XNYS:HUN Huntsman Corporation Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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TABLE OF CONTENTS

Table of Contents

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 June 30, 2012

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
or Organization
  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.

Huntsman Corporation

  YES ý   NO o

Huntsman International LLC

  YES ý   NO o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Huntsman Corporation

  YES ý   NO o

Huntsman International LLC

  YES ý   NO o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Huntsman Corporation   Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
Huntsman International LLC   Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý   Smaller reporting company o

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

Huntsman Corporation

  YES o   NO ý

Huntsman International LLC

  YES o   NO ý



         On July 23, 2012, 243,458,610 shares of common stock of Huntsman Corporation were outstanding and 2,728 units of membership interests of Huntsman International LLC were outstanding. There is no 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 LLC 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 LLC, except where otherwise indicated. Huntsman International LLC 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.

   


Table of Contents


HUNTSMAN CORPORATION AND SUBSIDIARIES
HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2012

TABLE OF CONTENTS

 
   
   
  Page  

PART I

 

FINANCIAL INFORMATION

   
3
 

ITEM 1.

 

Financial Statements:

   
3
 

 

Huntsman Corporation and Subsidiaries:

       

     

Condensed Consolidated Balance Sheets (Unaudited)

   
3
 

     

Condensed Consolidated Statements of Operations (Unaudited)

   
4
 

     

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

   
5
 

     

Condensed Consolidated Statements of Cash Flows (Unaudited)

   
6
 

     

Condensed Consolidated Statements of Equity (Unaudited)

   
8
 

 

Huntsman International LLC and Subsidiaries:

       

     

Condensed Consolidated Balance Sheets (Unaudited)

   
9
 

     

Condensed Consolidated Statements of Operations (Unaudited)

   
10
 

     

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

   
11
 

     

Condensed Consolidated Statements of Cash Flows (Unaudited)

   
12
 

     

Condensed Consolidated Statements of Equity (Unaudited)

   
14
 

 

Huntsman Corporation and Subsidiaries and Huntsman International LLC and Subsidiaries:

       

     

Notes to Condensed Consolidated Financial Statements (Unaudited)

   
15
 

ITEM 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

   
67
 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   
91
 

ITEM 4.

 

Controls and Procedures

   
93
 

PART II

 

OTHER INFORMATION

   
93
 

ITEM 1.

 

Legal Proceedings

   
93
 

ITEM 1A.

 

Risk Factors

   
93
 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   
94
 

ITEM 6.

 

Exhibits

   
94
 

2


Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions, Except Share and Per Share Amounts)

 
  June 30,
2012
  December 31,
2011
 

ASSETS

             

Current assets:

             

Cash and cash equivalents(a)

  $ 452   $ 554  

Restricted cash(a)

    9     8  

Accounts and notes receivable (net of allowance for doubtful accounts of $44 and $46, respectively), ($649 and $659 pledged as collateral, respectively)(a)

    1,677     1,529  

Accounts receivable from affiliates

    40     5  

Inventories(a)

    1,645     1,539  

Prepaid expenses

    37     46  

Deferred income taxes

    40     20  

Other current assets(a)

    209     245  
           

Total current assets

    4,109     3,946  

Property, plant and equipment, net(a)

    3,536     3,622  

Investment in unconsolidated affiliates

    223     202  

Intangible assets, net(a)

    78     91  

Goodwill

    106     114  

Deferred income taxes

    189     195  

Notes receivable from affiliates

    2     5  

Other noncurrent assets(a)

    486     482  
           

Total assets

  $ 8,729   $ 8,657  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             

Accounts payable(a)

  $ 976   $ 862  

Accounts payable to affiliates

    33     50  

Accrued liabilities(a)

    669     695  

Deferred income taxes

    27     7  

Current portion of debt(a)

    143     212  
           

Total current liabilities

    1,848     1,826  

Long-term debt(a)

    3,601     3,730  

Notes payable to affiliates

    4     4  

Deferred income taxes

    341     309  

Other noncurrent liabilities(a)

    929     1,012  
           

Total liabilities

    6,723     6,881  

Commitments and contingencies (Notes 13 and 14)

             

Equity

             

Huntsman Corporation stockholders' equity:

             

Common stock $0.01 par value, 1,200,000,000 shares authorized, 243,468,351 and 241,836,001 issued and 237,890,371 and 235,746,087 outstanding in 2012 and 2011, respectively

    2     2  

Additional paid-in capital

    3,257     3,228  

Treasury stock, 4,043,526 shares at 2012 and 2011

    (50 )   (50 )

Unearned stock-based compensation

    (17 )   (12 )

Accumulated deficit

    (715 )   (947 )

Accumulated other comprehensive loss

    (589 )   (559 )
           

Total Huntsman Corporation stockholders' equity

    1,888     1,662  

Noncontrolling interests in subsidiaries

    118     114  
           

Total equity

    2,006     1,776  
           

Total liabilities and equity

  $ 8,729   $ 8,657  
           

(a)
At June 30, 2012 and December 31, 2011, respectively, $34 and $44 of cash and cash equivalents, $9 and $2 of restricted cash, $36 and $29 of accounts and notes receivable (net), $50 and $47 of inventories, $1 each of other current assets, $383 and $403 of property, plant and equipment (net), $20 and $23 of intangible assets (net), $22 and $21 of other noncurrent assets, $54 and $55 of accounts payable, $22 and $21 of accrued liabilities, $23 and $16 of current portion of debt, $248 and $264 of long-term debt, and $74 and $111 of other noncurrent liabilities from consolidated variable interest entities are included in the respective balance sheet captions above. See "Note 5. Variable Interest Entities."

