0		)

Effect of exchange rate changes on cash	(0.7		)	(2.3		)

Increase (decrease) in cash and cash equivalents	4.1			(9.0		)
Cash and cash equivalents at beginning of period	132.5			243.5
Cash and cash equivalents at end of period	$	136.6		$	234.5

Supplemental cash flow information:
Cash paid for interest	$	123.5		$	141.0
Cash paid for income taxes	$	5.0		$	6.1

Supplemental non-cash information:

On February 28, 2005, HMP contributed the Huntsman International Holdings senior subordinated discount notes at an accreted value of $422.8 million to Huntsman International in exchange for equity. During the three months ended March 31, 2006 and 2005, Huntsman Corporation contributed $3.5 million and $1.0 million, respectively, to Huntsman International related to stock-based compensation.

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. General

Certain Definitions

“Company,” “our,” “us,” of “we” may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. Any references to our “Company,” “we,” “us” or “our” as of a date prior to October 19, 2004 (the date of our formation) are to Huntsman Holdings, LLC and its subsidiaries (including their respective predecessors). In this report, “Huntsman International Holdings” refers to Huntsman International Holdings LLC (our 100% owned subsidiary that merged into Huntsman International LLC on August 16, 2005) and, unless the context otherwise requires, its subsidiaries; “Huntsman International” refers to Huntsman International LLC (our 100% owned subsidiary) and, unless the context otherwise requires, its subsidiaries; “Huntsman Advanced Materials” refers to Huntsman Advanced Materials Holdings LLC (our 100% owned indirect subsidiary, the membership interests of which we contributed to Huntsman International on December 20, 2005) and, unless the context otherwise requires, its subsidiaries; “Huntsman LLC” refers to Huntsman LLC (our 100% owned subsidiary that merged into Huntsman International on August 16, 2005); “HMP” refers to HMP Equity Holdings Corporation (our 100% owned subsidiary that merged into us on March 17, 2005); “Huntsman Family Holdings” refers to Huntsman Family Holdings Company LLC (an owner with MatlinPatterson of HMP Equity Trust); and “MatlinPatterson” refers to MatlinPatterson Global Opportunities Partners L.P., MatlinPatterson Global Opportunities Partners (Bermuda) L.P. and MatlinPatterson Global Opportunities Partners B, L.P. (collectively, an owner with Huntsman Family Holdings of HMP Equity Trust).

Description of Business

We are among the world’s largest global manufacturers of differentiated and commodity chemical products. We manufacture a broad range of chemical products and formulations, which are marketed in more than 100 countries to a diversified group of consumer and industrial customers. Our products are used in a wide range of applications, including those in the adhesives, aerospace, automotive, construction products, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining and synthetic fiber industries. We are a leading global producer in many of our key product lines, including methylene diphenyl diisocyanate (“MDI”), amines, surfactants, epoxy-based polymer formulations, maleic anhydride and titanium dioxide.

Company

We were formed in 2004 to hold, among other things, the equity interests of Huntsman International, Huntsman Advanced Materials and Huntsman LLC. Huntsman International was formed in 1999 to operate businesses acquired in a transaction among Huntsman International Holdings, Huntsman Specialty Chemicals Corporation and Imperial Chemical Industries PLC.

In February 2005, we completed an initial public offering of common stock and mandatory convertible preferred stock. In connection with our initial public offering, we completed a transaction in which our predecessor, Huntsman Holdings, LLC, became our wholly owned subsidiary, and the existing beneficial holders of the common and preferred members interests of Huntsman Holdings, LLC received shares of our common stock in exchange for their interests (the “Reorganization Transaction”). Also during 2005, we completed a series of transactions designed to simplify our consolidated group’s financing and public reporting structure, to reduce our cost of financing and to facilitate other organizational efficiencies, including the following:

• On August 16, 2005, Huntsman LLC merged into Huntsman International (the “Huntsman LLC Merger”). At that time, Huntsman International Holdings also merged into Huntsman International

(collectively with the Huntsman LLC Merger, the “Affiliate Mergers”). As a result of the Huntsman LLC Merger, Huntsman International succeeded to the assets, rights and obligations of Huntsman LLC. Huntsman International entered into supplemental indentures under which it assumed the obligations of Huntsman LLC under its outstanding debt securities. The Huntsman International subsidiaries that guarantee Huntsman International’s outstanding debt securities now provide guarantees with respect to these securities, and all of Huntsman LLC’s subsidiaries that guaranteed its debt securities continue to provide guarantees with respect to these debt securities. In addition, Huntsman LLC’s guarantor subsidiaries executed supplemental indentures to guarantee all of Huntsman International’s outstanding debt securities.

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

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

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

Accounting for Certain Transactions

The Reorganization Transaction was accounted for as an exchange of shares between entities under common control similar to the pooling method. Our Condensed Consolidated Financial Statements (Unaudited) presented herein reflect the financial position, results of operations and cash flows as if Huntsman Holdings, LLC and our Company were combined for all periods presented.

The Affiliate Mergers and the Huntsman Advanced Materials Minority Interest Transaction were accounted for as an exchange of shares between entities under common control similar to the pooling method. Huntsman International’s Condensed Consolidated Financial Statements (Unaudited) presented herein reflect the financial position, results of operations and cash flows as if Huntsman International Holdings, Huntsman LLC, Huntsman Advanced Materials and Huntsman International were combined for all periods presented.

Huntsman Corporation and Huntsman International Financial Statements

Except where otherwise indicated, these notes relate to the Condensed Consolidated Financial Statements (Unaudited) for each of our Company and Huntsman International. The differences between our financial statements and Huntsman International’s financial statements relate primarily to the following:

• purchase accounting recorded at our Company for the step-acquisition of Huntsman International Holdings in May 2003;

• HMP debt that was reflected at our Company and that was repaid in 2005; and

• the different capital structures.