   

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

3


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HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in Millions, Except Per Share Amounts)

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Revenues:

                         

Trade sales, services and fees, net

  $ 2,862   $ 2,896   $ 5,715   $ 5,522  

Related party sales

    52     38     112     91  
                   

Total revenues

    2,914     2,934     5,827     5,613  

Cost of goods sold

    2,387     2,433     4,750     4,652  
                   

Gross profit

    527     501     1,077     961  

Operating expenses:

                         

Selling, general and administrative

    232     256     453     474  

Research and development

    38     42     77     81  

Other operating expense (income)

    2     (26 )   7     8  

Restructuring, impairment and plant closing costs

    5     9     5     16  
                   

Total expenses

    277     281     542     579  
                   

Operating income

    250     220     535     382  

Interest expense, net

    (57 )   (65 )   (116 )   (124 )

Equity in income of investment in unconsolidated affiliates

    1     2     3     4  

Loss on early extinguishment of debt

            (1 )   (3 )

Other income

    1     1     1     1  
                   

Income from continuing operations before income taxes

    195     158     422     260  

Income tax expense

    (65 )   (34 )   (125 )   (56 )
                   

Income from continuing operations

    130     124     297     204  

Loss from discontinued operations, net of tax

    (2 )   (1 )   (6 )   (15 )
                   

Income before extraordinary gain

    128     123     291     189  

Extraordinary gain on the acquisition of a business, net of tax of nil

        1         2  
                   

Net income

    128     124     291     191  

Net income attributable to noncontrolling interests

    (4 )   (10 )   (4 )   (15 )
                   

Net income attributable to Huntsman Corporation

  $ 124   $ 114   $ 287   $ 176  
                   

Basic income (loss) per share:

                         

Income from continuing operations attributable to Huntsman Corporation common stockholders

  $ 0.53   $ 0.48   $ 1.24   $ 0.79  

Loss from discontinued operations attributable to Huntsman Corporation common stockholders, net of tax

    (0.01 )       (0.03 )   (0.06 )

Extraordinary gain on the acquisition of a business attributable to Huntsman Corporation common stockholders, net of tax

                0.01  
                   

Net income attributable to Huntsman Corporation common stockholders

  $ 0.52   $ 0.48   $ 1.21   $ 0.74  
                   

Weighted average shares

    237.8     239.4     237.2     238.5  
                   

Diluted income (loss) per share:

                         

Income from continuing operations attributable to Huntsman Corporation common stockholders

  $ 0.52   $ 0.47   $ 1.22   $ 0.78  

Loss from discontinued operations attributable to Huntsman Corporation common stockholders, net of tax

            (0.03 )   (0.07 )

Extraordinary gain on the acquisition of a business attributable to Huntsman Corporation common stockholders, net of tax

                0.01  
                   

Net income attributable to Huntsman Corporation common stockholders

  $ 0.52   $ 0.47   $ 1.19   $ 0.72  
                   

Weighted average shares

    240.5     243.7     240.2     243.2  
                   

Amounts attributable to Huntsman Corporation common stockholders:

                         

Income from continuing operations

  $ 126   $ 114   $ 293   $ 189  

Loss from discontinued operations, net of tax

    (2 )   (1 )   (6 )   (15 )

Extraordinary gain on the acquisition of a business, net of tax

        1         2  
                   

Net income

  $ 124   $ 114   $ 287   $ 176  
                   

Dividends per share

  $ 0.10   $ 0.10   $ 0.20   $ 0.20  
                   

   

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

4


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HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(Dollars in Millions)

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Net income

  $ 128   $ 124   $ 291   $ 191  

Other comprehensive (loss) income, net of tax:

                         

Foreign currency translations adjustments

    (142 )   56     (69 )   147  

Pension and other postretirement benefits adjustments

    22     4     41     8  

Other, net

    (3 )       (2 )   1  
                   

Other comprehensive (loss) income

    (123 )   60     (30 )   156  
                   

Comprehensive income

    5     184     261     347  

Comprehensive income attributable to noncontrolling interests

    (2 )   (10 )   (4 )   (16 )
                   

Comprehensive income attributable to Huntsman Corporation

  $ 3   $ 174   $ 257   $ 331  
                   

   

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

5


Table of Contents


HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 
  Six months
ended
June 30,
 
 
  2012   2011  

Operating Activities:

             

Net income

  $ 291   $ 191  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Gain on the consolidation of a variable interest entity

        (12 )

Equity in income of investment in unconsolidated affiliates

    (3 )   (4 )

Depreciation and amortization

    216     214  

Loss (gain) on disposal of businesses/assets, net

    1     (2 )

Loss on early extinguishment of debt

    1     3  

Noncash interest expense

    14     19  

Deferred income taxes

    31     (18 )

Noncash loss on foreign currency transactions

    4      

Stock-based compensation

    15     16  

Other, net

    7     2  

Changes in operating assets and liabilities:

             

Accounts and notes receivable

    (183 )   (325 )

Inventories

    (139 )   (270 )

Prepaid expenses

    9     10  

Other current assets

    32     (121 )

Other noncurrent assets

    (7 )   37  

Accounts payable

    100     200  

Accrued liabilities

    4     119  

Other noncurrent liabilities

    (45 )   (58 )
           

Net cash provided by operating activities

    348     1  
           

Investing Activities:

             

Capital expenditures

    (163 )   (124 )

Proceeds from settlements treated as reimbursement of capital expenditures

        3  

Cash assumed in connection with the initial consolidation of a variable interest entity

        28  

Cash paid for acquisition of a business

    (2 )   (23 )

Proceeds from sale of business/assets

        3  

Investment in unconsolidated affiliates

    (60 )   (10 )

Cash received from unconsolidated affiliates

    40     13  

Increase in restricted cash

    (2 )    

Other, net

    2     (1 )
           

Net cash used in investing activities

    (185 )   (111 )
           

   

(Continued)

6


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HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

(Dollars in Millions)

 
  Six months
ended
June 30,
 
 
  2012   2011  

Financing Activities:

             

Net (repayments) borrowings under revolving loan facilities

  $ (15 ) $ 4  

Net borrowings on overdraft facilities

    4     11  

Repayments of short-term debt

    (21 )   (100 )

Borrowings on short-term debt

        76  

Repayments of long-term debt

    (152 )   (170 )

Proceeds from issuance of long-term debt

    1     71  

Repayments of notes payable

    (24 )   (15 )

Borrowings on notes payable

    1     1  

Debt issuance costs paid

    (4 )   (7 )

Call premiums related to early extinguishment of debt

    (2 )   (3 )

Dividends paid to common stockholders

    (48 )   (48 )

Repurchase and cancellation of stock awards

    (7 )   (8 )

Proceeds from issuance of common stock

    1     3  

Excess tax benefit related to stock-based compensation

    4     10  

Other, net

    (2 )   (3 )
           

Net cash used in financing activities

    (264 )   (178 )
           

Effect of exchange rate changes on cash

    (1 )   5  
           

Decrease in cash and cash equivalents

    (102 )   (283 )

Cash and cash equivalents at beginning of period

    554     966  
           

Cash and cash equivalents at end of period

  $ 452   $ 683  
           

Supplemental cash flow information:

             

Cash paid for interest

  $ 106   $ 108  

Cash paid for income taxes

    70     35  

        During the six months ended June 30, 2012 and 2011, the amount of capital expenditures in accounts payable decreased by $8 million each.

   

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

7


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HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Dollars in Millions)

 
  Huntsman Corporation Stockholders    
   
 
 
  Shares    
   
   
   
   
   
   
   
 
 
   
   
   
   
   
  Accumulated
other
comprehensive
(loss) income
   
   
 
 
  Common
stock
  Common
stock
  Additional
paid-in
capital
  Treasury
stock
  Unearned
stock-based
compensation
  Accumulated
deficit
  Noncontrolling
interests in
subsidiaries
  Total
equity
 

Balance, January 1, 2012

    235,746,087   $ 2   $ 3,228   $ (50 ) $ (12 ) $ (947 ) $ (559 ) $ 114   $ 1,776  

Net income

                        287         4     291  

Other comprehensive loss

                            (30 )       (30 )

Issuance of nonvested stock awards

            12         (12 )                

Vesting of stock awards

    2,141,910         10                         10  

Recognition of stock-based compensation

            4         7                 11  

Repurchase and cancellation of stock awards

    (533,266 )                   (7 )           (7 )

Stock options exercised

    535,640         1                         1  

Excess tax benefit related to stock-based compensation

            4                         4  

Dividends paid on common stock

                        (48 )           (48 )

Acquisition of a business

            (2 )                       (2 )
                                       

Balance, June 30, 2012

    237,890,371   $ 2   $ 3,257   $ (50 ) $ (17 ) $ (715 ) $ (589 ) $ 118   $ 2,006  
                                       

Balance, January 1, 2011

   
236,799,455
 
$

2
 
$

3,186
 
$

 
$

(11

)

$

(1,090

)

$

(297

)

$

60
 
$

1,850
 

Net income

                        176         15     191  

Other comprehensive income

                            155     1     156  

Consolidation of a variable interest entity

                                61     61  

Issuance of nonvested stock awards

            11         (11 )                

Vesting of stock awards

    2,211,143         13                         13  

Recognition of stock-based compensation

            2         6                 8  

Repurchase and cancellation of stock awards

    (503,913 )                   (8 )           (8 )

Stock options exercised

    1,225,436         3                         3  

Excess tax benefit related to stock-based compensation

            10                         10  

Dividends paid on common stock

                        (48 )           (48 )
                                       

Balance, June 30, 2011

    239,732,121   $ 2   $ 3,225   $   $ (16 ) $ (970 ) $ (142 ) $ 137   $ 2,236  
                                       

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

8


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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions)

 
  June 30,
2012
  December 31,
2011
 

ASSETS

             

Current assets:

             

Cash and cash equivalents(a)

  $ 201   $ 231  

Restricted cash(a)

    9     8  

Accounts and notes receivable (net of allowance for doubtful accounts of $44 and $46, respectively), ($649 and $659 pledged as collateral, respectively)(a)

    1,677     1,529  

Accounts receivable from affiliates

    205     148  

Inventories(a)

    1,645     1,539  

Prepaid expenses

    35     46  

Deferred income taxes

    40     40  

Other current assets(a)

    209     220  
           

Total current assets

    4,021     3,761  

Property, plant and equipment, net(a)

    3,436     3,510  

Investment in unconsolidated affiliates

    223     202  

Intangible assets, net(a)

    80     93  

Goodwill

    106     114  

Deferred income taxes

    189     163  

Notes receivable from affiliates

    2     5  

Other noncurrent assets(a)

    486     482  
           

Total assets

  $ 8,543   $ 8,330  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             

Accounts payable(a)

  $ 976   $ 862  

Accounts payable to affiliates

    40     64  

Accrued liabilities(a)

    641     694  

Deferred income taxes

    29     29  

Note payable to affiliate

    100     100  

Current portion of debt(a)

    143     212  
           

Total current liabilities

    1,929     1,961  

Long-term debt(a)