Principles of Consolidation

Our Condensed Consolidated Financial Statements (Unaudited) and Huntsman International’s Condensed Consolidated Financial Statements (Unaudited) include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Interim Financial Statements

Our interim Condensed Consolidated Financial Statements (Unaudited) and Huntsman International’s interim Condensed Consolidated Financial Statements (Unaudited) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) and in management’s opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in our and Huntsman International’s Annual Report on Form 10-K for the year ended December 31, 2005.

Use of Estimates

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

Reclassifications

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

2. Recently Issued Accounting Pronouncements

We adopted Statement of Financial Accounting Standards (“SFAS”) No. 151, Inventory Costs—an amendment of
ARB No. 43, on January 1, 2006. 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 adoption of SFAS No. 151 did not have an impact on our consolidated financial statements.

We adopted SFAS No. 154, Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3, on January 1, 2006. 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. We will apply this standard prospectively.

In September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on issue No. 04-13, Accounting for Purchase 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 should be reflected at the recorded amount. This consensus is effective for transactions

completed after March 31, 2006. We are evaluating this consensus to determine its impact on our consolidated financial statements.

3. Inventories

Inventories consisted of the following (dollars in millions):

	March 31, 2006			December 31, 2005
Raw materials and supplies	$	339.6		$	374.1
Work in progress	87.0			82.1
Finished goods	1,009.8			988.1
Total	1,436.4			1,444.3

LIFO reserves	(110.9		)	(119.7		)
Lower of cost or market reserves	(14.5		)	(15.4		)
Net	$	1,311.0		$	1,309.2

As of March 31, 2006 and December 31, 2005, approximately 19% and 21%, respectively, of inventories were recorded using the last-in, first-out cost method.

In the normal course of operations, we exchange raw materials with other companies. No gains or losses are recognized on these exchanges, and the net open exchange positions are valued at our cost. The amount included in inventory under open exchange agreements payable by us at March 31, 2006 was $11.7 million (32.6 million pounds of feedstock and products). The amount included in inventory under open exchange agreements payable by us at December 31, 2005 was $3.8 million (8.8 million pounds of feedstock and products).

4. Business Combinations and Dispositions

Definitive Agreement to Sell the U.S. Butadiene and MTBE Business

On April 6, 2006, we entered into a definitive agreement to sell the assets comprising our U.S. butadiene and MTBE business operated by our Base Chemicals segment for $269 million in cash, subject to customary adjustments. This transaction is expected to close by the third quarter of 2006, and we expect to record a gain on the sale upon closing. This business was deemed to be held for sale and the related assets and liabilities were classified as such in our March 31, 2006 balance sheet. We ceased depreciation of the related assets beginning in March 2006. The following are the major classes of assets and liabilities for this business that were reflected in our balance sheet as assets and liabilities held for sale at March 31, 2006 (dollars in millions):

ASSETS
Accounts and notes receivable, net	$	57.9
Inventories, net	22.0
Property, plant and equipment, net	82.5
Other noncurrent assets	3.9
Total assets	166.3
LIABILITIES
Accounts payable	37.1
Accrued liabilities	2.1
Other noncurrent liabilities	1.3
Total liabilities	40.5
Net assets	$	125.8

The results of operations of this business are not classified as discontinued operations because of the expected continuing cash flows from our remaining MTBE business.

Pending Acquisition of Textile Effects Business

On February 20, 2006, we announced that we have entered into a definitive agreement to acquire the global textile effects business of Ciba Specialty Chemicals Inc. for CHF 332 million ($253 million). The purchase price will be reduced (i) by approximately CHF 75 million ($57 million) in assumed debt and unfunded pension and other post employment liabilities and (ii) up to approximately CHF 40 million ($31 million) in unspent restructuring costs. The final purchase price is subject to a working capital and net debt adjustment. The transaction is subject to customary terms and conditions and is expected to occur by the end of the third quarter of 2006.

5. Restructuring, Impairment and Plant Closing Costs

While we continuously focus on identifying opportunities to reduce our operating costs and maximize our operating efficiency, we have now substantially completed our comprehensive global cost reduction program, referred to as “Project Coronado.” Project Coronado was a program designed to reduce our annual fixed manufacturing and selling, general and administrative costs, as measured at 2002 levels, by $200 million. In connection with Project Coronado, we announced the closure of eight smaller, less competitive manufacturing units in our Polyurethanes, Advanced Materials, Performance Products and Pigments segments. These and other actions have resulted in the reduction of approximately 1,500 employees in these businesses since 2000.

As of March 31, 2006 and December 31, 2005, accrued restructuring, impairment and plant closing costs by type of cost and initiative consisted of the following (dollars in millions):

	Workforce reductions(1)			Demolition and decommissioning			Non-cancelable lease costs			Other restructuring costs			Total(2)

Accrued liabilities as of December 31, 2005	$	54.2		$	5.8		$	6.5		$	11.8		$	78.3
2006 charges for 2003 initiatives	1.3			—			—			—			1.3
2006 charges for 2004 initiatives	2.1			—			—			0.2			2.3
2006 charges for 2005 initiatives	0.9			—			—			—			0.9
2006 charges for 2006 initiatives	2.1			—			—			—			2.1
Reversals of reserves no longer required	(0.8		)	—			—			—			(0.8		)
Partial reversal of AdMat Transaction opening balance sheet accrual	(1.4		)	—			—			—			(1.4		)
2006 payments for 2003 initiatives	(4.1		)	—			(0.1		)	(0.1		)	(4.3		)
2006 payments for 2004 initiatives	(7.6		)	(0.9		)	(0.2		)	(0.4		)	(9.1		)
2006 payments for 2005 initiatives	(1.2		)	—			—			(0.7		)	(1.9		)
Foreign currency effect on reserve balance	0.9			—			—			—			0.9
Accrued liabilities as of March 31, 2006	$	46.4		$	4.9		$	6.2		$	10.8		$	68.3

(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 Postemployment Benefits.”

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

	March 31, 2006			December 31, 2005

2001 initiatives	$	1.4		$	1.4
2003 initiatives	24.3			28.4
2004 initiatives	39.9			47.7
2005 initiatives	10.5			11.6
2006 initiatives	2.1			—
Foreign currency effect on reserve balance	(9.9		)	(10.8		)
Total	$	68.3		$	78.3

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

	Polyurethanes			Advanced Materials			Performance Products			Pigments			Polymers			Base Chemicals			Corporate & Other			Total

Accrued liabilities as of December 31, 2005	$	10.9		$	7.8		$	25.6		$	16.6		$	3.4		$	14.0		$	—		$	78.3
2006 charges for 2003 initiatives	—			0.1			—			1.2			—			—			—			1.3
2006 charges for 2004 initiatives	0.2			0.1			0.6			1.2			—			0.1			0.1			2.3
2006 charges for 2005 initiatives	—			—			0.4			—			—			0.5			—			0.9
2006 charges for 2006 initiatives	—			2.1			—			—			—			—			—			2.1
Reversals of reserves no longer required	(0.2		)	—			—			—			(0.6		)	—			—			(0.8		)
Partial reversal of AdMat Transaction opening balance sheet accrual	—			(1.4		)	—			—			—			—			—			(1.4		)
2006 payments for 2003 initiatives	(1.0		)	(1.2		)	—			(2.1		)	—			—			—			(4.3		)
2006 payments for 2004 initiatives	(0.8		)	(0.3		)	(3.6		)	(3.0		)	(0.2		)	(1.1		)	(0.1		)	(9.1		)
2006 payments for 2005 initiatives	—			—			(0.7		)	—			—			(1.2		)	—			(1.9		)
Foreign currency effect on reserve balance	0.2			0.1			0.3			0.2			—			0.1			—			0.9
Accrued liabilities as of March 31, 2006	$	9.3		$	7.3		$	22.6		$	14.1		$	2.6		$	12.4		$	—		$	68.3

Current portion of restructuring reserve	$	5.0		$	6.4		$	15.4		$	10.0		$	0.2		$	11.3		$	—		$	48.3
Long-term portion of restructuring reserve	4.3			0.9			7.2			4.1			2.4			1.1			—			20.0

Estimated additional future charges for current restructuring projects:
Estimated additional charges within one year	$	—		$	0.3		$	0.5		$	3.0		$	11.2		$	—		$	—		$	15.0
Estimated additional charges beyond one year	—			—			—			3.6			11.3			—			—			14.9

As of March 31, 2006 and December 31, 2005, we had reserves for restructuring, impairment and plant closing costs of $68.3 million and $78.3 million, respectively. During the three months ended March 31, 2006, we recorded additional net charges of $7.8 million (consisting of $5.8 million payable in cash and $2.0 million of non-cash charges) for workforce reductions and other restructuring costs associated with closure or curtailment of activities at our smaller, less efficient manufacturing facilities. During the three months ended March 31, 2006, we made cash payments against these reserves of $15.3 million.

During the three months ended March 31, 2006, our Polyurethanes segment recorded a restructuring, impairment and plant closing credit of $2.2 million, consisting primarily of a gain on the sale of our Shepton Mallet, U.K. site.

During the three months ended March 31, 2006, our Advanced Materials segment recorded restructuring charges of $2.3 million, primarily related to the realignment of the technical organization in Bergkamen, Germany. This realignment and other existing initiatives are expected to result in additional restructuring charges of $0.3 million.

6. Debt

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

Huntsman Corporation:

	March 31, 2006		December 31, 2005

Senior Credit Facilities:
Term Loan B	$	2,102.1	$	2,099.3
Revolving Facility	34.0		—
2010 Secured Notes	293.7		293.6
2009 Senior Notes	454.4		454.7
2011 Senior Floating Rate Notes	100.0		100.0
2012 Senior Fixed Rate Notes	198.0		198.0
Subordinated Notes	1,159.8		1,145.2
Australian Credit Facilities	62.4		63.8
HPS (China) debt	45.7		42.6
Other	59.7		60.7
Total debt	$	4,509.8	$	4,457.9

Current portion	$	43.9	$	44.6
Long-term portion	4,465.9		4,413.3
Total debt	$	4,509.8	$	4,457.9

Huntsman International:

	March 31, 2006		December 31, 2005

Senior Credit Facilities:
Term Loan B	$	2,102.1	$	2,099.3
Revolving Facility	34.0		—
2010 Secured Notes	293.7		293.6
2009 Senior Notes	454.4		454.7
2011 Senior Floating Rate Notes	100.0		100.0
2012 Senior Fixed Rate Notes	198.0		198.0
Subordinated Notes	1,159.8		1,145.2
Australian Credit Facilities	62.4		63.8
HPS (China) debt	45.7		42.6
Other	57.8		60.7
Total debt	$	4,507.9	$	4,457.9

Current portion	$	42.0	$	44.6
Long-term portion	4,465.9		4,413.3
Total debt	$	4,507.9	$	4,457.9

Transactions Affecting our Debt

In February 2005, we completed our initial public offering of common stock and mandatory convertible preferred stock that resulted in approximately $1.5 billion in net proceeds, substantially all of which were used to repay indebtedness. Also during 2005, we completed a series of transactions designed to simplify our consolidated group’s financing and public reporting structure, to reduce our cost of borrowings and to facilitate other organizational efficiencies. Specifically, on August 16, 2005, we completed the Huntsman LLC Merger and on

December 20, 2005 we completed the Huntsman Advanced Materials Minority Interest Transaction. As a result of these transactions, we now operate all of our businesses through Huntsman International and substantially all of our debt obligations are obligations of Huntsman International and/or its subsidiaries. In connection with repayment of indebtedness, Huntsman Corporation and Huntsman International recorded a loss on early extinguishment of debt for the three months ended March 31, 2005 of $233.0 million and $74.0 million, respectively.