    3,601     3,730  

Notes payable to affiliates

    523     439  

Deferred income taxes

    235     106  

Other noncurrent liabilities(a)

    926     1,003  
           

Total liabilities

    7,214     7,239  

Commitments and contingencies (Notes 13 and 14)

             

Equity

             

Huntsman International LLC members' equity:

             

Members' equity, 2,728 units issued and outstanding

    3,097     3,081  

Accumulated deficit

    (1,248 )   (1,493 )

Accumulated other comprehensive loss

    (638 )   (611 )
           

Total Huntsman International LLC members' equity

    1,211     977  

Noncontrolling interests in subsidiaries

    118     114  
           

Total equity

    1,329     1,091  
           

Total liabilities and equity

  $ 8,543   $ 8,330  
           

(a)
At June 30, 2012 and December 31, 2011, respectively, $34 and $44 of cash and cash equivalents, $9 and $2 of restricted cash, $36 and $29 of accounts and notes receivable (net), $50 and $47 of inventories, $1 each of other current assets, $383 and $403 of property, plant and equipment (net), $20 and $23 of intangible assets (net), $22 and $21 of other noncurrent assets, $54 and $55 of accounts payable, $22 and $21 of accrued liabilities, $23 and $16 of current portion of debt, $248 and $264 of long-term debt, and $74 and $111 of other noncurrent liabilities from consolidated variable interest entities are included in the respective balance sheet captions above. See "Note 5. Variable Interest Entities."

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in Millions)

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Revenues:

                         

Trade sales, services and fees, net

  $ 2,862   $ 2,896   $ 5,715   $ 5,522  

Related party sales

    52     38     112     91  
                   

Total revenues

    2,914     2,934     5,827     5,613  

Cost of goods sold

    2,382     2,429     4,741     4,643  
                   

Gross profit

    532     505     1,086     970  

Operating expenses:

                         

Selling, general and administrative

    230     255     449     472  

Research and development

    38     42     77     81  

Other operating expense (income)

    2     (26 )   7     8  

Restructuring, impairment and plant closing costs

    5     9     5     16  
                   

Total expenses

    275     280     538     577  
                   

Operating income

    257     225     548     393  

Interest expense, net

    (61 )   (67 )   (122 )   (131 )

Equity in income of investment in unconsolidated affiliates

    1     2     3     4  

Loss on early extinguishment of debt

            (1 )   (3 )

Other income

    1     1     1     1  
                   

Income from continuing operations before income taxes

    198     161     429     264  

Income tax expense

    (65 )   (34 )   (126 )   (56 )
                   

Income from continuing operations

    133     127     303     208  

Loss from discontinued operations, net of tax

    (2 )   (1 )   (6 )   (15 )
                   

Income before extraordinary gain

    131     126     297     193  

Extraordinary gain on the acquisition of a business, net of tax of nil

        1         2  
                   

Net income

    131     127     297     195  

Net income attributable to noncontrolling interests

    (4 )   (10 )   (4 )   (15 )
                   

Net income attributable to Huntsman International LLC

  $ 127   $ 117   $ 293   $ 180  
                   

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(Dollars in Millions)

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Net income

  $ 131   $ 127   $ 297   $ 195  

Other comprehensive (loss) income, net of tax:

                         

Foreign currency translations adjustments

    (142 )   55     (69 )   148  

Pension and other postretirement benefits adjustments

    22     6     43     11  

Other, net

    (2 )       (1 )    
                   

Other comprehensive (loss) income

    (122 )   61     (27 )   159  
                   

Comprehensive income

    9     188     270     354  

Comprehensive income attributable to noncontrolling interests

    (2 )   (10 )   (4 )   (16 )
                   

Comprehensive income attributable to Huntsman International LLC

  $ 7   $ 178   $ 266   $ 338  
                   

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 
  Six months
ended
June 30,
 
 
  2012   2011  

Operating Activities:

             

Net income

  $ 297   $ 195  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

             

Gain on the consolidation of a variable interest entity

        (12 )

Equity in income of investment in unconsolidated affiliates

    (3 )   (4 )

Depreciation and amortization

    204     203  

Loss (gain) on disposal of businesses/assets, net

    1     (2 )

Loss on early extinguishment of debt

    1     3  

Noncash interest expense

    20     25  

Deferred income taxes

    96     (19 )

Noncash loss on foreign currency transactions

    4      

Noncash compensation

    14     15  

Other, net

    6     2  

Changes in operating assets and liabilities:

             

Accounts and notes receivable

    (183 )   (325 )

Inventories

    (139 )   (270 )

Prepaid expenses

    10     12  

Other current assets

    7     (121 )

Other noncurrent assets

    (7 )   37  

Accounts payable

    94     194  

Accrued liabilities

    (22 )   119  

Other noncurrent liabilities

    (43 )   (55 )
           

Net cash provided by (used in) operating activities

    357     (3 )
           

Investing Activities:

             

Capital expenditures

    (163 )   (124 )

Proceeds from settlements treated as reimbursement of capital expenditures

        3  

Cash assumed in connection with the initial consolidation of a variable interest entity

        28  

Cash paid for acquisition of a business

    (2 )   (23 )

Proceeds from sale of business/assets

        3  

(Increase) decrease in receivable from affiliate

    (29 )   8  

Investment in unconsolidated affiliates

    (60 )   (10 )

Cash received from unconsolidated affiliates

    40     13  

Increase in restricted cash

    (2 )    

Other, net

    2     (1 )
           

Net cash used in investing activities

    (214 )   (103 )
           

   

(Continued)

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

(Dollars in Millions)

 
  Six months
ended
June 30,
 
 
  2012   2011  

Financing Activities:

             