As of March 31, 2006, Huntsman International had outstanding $175 million 7.375% senior subordinated notes due 2015 and €135 million ($163.8 million) 7.5% senior subordinated notes due 2015 (collectively, the “2015 Subordinated Notes”). The 2015 Subordinated Notes are redeemable on or after January 1, 2010 at 103.688% and 103.750%, respectively, of the principal amount thereof, declining ratably to par on and after January 1, 2013. Under the terms of a registration rights agreement among Huntsman International, the subsidiary guarantors and the initial purchasers of the 2015 Subordinated Notes, we were required to complete an exchange offer for the 2015 Subordinated Notes on or before September 11, 2005. Under the terms of the registration rights agreement, because we did not complete the exchange offer by this date, we are required to pay additional interest on the 2015 Subordinated Notes at a rate of 0.25% per year for the first 90-day period following this date, and this rate increases by an additional 0.25% for each subsequent 90-day period, up to a maximum of 1.0%. As of March 31, 2006, we were paying an additional 0.75% on the 2015 Subordinated Notes. On April 4, 2006, Huntsman International filed a Registration Statement on Form S-4 with the Securities and Exchange Commission with respect to the exchange offer. We believe that Huntsman International will complete the exchange offer within the next several months.

Compliance with Covenants

Our management believes that we are in compliance with the covenants contained in the agreements governing the Senior Credit Facilities, the A/R Securitization Program (as defined in “Note 8. Securitization of Accounts Receivable”) and the indentures governing our notes.

7. Derivative Instruments and Hedging Activities

We are exposed to market risks, such as changes in interest rates, foreign exchange rates and commodity pricing risks. From time to time, we enter into transactions, including transactions involving derivative instruments, to manage certain of these exposures. We manage 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.

All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash-flow hedge, changes in the fair value of the derivative are recorded in accumulated other comprehensive income (loss), to the extent effective, and will be recognized in the income statement when the hedged item affects earnings. We perform effectiveness assessments in order to use hedge accounting at each reporting period. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings.

We have also participated in some derivatives that were classified as non-designated derivative instruments and we hedge our net investment in certain European operations. Changes in the fair value of any non-designated derivative instruments and any ineffectiveness in cash flow hedges are reported in current period earnings. Changes in the fair value of the hedge in the net investment of certain European operations are recorded in accumulated other comprehensive income (loss).

We may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. These contracts are not designated as hedges for financial reporting purposes and are recorded at fair value. As of March 31, 2006 and December 31, 2005, and for the three months ended March 31, 2006 and 2005, the fair value, change in fair value, and realized gains (losses) of outstanding foreign currency rate hedging contracts were not significant.

In connection with our pending acquisition of the global textile effects business of Ciba Specialty Chemicals Inc., the purchase price of which is denominated in Swiss Francs, on March 16, 2006, we entered into two foreign currency derivative instruments to limit a portion of our currency exposure resulting from the acquisition of the textile effects business. See “Note 4. Business Combinations and Dispositions.” One of the derivatives is an option to purchase CHF65 million at a strike price of 1.2915. This option expires on July 14, 2006 and we paid approximately $1.4 million for this option. The other derivative is a no cost option to purchase CHF65 million at a strike price of 1.2673. However, this option has a “knock-in” strike price of 1.3500, meaning that if at any time prior to its July 14, 2006 expiration the Swiss Franc trades at or above 1.3500, then the option must be exercised at the strike price of 1.2673. Neither of these two options are designated as hedges for financial reporting purposes. As of March 31, 2006, the fair value of these options combined was $1.5 million.

8. Securitization of Accounts Receivable

Under our accounts receivable securitization program (“A/R Securitization Program”), we grant an undivided interest in certain of our trade receivables to a qualified off-balance sheet entity (the “Receivables Trust”) at a discount. This undivided interest serves as security for the issuance by the Receivables Trust of commercial paper and, up until the A/R Securitization Program Amendment (as defined below), medium-term notes.

As of March 31, 2006, our A/R Securitization Program had approximately $194.8 million in U.S. dollar equivalents in medium-term notes outstanding and approximately $152.9 million in U.S. dollar equivalents in commercial paper outstanding. On April 18, 2006, we completed an amendment and expansion of our A/R Securitization Program (the “A/R Securitization Program Amendment”) and added certain additional U.S. subsidiaries as additional receivables originators under the A/R Securitization Program. In connection with this amendment and expansion, the Receivables Trust redeemed in full all of the €90.5 million ($109.8 million) and $85.0 million in principal amount of the medium-term notes outstanding under the A/R Securitization Program. The amended A/R Securitization Program currently provides for financing through the commercial paper conduit portion of the program (in both U.S. dollars and euros). We also expanded the size of the commercial paper conduit portion of the A/R Securitization Program to a committed amount of approximately $500 million U.S. dollar equivalents for three years. The cost to the Receivables Trust on amounts drawn under the commercial paper conduit are at a rate of LIBOR and/or EUROBOR, as applicable, plus 60 basis points per annum based upon a pricing grid which is dependent upon our credit rating.

In connection with the A/R Securitization Program Amendment, we initially increased the amount of commercial paper outstanding to $475 million U.S. dollar equivalents. A portion of the net increase was used to fund the redemption of the medium-term notes and to repay $50 million U.S. dollar equivalents of term debt outstanding under our senior credit facilities. The agreements governing our senior credit facilities require us to prepay our term loan B borrowings with proceeds raised under the A/R Securitization Program in excess of $425 million.