Net (repayments) borrowings under revolving loan facilities

  $ (15 ) $ 4  

Net borrowings on overdraft facilities

    4     11  

Repayments of short-term debt

    (21 )   (100 )

Borrowings on short-term debt

        76  

Repayments of long-term debt

    (152 )   (170 )

Proceeds from issuance of long-term debt

    1     71  

Proceeds from notes payable to affiliate

    84      

Repayments of notes payable

    (24 )   (15 )

Borrowings on notes payable

    1     1  

Debt issuance costs paid

    (4 )   (7 )

Call premiums related to early extinguishment of debt

    (2 )   (3 )

Dividends paid to parent

    (48 )   (32 )

Excess tax benefit related to stock-based compensation

    4     10  
           

Net cash used in financing activities

    (172 )   (154 )
           

Effect of exchange rate changes on cash

    (1 )   5  
           

Decrease in cash and cash equivalents

    (30 )   (255 )

Cash and cash equivalents at beginning of period

    231     561  
           

Cash and cash equivalents at end of period

  $ 201   $ 306  
           

Supplemental cash flow information:

             

Cash paid for interest

  $ 106   $ 108  

Cash paid for income taxes

    58     35  

        During the six months ended June 30, 2012 and 2011, the amount of capital expenditures in accounts payable decreased by $8 million each. During the six months ended June 30, 2012 and 2011, Huntsman Corporation contributed $14 million and $15 million related to stock-based compensation, respectively.

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Dollars in Millions)

 
  Huntsman International LLC Members    
   
 
 
  Members' equity    
   
   
   
 
 
  Accumulated
deficit
  Accumulated other
comprehensive
(loss) income
  Noncontrolling
interests in
subsidiaries
  Total equity  
 
  Units   Amount  

Balance, January 1, 2012

    2,728   $ 3,081   $ (1,493 ) $ (611 ) $ 114   $ 1,091  

Net income

            293         4     297  

Other comprehensive loss

                (27 )       (27 )

Contribution from parent

        14                 14  

Dividends paid to parent

            (48 )           (48 )

Acquisition of a business

        (2 )               (2 )

Excess tax benefit related to stock-based compensation

        4                 4  
                           

Balance, June 30, 2012

    2,728   $ 3,097   $ (1,248 ) $ (638 ) $ 118   $ 1,329  
                           

Balance, January 1, 2011

   
2,728
 
$

3,049
 
$

(1,667

)

$

(354

)

$

60
 
$

1,088
 

Net income

            180         15     195  

Other comprehensive income

                158     1     159  

Consolidation of a variable interest entity

                    61     61  

Contribution from parent

        15                 15  

Dividends paid to parent

            (32 )           (32 )

Excess tax benefit related to stock-based compensation

        10                 10  
                           

Balance, June 30, 2011

    2,728   $ 3,074   $ (1,519 ) $ (196 ) $ 137   $ 1,496  
                           

   

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

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

CERTAIN DEFINITIONS

        For convenience in this report, the terms "Company," "our," "us" or "we" may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. In this report, "Huntsman International" refers to Huntsman International LLC (our 100% owned subsidiary) and, unless the context otherwise requires, its subsidiaries; and "HPS" refers to Huntsman Polyurethanes Shanghai Ltd. (our consolidated splitting joint venture with Shanghai Chlor-Alkali Chemical Company, Ltd).

        In this report, we may use, without definition, the common names of competitors or other industry participants. We may also use the common names or abbreviations for certain chemicals or products.

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, comprehensive income, 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 (unaudited) should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 for our Company and Huntsman International.

DESCRIPTION OF BUSINESS

        We are a global manufacturer of differentiated organic chemical products and of inorganic chemical products. Our products comprise a broad range of chemicals and formulations, which we market globally 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, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals and dye industries. We are a leading global producer in many of our key product lines, including MDI, amines, surfactants, maleic anhydride, epoxy-based polymer formulations, textile chemicals, dyes and titanium dioxide.

        We operate in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects and Pigments. Our Polyurethanes, Performance Products, Advanced Materials and Textile Effects segments produce differentiated organic chemical products and our Pigments segment produces inorganic chemical products.

COMPANY

        Our Company, a Delaware corporation, was formed in 2004 to hold the Huntsman businesses. Jon M. Huntsman founded the predecessor to our Company in 1970 as a small packaging company.

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. GENERAL (Continued)

Since then, we have grown through a series of acquisitions and now own a global portfolio of businesses.

        We operate all of our businesses through Huntsman International, our 100% owned subsidiary. Huntsman International is a Delaware limited liability company.

HUNTSMAN CORPORATION AND HUNTSMAN INTERNATIONAL FINANCIAL STATEMENTS

        Except where otherwise indicated, these notes relate to the condensed consolidated financial statements (unaudited) for both 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 2003 step-acquisition of Huntsman International Holdings LLC, the former parent company of Huntsman International that was merged into Huntsman International in 2005;

    the different capital structures; and

    a note payable from Huntsman International to us.

PRINCIPLES OF CONSOLIDATION

        Our 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, except for intercompany sales between continuing and discontinued operations.

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.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ACCOUNTING PRONOUNCEMENTS ADOPTED DURING 2012

        In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, providing a consistent definition of fair value between U.S. GAAP and International Financial Reporting Standards ("IFRSs") as well as developing common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU were effective prospectively for interim and annual periods beginning after December 15, 2011. We adopted the amendments of this ASU effective January 1, 2012, and the initial adoption of the

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)

amendments in this ASU did not have a significant impact on our condensed consolidated financial statements (unaudited).