9. Employee Benefit Plans

Components of the net periodic benefit costs for the three months ended March 31, 2006 and 2005 were as follows (dollars in millions):

Huntsman Corporation:

	Defined Benefit Plans Three Months Ended March 31,						Other Postretirement Benefit Plans Three Months Ended March 31,
	2006			2005			2006			2005
Service cost	$	20.3		$	19.7		$	1.1		$	1.0
Interest cost	31.7			31.6			2.3			2.4
Expected return on assets	(37.1		)	(34.2		)	—			—
Amortization of transition obligation	0.4			0.4			—			—
Amortization of prior service cost	(1.7		)	(1.3		)	(0.7		)	(0.6		)
Amortization of actuarial loss	4.5			5.8			0.8			0.8
Curtailment gain	—			(0.3		)	—			—
Settlement loss	0.4			0.3			—			—
Special termination benefits	—			2.8			—			—
Net periodic benefit cost	$	18.5		$	24.8		$	3.5		$	3.6

Huntsman International:

	Defined Benefit Plans Three Months Ended March 31,						Other Postretirement Benefit Plans Three Months Ended March 31,
	2006			2005			2006			2005
Service cost	$	20.3		$	19.7		$	1.1		$	1.0
Interest cost	31.7			31.6			2.3			2.4
Expected return on assets	(37.1		)	(34.2		)	—			—
Amortization of transition obligation	0.4			0.4			—			—
Amortization of prior service cost	(1.7		)	(1.3		)	(0.7		)	(0.6		)
Amortization of actuarial loss	6.9			7.9			0.8			0.8
Curtailment gain	—			(0.3		)	—			—
Settlement loss	0.4			0.3			—			—
Special termination benefits	—			2.8			—			—
Net periodic benefit cost	$	20.9		$	26.9		$	3.5		$	3.6

During the three months ended March 31, 2006 and 2005, we made contributions to our pension plans of $22.0 million and $20.6 million, respectively. During the remainder of 2006, we expect to contribute an additional $93.4 million to our pension plans.

In 2005, we changed the measurement date of our pension and postretirement benefit plans from December 31 to November 30. We believe the one-month change of the measurement date is preferable because it provides us more time to review the completeness and accuracy of the actuarial benefit information which results in an improvement in our internal control procedures. The effect of the change in measurement date on the respective obligations and assets of the plan resulted in a cumulative effect of change in accounting principle credit for Huntsman Corporation and Huntsman International of $4.0 million ($0.02 per diluted share) and $4.2 million, net of tax of $1.9 million and $1.5 million, respectively.

10. Dividends on 5% Mandatory Convertible Preferred Stock

In connection with the initial public offering of our 5% mandatory convertible preferred stock on February 16, 2005, we declared all dividends that will be payable on such preferred stock from the issuance through the mandatory conversion date, which is February 16, 2008. Accordingly, we recorded dividends payable of $43.1 million and a corresponding charge to net income available to common stockholders during the first quarter of 2005. As of March 31, 2006, we had $27.8 million invested in government securities that are restricted for satisfaction of our dividend payment obligations through the mandatory conversion date. We expect to pay dividends in cash on February 16, May 16, August 16 and November 16 of each year prior to February 16, 2008. Under certain circumstances, we may not be allowed to pay dividends in cash. If this were to occur, any unpaid dividend would be payable in shares of common stock on February 16, 2008 based on the market value of common stock at that time.

11. Other Comprehensive Income (Loss)

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

Huntsman Corporation:

	Accumulated other comprehensive loss						Other comprehensive income (loss)
							Three Months Ended
	March 31, 2006			December 31, 2005			March 31, 2006		March 31, 2005
Foreign currency translation adjustments, net of tax of $31.8 million as of March 31, 2006 and December 31, 2005	$	90.1		$	62.4		$	27.7	$	(50.7	)
Unrealized gain (loss) on nonqualified plan investments	2.2			1.9			0.3		(0.1		)
Unrealized gain (loss) on derivative instruments	0.5			—			0.5		1.0
Minimum pension liability, net of tax of $32.1 million and $30.0 million as of March 31, 2006 and December 31, 2005, respectively	(99.6		)	(102.1		)	2.5		(2.2		)
Minimum pension liability of unconsolidated affiliate	(0.8		)	(0.8		)	—		5.8
Unrealized loss on securities	—			—			—		(0.4		)
Other comprehensive income of unconsolidated affiliates	7.3			7.3			—		—
Total	$	(0.3	)	$	(31.3	)	$	31.0	$	(46.6	)

Huntsman International:

	Accumulated other comprehensive loss						Other comprehensive income (loss)
							Three Months Ended
	March 31, 2006			December 31, 2005			March 31, 2006		March 31, 2005
Foreign currency translation adjustments, net of tax of $3.9 million and $0.2 million as of March 31, 2006 and December 31, 2005, respectively	$	100.8		$	69.9		$	30.9	$	(47.5	)
Unrealized gain (loss) on nonqualified plan investments	1.1			0.8			0.3		(0.1		)
Unrealized gain (loss) on derivative instruments	(1.6		)	(2.2		)	0.6		6.5
Minimum pension liability, net of tax of $46.4 million and $45.4 million as of March 31, 2006 and December 31, 2005, respectively	(150.8		)	(153.3		)	2.5		(17.6		)
Minimum pension liability of unconsolidated affiliate	(0.8		)	(0.8		)	—		8.8
Unrealized loss on securities	—			—			—		(0.4		)
Other comprehensive income of unconsolidated affiliates	7.3			7.3			—		—
Total	$	(44.0	)	$	(78.3	)	$	34.3	$	(50.3	)

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

12. Commitments and Contingencies

Legal Matters

Discoloration Claims

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

The following table presents information about the number of Discoloration Claims for the periods indicated. Claims include all claims for which service has been received by us, and each such claim represents a plaintiff who is pursuing a claim against us.

	Three months ended March 31, 2006	Three months ended March 31, 2005
Claims unresolved at beginning of period	2	3
Claims filed during period	0	0
Claims resolved during period	0	1
Claims unresolved at end of period	2	2

During the three months ended March 31, 2005, we settled a claim for approximately $0.9 million, all of which was paid by ICI. The two Discoloration Claims unresolved as of March 31, 2006 asserted aggregate damages of approximately $64 million. An appropriate liability has been accrued for these claims. Based on our understanding of the merits of these claims and our rights under contracts of indemnity and insurance, we do not believe that the net impact on our financial condition, results of operations or liquidity will be material.