        In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, requiring entities to present net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present components of other comprehensive income as part of the statement of equity is eliminated. The amendments do not change the option to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income components. The amendments in this ASU were effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this ASU effective January 1, 2012 and have presented our consolidated net income and consolidated comprehensive income in two separate, but consecutive, statements.

ACCOUNTING PRONOUNCEMENTS PENDING ADOPTION IN FUTURE PERIODS

        In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in this ASU is intended to reduce complexity and costs of the annual goodwill impairment test by providing entities with the option of performing a qualitative assessment to determine whether further impairment testing is necessary. The amendments in this ASU include examples of events and circumstances that might indicate that a reporting unit's fair value is less than its carrying value. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. We did not early adopt the provisions of this ASU for our annual impairment test on July 1, 2011 and do not expect the adoption of the amendments in this ASU to have a significant impact on our condensed consolidated financial statements (unaudited).

3. BUSINESS COMBINATIONS

EMA ACQUISITION

        On December 30, 2011, we completed the acquisition of EMA Kimya Sistemleri Sanayi ve Ticaret A.S. (the "EMA Acquisition"), an MDI-based polyurethanes systems house in Istanbul, Turkey for approximately $11 million, net of cash acquired and including the repayment of assumed debt. We have accounted for the EMA Acquisition using the acquisition method and transaction costs charged to expense associated with this acquisition were not significant. For purposes of a preliminary allocation of the acquisition cost to assets acquired and liabilities assumed, we have assigned the excess of the acquisition cost over historical carrying values of $7 million to property, plant and equipment. At December 31, 2011, the excess of the acquisition cost over historical carrying values had been assigned as goodwill. This preliminary purchase price allocation is likely to change once we complete the analysis of the fair value of tangible and intangible assets acquired and liabilities assumed. Net sales for the three and six months ended June 30, 2011 related to the business acquired were approximately

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3. BUSINESS COMBINATIONS (Continued)

$7 million and $12 million, respectively. Net losses for the three and six months ended June 30, 2011 related to the business acquired were approximately $1 million and $2 million, respectively.

LAFFANS ACQUISITION

        On April 2, 2011, we completed the acquisition of the chemical business of Laffans Petrochemicals Limited, an amines and surfactants manufacturer located in Ankleshwar, India (the "Laffans Acquisition") at a cost of approximately $23 million. The acquired business has been integrated into our Performance Products segment. Transaction costs charged to expense related to this acquisition were not significant.

        We have accounted for the Laffans Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):

Acquisition cost

  $ 23  
       

Fair value of assets acquired and liabilities assumed:

       

Accounts receivable

  $ 9  

Inventories

    2  

Other current assets

    2  

Property, plant and equipment

    12  

Intangibles

    3  

Accounts payable

    (3 )

Accrued liabilities

    (1 )

Other noncurrent liabilities

    (1 )
       

Total fair value of net assets acquired

  $ 23  
       

        If this acquisition were to have occurred on January 1, 2011, the following estimated pro forma revenues and net income attributable to Huntsman Corporation and Huntsman International would have been reported (dollars in millions):

Huntsman Corporation

 
  Pro Forma
Six months
ended
June 30, 2011
 

Revenues

  $ 5,627  

Net income attributable to Huntsman Corporation

    177  

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3. BUSINESS COMBINATIONS (Continued)

Huntsman International

 
  Pro Forma
Six months
ended
June 30, 2011
 

Revenues

  $ 5,627  

Net income attributable to Huntsman International

    181  

4. INVENTORIES

        Inventories are stated at the lower of cost or market, with cost determined using last-in first-out ("LIFO"), first-in first-out, and average costs methods for different components of inventory. Inventories consisted of the following (dollars in millions):

 
  June 30,
2012
  December 31,
2011
 

Raw materials and supplies

  $ 441   $ 374  

Work in progress

    98     92  

Finished goods

    1,183     1,162  
           

Total

    1,722     1,628  

LIFO reserves

    (77 )   (89 )
           

Net

  $ 1,645   $ 1,539  
           

        For June 30, 2012 and December 31, 2011, approximately 11% and 12%, respectively, of inventories were recorded using the LIFO cost method.

        In the normal course of operations we, at times, exchange raw materials and finished goods with other companies for the purpose of reducing transportation costs. The net nonmonetary open exchange positions are valued at cost. The amounts included in inventory under nonmonetary open exchange agreements receivable by us as of June 30, 2012 and December 31, 2011 were $8 million and $3 million, respectively. Other open exchanges are settled in cash and result in a net deferred profit margin. The amount payable under these open exchange agreements as of both June 30, 2012 and December 31, 2011 was nil.

5. VARIABLE INTEREST ENTITIES

        We evaluate our investments and transactions to identify variable interest entities ("VIEs") for which we are the primary beneficiary. We hold a variable interest in the following four joint ventures for which we are the primary beneficiary:

    Rubicon LLC manufactures products for our Polyurethanes and Performance Products segments. The joint venture is structured such that the total equity investment at risk is not sufficient to permit it to finance its activities without additional financial support. Under the Rubicon LLC

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. VARIABLE INTEREST ENTITIES (Continued)

      operating agreement, we are entitled to a majority of the output, absorb a majority of the operating costs and provide a majority of the additional funding.

    Pacific Iron Products Sdn Bhd manufactures products for our Pigments segment. In this joint venture, we supply all the raw materials through a fixed cost supply agreement, operate the manufacturing facility and market the products. Under the fixed cost supply agreement, we are exposed to the risks related to the fluctuation of raw material prices.