While additional Discoloration Claims may be made in the future, we cannot reasonably estimate the amount of loss related to such claims. Although we may incur additional costs as a result of future claims (including

settlement costs), based on our history with Discoloration Claims to date, the fact that substantially all of the titanium dioxide that has been the subject of these Discoloration Claims was manufactured and sold more than six years ago, and the fact that we have rights under contract to indemnity, including from ICI, we do not believe that any unasserted Discoloration Claims will have a material impact on our financial condition, results of operations, or liquidity. Based on this conclusion and our inability to reasonably estimate our expected costs with respect to these unasserted claims, we have made no accruals in our financial statements as of March 31, 2006 for costs associated with unasserted Discoloration Claims.

Asbestos Litigation

We have been named as a “premises defendant” in a number of asbestos exposure cases, typically a claim by a non-employee of exposure to asbestos while at a facility. In the past, these cases typically have involved multiple plaintiffs bringing actions against multiple defendants, and the complaint has not indicated which plaintiffs were making claims against which defendants, where or how the alleged injuries occurred, or what injuries each plaintiff claimed. These facts, which would be central to any estimate of probable loss, generally have been learned only through discovery. Recent changes in Texas tort procedures have required many pending cases to be split into multiple cases, one for each claimant, increasing the number of pending cases reported below for the three months ended March 31, 2006. Nevertheless, the complaints in these cases provide little additional information. We do not believe that the increased number of cases reflects an increase in the number of underlying claims.

Where the alleged exposure occurred prior to our ownership or operation of the relevant “premises,” the prior owners and operators generally have contractually agreed to retain liability for, and to indemnify us against, asbestos exposure claims. This indemnification is not subject to any time or dollar amount limitations. Upon service of a complaint in one of these cases, we tender it to the prior owner or operator. None of the complaints in these cases state the amount of damages being sought. The prior owner or operator accepts responsibility for the conduct of the defense of the cases and payment of any amounts due to the claimants. In our eleven-year experience with tendering these cases, we have not made any payment with respect to any tendered asbestos cases. We believe that the prior owners or operators have the intention and ability to continue to honor their indemnities, although we cannot assure you that they will continue to do so or that we will not be liable for these cases if they do not.

The following table presents for the period indicated certain information about cases for which service has been received that we have tendered to the prior owner or operator, all of which have been accepted.

	Three months ended March 31, 2006	Three months ended March 31, 2005
Unresolved at beginning of period	576	398
Tendered during period	822	19
Resolved during period	51	9
Unresolved at end of period	1,347	408

We have never made any payments with respect to these cases. As of March 31, 2006, we had an accrued liability of $12.5 million relating to these cases and a corresponding receivable of $12.5 million relating to our indemnity protection with respect to these cases. We cannot assure you that our liability will not exceed our accruals or that our liability associated with these cases would not be material to our financial condition, results of operations or liquidity; however, we are not able to estimate the amount or range of loss in excess of our accruals. Additional asbestos exposure claims may be made against us in the future, and such claims could be material. However, because we are not 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 as of March 31, 2006.

Certain cases in which we are a “premises defendant” are not subject to indemnification by prior owners or operators. The following table presents for the period indicated certain information about these cases. Cases include all cases for which service has been received by us.

	Three months ended March 31, 2006	Three months ended March 31, 2005
Unresolved at beginning of period	34	29
Filed during period	3	4
Resolved during period	4	1
Unresolved at end of period	33	32

We paid gross settlement costs for asbestos exposure cases that are not subject to indemnification of $5,000 during each of the three months ended March 31, 2006 and 2005. As of March 31, 2006, we had an accrual of $0.5 million relating to these cases. We cannot assure you that our liability will not exceed our accruals or that our liability associated with these cases would not be material to our financial condition, results of operations or liquidity; however, we are not able to estimate the amount or range of loss in excess of our accruals. Additional asbestos exposure claims may be made against us in the future, and such claims could be material. However, because we are not 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 as of March 31, 2006.

Environmental Enforcement Proceedings

On occasion, we receive notices of violation, enforcement and other complaints from regulatory agencies alleging non-compliance with applicable EHS law. By way of example, we are aware of the individual matters set out below, which we believe to be the most significant presently pending matters and unasserted claims. Although we may incur costs or penalties in connection with the governmental proceedings discussed below, based on currently available information and our past experience, we believe that the ultimate resolution of these matters will not have a material impact on our financial condition, results of operations or cash flows.

In May 2003, the State of Texas settled an air enforcement case with us relating to our Port Arthur plant. Under the settlement, we are required to pay a civil penalty of $7.5 million over more than four years, undertake environmental monitoring projects totaling about $1.5 million in costs, and pay $0.4 million in attorney’s fees to the Texas Attorney General. As of March 31, 2006, we have paid $3.5 million toward the penalty and $0.4 million for the attorney’s fees. The monitoring projects are underway and on schedule. We do not anticipate that this settlement will have a material adverse effect on our financial condition, results of operations or cash flows.

Beginning in the third quarter of 2004 and extending through December 2005, we have received notifications of approximately eight separate enforcement actions from the Texas Commission on Environmental Quality (“TCEQ”) for alleged violations related to air emissions at our Port Neches or our Port Arthur plant. These alleged violations primarily relate to specific upset emissions, emissions from cooling towers, or flare operations occurring at particular times and at particular operating units during 2004 and 2005. These notices of violation appear to be part of a larger enforcement initiative by the TCEQ regional office focused on upset emissions at chemical and refining industry plants located within the Beaumont/Port Arthur region. TCEQ is seeking a combined penalty of approximately $0.6 million for five of these notices. TCEQ has not made a penalty proposal for two other notices, and the final notice is seeking a penalty of less than $5,000. Final resolution of these matters is subject to further negotiation between us and TCEQ. We do not believe that the resolution of these matters will result in the imposition of costs material to our financial condition, results of operations or cash flows.

During the first quarter of 2006, we disclosed to the TCEQ that our Conroe, Texas, facility has been out of compliance with Hazardous Air Pollutant (“HAP”) regulations. Prior calculations performed by outside consultants erroneously showed that the facility was not a “major” facility for HAP program purposes; that has now been shown to have been incorrect. The agency has indicated that there will likely be a penalty imposed, although the TCEQ has not proposed a specific penalty at this time.

By letter dated September 13, 2005, the Tamil Nadu Pollution Control Board (the “TNPCB”) issued an Order in follow-up to a Show Cause notice dated June 30, 2005, requiring a manufacturing facility of Petro Araldite Private Limited, a subsidiary of Huntsman Advanced Materials in Chennai, India, to close for one week and to submit an action plan and timeline to reduce chemical oxygen demand in its wastewater effluent. The facility complied with the order and submitted an action plan to the TNPCB, which has been accepted pending installation of assets to remedy the issue. The TNPCB has issued consents allowing the facility to stay in operation until September 30, 2006. Under these consents, the facility must have the wastewater controls installed and fully operational by that

date in order to be allowed to continue operations. The proposed changes are being installed and we expect these modifications to resolve the current issues with the TNPCB. Ultimately, if the asset modifications do not resolve the effluent issue, or the TNPCB believes the plan or its implementation is inadequate, the TNPCB has the power to take further enforcement action, including shutting down the facility for a longer period or permanently, initiating criminal sanctions or imposing fines. Nevertheless, we believe that the investments in progress will fully resolve this matter. If they do not, however, the ultimate resolution will not have a material impact on our financial condition, results of operations or cash flows.

Antitrust Matters

We have been named as a defendant in putative class action antitrust suits alleging a conspiracy to fix prices in the MDI, TDI, and polyether polyols industries that are now consolidated as the “Polyether Polyols” cases in multidistrict litigation known as In re Urethane Antitrust Litigation, MDL No. 1616, Civil No. 2:04-md-01616-JWL-DJW, United States District Court, District of Kansas, initial order transferring and consolidating cases filed August 23, 2004. Other defendants named in the Polyether Polyols cases are Bayer, BASF, Dow and Lyondell. Bayer has entered into a settlement agreement with the plaintiffs that is subject to approval by the court.

These consolidated cases are in the early stages of class certification discovery. The pleadings of the plaintiffs provide few specifics about any alleged illegal conduct of the defendants and we are not aware of any evidence of illegal conduct by us or any of our employees. For these reasons, we cannot estimate the possible loss or range of loss relating to these claims, and therefore we have not accrued a liability for these claims. Nevertheless, we could incur losses due to these claims in the future and those losses could be material.

In addition, on February 16, 2006, the Antitrust Division of the U.S. Department of Justice served us with a grand jury subpoena requesting production of documents relating to the businesses of TDI, MDI, polyether polyols and related systems. The other defendants in the Polyether Polyols cases have confirmed that they have also been served with subpoenas in this matter. We intend to cooperate fully with the investigation.

Tax Dispute

In connection with the audit of our income tax returns for the years ended 1998 through 2001, we received a Notice of Proposed Adjustment from the Internal Revenue Service and, in 2005, we initiated an administrative appeal before the Internal Revenue Service. The potential liability and the potential reduction to our net operating losses have been reserved in our financial statements.

Other Proceedings

We are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various environmental, products liability and other laws. Except as otherwise disclosed in this report, we do not believe that the outcome of any of these matters will have a material adverse effect on our financial condition, results of operations or liquidity. See “Note 13. Environmental, Health and Safety Matters—Remediation Liabilities” below for a discussion of environmental remediation liabilities.

13. Environmental, Health and Safety Matters

General

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to safety, pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to frequent environmental inspections and monitoring and occasional investigations by governmental enforcement authorities. In addition, our production facilities require operating permits that are subject to renewal, modification and, in certain circumstances, revocation. Actual or alleged violations of safety laws, environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or

criminal sanctions, as well as, under some environmental laws, the assessment of strict liability and/or joint and several liability. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory matters may cause us to incur significant unanticipated losses, costs or liabilities.

Environmental, Health and Safety Systems

We are committed to achieving and maintaining compliance with all applicable environmental, health and safety (“EHS”) legal requirements, and we have developed policies and management systems that are intended to identify the multitude of EHS legal requirements applicable to our operations, enhance compliance with applicable legal requirements, ensure the safety of our employees, contractors, community neighbors and customers and minimize the production and emission of wastes and other pollutants. Although EHS legal requirements are constantly changing and are frequently difficult to comply with, these EHS management systems are designed to assist us in our compliance goals while also fostering efficiency and improvement and minimizing overall risk to us.

EHS Capital Expenditures

We may incur future costs for capital improvements and general compliance under EHS laws, including costs to acquire, maintain and repair pollution control equipment. For the three months ended March 31, 2006 and 2005, our capital expenditures for EHS matters totaled $6.7 million and $5.4 million, respectively. Since capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, we cannot provide assurance that our recent expenditures will be indicative of future amounts required under EHS laws.

Environmental Litigation and Enforcement Proceedings

See “Note 12. Commitments and Contingencies—Legal Matters” for a discussion of environmental litigation and enforcement proceedings.

Remediation Liabilities

We have incurred, and we may in the future incur, liability to investigate and clean up waste or contamination at our current or former facilities or facilities operated by third parties at which we may have disposed of waste or other materials. Similarly, we may incur costs for the cleanup of wastes that were disposed of prior to the purchase of our businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources. Specifically, under the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and similar state laws, a current or former owner or operator of real property may be liable for remediation costs regardless of whether the release or disposal of hazardous substances was in compliance with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time of the release. In addition, under the U.S. Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), and similar state laws, we may be required to remediate contamination originating from our properties as a condition to our hazardous waste permit. For example, our Odessa, Port Arthur, and Port Neches facilities in Texas are the subject of ongoing remediation requirements under RCRA authority. In many cases, our potential liability arising from historical contamination is based on operations and other events occurring prior to our ownership of the relevant facility. In these situations, we frequently obtained an indemnity agreement from the prior owner addressing remediation liabilities arising from pre-closing conditions. We have successfully exercised our rights under 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 existing indemnities will be sufficient to cover our liabilities for such matters.