    Arabian Amines Company manufactures ethyleneamines products for our Performance Products segment. Prior to July 1, 2010, this joint venture was accounted for under the equity method. In July 2010, Arabian Amines Company exited the development stage, which triggered its reconsideration as a VIE. As required in the Arabian Amines Company operating agreement, we purchase all of its production and sell it to our customers. Substantially all of the joint venture's activities are conducted on our behalf.

    Sasol-Huntsman GmbH and Co. KG ("Sasol-Huntsman") is our joint venture with Sasol that owns and operates a maleic anhydride facility in Moers, Germany. This joint venture manufactures products for our Performance Products segment. Prior to April 1, 2011, we accounted for Sasol-Huntsman using the equity method. In April 2011, an expansion at this facility began production, which triggered the reconsideration of this joint venture as a VIE. The joint venture uses our technology and expertise, and we bear a disproportionate amount of risk of loss due to a related-party loan to Sasol-Huntsman for which we bear the default risk. As a result, we concluded that we were the primary beneficiary and began consolidating Sasol-Huntsman beginning April 1, 2011.

        Creditors of these VIEs have no recourse to our general credit, except in the event that we offer guarantees of specified indebtedness. As the primary beneficiary, the joint ventures' assets, liabilities and results of operations are included in our condensed consolidated financial statements (unaudited).

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. VARIABLE INTEREST ENTITIES (Continued)

        The following table summarizes the carrying amount of our variable interest entities' assets and liabilities included in our condensed consolidated balance sheets (unaudited), before intercompany eliminations (dollars in millions):

 
  June 30,
2012
  December 31,
2011
 

Current assets

  $ 148   $ 140  

Property, plant and equipment, net

    383     403  

Other noncurrent assets

    58     61  

Deferred income taxes

    45     45  

Intangible assets

    20     23  

Goodwill

    15     15  
           

Total assets

  $ 669   $ 687  
           

Current liabilities

  $ 162   $ 145  

Long-term debt

    252     269  

Deferred income taxes

    9     9  

Other noncurrent liabilities

    74     110  
           

Total liabilities

  $ 497   $ 533  
           

        The following table summarizes the fair value of Sasol-Huntsman's assets and liabilities recorded upon initial consolidation in our condensed consolidated balance sheets (unaudited), before intercompany eliminations (dollars in millions):

 
  April 1,
2011
 

Current assets

  $ 61  

Property, plant and equipment, net

    155  

Intangible assets

    16  

Goodwill

    17  
       

Total assets

  $ 249  
       

Current liabilities

  $ 23  

Long-term debt

    93  

Deferred income taxes

    8  

Other noncurrent liabilities

    7  
       

Total liabilities

  $ 131  
       

        Goodwill of $17 million was recognized upon consolidation of Sasol-Huntsman, of which approximately $12 million is deductible for income tax purposes. The total amount of goodwill decreased approximately $2 million from the date of consolidation to December 31, 2011 due to a change in the foreign currency exchange rate. The net change due to changes in the foreign currency exchange rate to the total amount of goodwill from December 31, 2011 to June 30, 2012 was nil. All other intangible assets are being amortized over an average useful life of 18 years.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. VARIABLE INTEREST ENTITIES (Continued)

        If this consolidation had occurred on January 1, 2011, the approximate pro forma revenues attributable to both our Company and Huntsman International would have been $5,643 million for the six months ended June 30, 2011. There would have been no impact to the combined earnings attributable to us or Huntsman International excluding a one-time noncash gain of approximately $12 million recognized upon consolidation included in other operating expense in the condensed consolidated statements of operations (unaudited). Upon consolidation we also recognized a one-time noncash income tax expense of approximately $2 million. The fair value of the noncontrolling interest was estimated to be $61 million at April 1, 2011. The noncontrolling interest was valued at 50% of the fair value of the net assets as of April 1, 2011, as dictated by the ownership interest percentages, adjusted for certain tax consequences only applicable to one parent.

6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS

        As of June 30, 2012 and December 31, 2011, accrued restructuring 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 January 1, 2012

  $ 73   $   $ 11   $ 8   $ 92  

2012 charges for 2007 and prior initiatives

    2                 2  

2012 charges for 2009 initiatives

    1             3     4  

2012 charges for 2010 initiatives

    1                 1  

2012 charges for 2011 initiatives

    2             2     4  

2012 charges for 2012 initiatives

    5             1     6  

Reversal of reserves no longer required

    (12 )           (1 )   (13 )

2012 payments for 2007 and prior initiatives

    (1 )       (1 )   (1 )   (3 )

2012 payments for 2009 initiatives

    (1 )           (2 )   (3 )

2012 payments for 2010 initiatives

    (3 )               (3 )

2012 payments for 2011 initiatives

    (13 )           (3 )   (16 )

2012 payments for 2012 initiatives

    (2 )               (2 )

Net activity of discontinued operations

                1     1  

Foreign currency effect on liability balance

    (1 )               (1 )
                       

Accrued liabilities as of June 30, 2012

  $ 51   $   $ 10   $ 8   $ 69  
                       

(1)
The total workforce reduction reserves of $51 million relate to the termination of 565 positions, of which 516 positions had not been terminated as of June 30, 2012.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS (Continued)

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

 
  June 30,
2012
  December 31,
2011
 

2007 initiatives and prior

  $ 1   $ 2  

2009 initiatives

    9     11  

2010 initiatives

    10     16  

2011 initiatives

    45     63  

2012 initiatives

    4      
           

Total

  $ 69   $ 92  
           

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS (Continued)

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

 
  Polyurethanes   Performance
Products
  Advanced
Materials
  Textile
Effects
  Pigments   Discontinued
Operations
  Corporate
and
Other
  Total  