Some of our manufacturing sites have an extended history of industrial chemical manufacturing and use, including on-site waste disposal. We are aware of soil, groundwater and surface water contamination from past operations at some of our sites, and we may find contamination at other sites in the future. Based on available information and the indemnification rights we believe are likely to be available, we believe that the costs to

investigate and remediate known contamination will not have a material adverse effect on our financial condition, results of operations or cash flows. However, if such indemnities are unavailable or do not fully cover the costs of investigation and remediation or we are required to contribute to such costs, and if such costs are material, then such expenditures may have a material adverse effect on our financial 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.

We have been notified by third parties of claims against us or our subsidiaries for cleanup liabilities at approximately 12 former facilities and third party sites, including but not limited to sites listed under CERCLA. Based on current information and past experience at other CERCLA sites, we do not expect any of these third party claims to result in a material liability to us.

Environmental Reserves

We have established financial reserves relating to anticipated environmental cleanup obligations, site reclamation and closure costs and known penalties. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are based upon available facts, existing technology and past experience. We have accrued approximately $18 million and $25 million for environmental liabilities as of March 31, 2006 and December 31, 2005, respectively. These amounts do not include amounts recorded as asset retirement obligations. Of these amounts, approximately $6 million and $7 million are classified as accrued liabilities on our condensed consolidated balance sheets as of March 31, 2006 and December 31, 2005, respectively, and approximately $12 million and $18 million are classified as other noncurrent liabilities on our condensed consolidated balance sheets as of March 31, 2006 and December 31, 2005, respectively. In certain cases, our remediation liabilities are payable over periods of up to 30 years. We may incur losses for environmental remediation in excess of the amounts accrued; however, we are not able to estimate the amount or range of such potential excess. We may be subject to additional environmental remediation liabilities in the future, and such liabilities could be material. However, because we are not able to estimate the amount or range of losses associated with such liabilities, we have made no accruals with respect to unasserted environmental remediation liabilities as of March 31, 2006.

Regulatory Developments

Under the European Union (“EU”) Integrated Pollution Prevention and Control Directive (“IPPC”), EU member governments are to adopt rules and implement a cross media (air, water and waste) environmental permitting program for individual facilities. While the EU countries are at varying stages in their respective implementation of the IPPC permit program, we have submitted all necessary IPPC permit applications required to date, and in some cases received completed permits from the applicable government agency. We expect to submit all other IPPC applications and related documents on a timely basis as the various countries implement the IPPC permit program. Although we do not know with certainty what each IPPC permit will require, we believe, based upon our experience with the permits received to date, that the costs of compliance with the IPPC permit program will not be material to our financial condition, results of operations or cash flows.

In October 2003, the European Commission (“EC”) adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called “REACH” (Registration, Evaluation and Authorization of Chemicals), companies that manufacture or import more than one ton of a chemical substance per year would be required to register such manufacture or import in a central database. On November 17, 2005, the European Parliament completed its first reading of the EC-drafted REACH legislation. Ministers from EU’s 25 member states (sitting as the Council) finalized their own position on the text on December 13, 2005, paving the way for final agreement between Parliament and the Council in late 2006 and for REACH to become law in early 2007. As proposed, REACH would require risk assessment of chemicals, preparations (e.g., soaps and paints) and articles (e.g., consumer products) before those materials could be manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk control strategies that would require expenditures by us. As currently envisioned, REACH would take effect in three primary stages over eleven years following the final effective date (assuming final approval). The impacts of REACH on the chemical industry and on us are unclear at this time because the parameters of the program are still in development.

MTBE Developments

We produce MTBE, an oxygenate that is blended with gasoline to reduce vehicle air emissions and to enhance the octane rating of gasoline. Because MTBE has contaminated some water supplies, its use has become controversial in the U.S. and elsewhere and has been curtailed and may be eliminated in the future by legislation or regulatory action. For example, about 25 states have adopted rules that prohibit or restrict the use of MTBE in gasoline sold in those states. Those states account for a substantial portion of the “pre-ban” U.S. MTBE market. In addition, the Energy Policy Act of 2005 is now having an adverse impact on our MTBE business in the U.S., since it mandates increased use of renewable fuels and eliminates, as of May 6, 2006, the oxygenate requirement for reformulated gasoline established by the 1990 Clean Air Act Amendments. Although the full extent of the potential impact of the new law is still unclear, most gasoline refiners and distributors in the U.S. appear to have stopped using MTBE. A significant loss in demand for our MTBE in the U.S. could result in a material loss in revenues or material costs or expenditures.

In 2005, sales of MTBE comprised approximately 5% of our total revenues, and we marketed approximately 95% of our MTBE to customers located in the U.S. for use as a gasoline additive. Most of our 2005 sales of MTBE to U.S. customers were made pursuant to long-term agreements. During 2006 (and concluding by the first quarter of 2007), our long-term MTBE sales agreements in the U.S. will terminate. We anticipate that our 2006 sales of MTBE in the U.S. will decrease substantially as compared to 2005 levels. We have entered into sales agreements to sell a significant percentage of our MTBE into the Latin American market, and we currently believe that we could also sell MTBE relatively efficiently in Europe and Asia. Nevertheless, as a result of varying market prices and transportation costs, sales of MTBE in markets outside the U.S. may produce lower margins than the sale of MTBE in the U.S. We may also elect to use all or a portion of our precursor TBA to produce saleable products other than MTBE. If we opt to produce products other than MTBE, necessary modifications to our facilities will require us to make significant capital expenditures and the sale of such other products may produce a lower level of cash flow than the sale of MTBE.

A number of lawsuits have been filed, primarily against gasoline manufacturers, marketers and distributors, by persons seeking to recover damages allegedly arising from the presence of MTBE in groundwater. While we have not been named as a defendant in any litigation concerning the environmental effects of MTBE, we cannot provide assurances that we will not be involved in any such litigation or that such litigation will not have a material adverse effect on our business, financial condition, results of operations or cash flows. However, because we are not able to estimate the amount or range of losses associated with such litigation, we have made no accruals with respect to unasserted claims concerning the environmental effects of MTBE as of March 31, 2006.

14. Other Operating Expense

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

		Three Months Ended March 31,