Accrued liabilities as of January 1, 2012

  $   $ 1   $ 12   $ 69   $ 3   $ 6   $ 1   $ 92  

2012 charges for 2007 and prior initiatives

                2                 2  

2012 charges for 2009 initiatives

            1         3             4  

2012 charges for 2010 initiatives

                            1     1  

2012 charges for 2011 initiatives

            1     3                 4  

2012 charges for 2012 initiatives

    5         1                     6  

Reversal of reserves no longer required

                (13 )               (13 )

2012 payments for 2007 and prior initiatives

                (2 )   (1 )           (3 )

2012 payments for 2009 initiatives

                    (3 )           (3 )

2012 payments for 2010 initiatives

        (1 )       (1 )           (1 )   (3 )

2012 payments for 2011 initiatives

            (11 )   (5 )               (16 )

2012 payments for 2012 initiatives

    (2 )                           (2 )

Net activity of discontinued operations

                        1         1  

Foreign currency effect on liability balance

            (1 )                   (1 )
                                   

Accrued liabilities as of June 30, 2012

  $ 3   $   $ 3   $ 53   $ 2   $ 7   $ 1   $ 69  
                                   

Current portion of restructuring reserves

  $ 3   $   $ 2   $ 28   $ 2   $ 7   $ 1   $ 43  

Long-term portion of restructuring reserve

            1     25                 26  

Estimated additional future charges for current restructuring projects

                                                 

Estimated additional charges within one year

    35             12                 47  

Estimated additional charges beyond one year

                7                 7  

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS (Continued)

        Details with respect to cash and non-cash restructuring charges for the three and six months ended June 30, 2012 and 2011 by initiative are provided below (dollars in millions):

 
  Three months
ended
June 30, 2012
  Six months
ended
June 30, 2012
 

Cash charges:

             

2012 charges for 2007 and prior initiatives

  $   $ 2  

2012 charges for 2009 initiatives

    3     4  

2012 charges for 2010 initiatives

    1     1  

2012 charges for 2011 initiatives

    1     4  

2012 charges for 2012 initiatives

    1     6  

Reversal of reserves no longer required

    (1 )   (13 )

Non-cash charges

        1  
           

Total 2012 restructuring, impairment and plant closing costs

  $ 5   $ 5  
           

 

 
  Three months
ended
June 30, 2011
  Six months
ended
June 30, 2011
 

Cash charges:

             

2011 charges for 2006 and prior initiatives

  $   $ 2  

2011 charges for 2009 initiatives

    2     3  

2011 charges for 2010 initiatives

    2     3  

2011 charges for 2011 initiatives

    6     11  

Reversal of reserves no longer required

    (1 )   (3 )
           

Total 2011 restructuring, impairment and plant closing costs

  $ 9   $ 16  
           

2012 RESTRUCTURING ACTIVITIES

        During the six months ended June 30, 2012, our Polyurethanes segment recorded charges of $5 million primarily related to fixed cost reduction programs.

        During the six months ended June 30, 2012, our Advanced Materials segment recorded charges of $3 million primarily related to the reorganization of our global business structure and the relocation of our divisional headquarters from Basel, Switzerland to The Woodlands, Texas.

        On September 27, 2011, we announced plans to implement a significant restructuring of our Textile Effects segment, including the closure of our production facilities and business support offices in Basel, Switzerland, as part of an ongoing strategic program aimed at improving the Textile Effects segment's long-term global competitiveness. In connection with this plan, during the six months ended June 30, 2012, we recorded restructuring charges of $3 million and a $1 million noncash charge for asset impairments. We expect to incur additional restructuring and plant closing charges, excluding site exit

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS (Continued)

costs, of approximately $19 million through December 31, 2014. In addition, during the six months ended June 30, 2012, our Textile Effects segment recorded charges of $2 million primarily related to the closure of our St. Fons, France facility and a global transfer pricing initiative. Also during the six months ended June 30, 2012, we reversed $13 million of reserves that were primarily related to workforce reductions that were no longer required at our production facility in Langweid, Germany, the consolidation of manufacturing activities and processes at our site in Basel, Switzerland and closure of our production facilities in Basel, Switzerland.

        During the six months ended June 30, 2012, our Pigments segment recorded charges of $3 million related to the closure of our Grimsby, U.K. plant.

7. DEBT

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

Huntsman Corporation

 
  June 30,
2012
  December 31,
2011
 

Senior Credit Facilities:

             

Term loans

  $ 1,686   $ 1,696  

Amounts outstanding under A/R programs

    232     237  

Senior notes

    483     472  

Senior subordinated notes

    893     976  

HPS (China) debt

    128     167  

Variable interest entities

    271     281  

Other

    51     113  
           

Total debt—excluding debt to affiliates

  $ 3,744   $ 3,942  
           

Total current portion of debt

  $ 143   $ 212  

Long-term portion

    3,601     3,730  
           

Total debt—excluding debt to affiliates

  $ 3,744   $ 3,942  
           

Total debt—excluding debt to affiliates

  $ 3,744   $ 3,942  

Notes payable to affiliates-noncurrent

    4     4  
           

Total debt

  $ 3,748   $ 3,946  
           

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. DEBT (Continued)

Huntsman International

 
  June 30,
2012
  December 31,
2011
 

Senior Credit Facilities:

             

Term loans

  $ 1,686   $ 1,696  

Amounts outstanding under A/R programs

    232     237  

Senior notes

    483     472  

Senior subordinated notes

    893     976  

HPS (China) debt

    128     167  

Variable interest entities

    271     281  

Other

    51     113  
           

Total debt—excluding debt to affiliates

  $ 3,744   $ 3,942  
           

Total current portion of debt

  $ 143   $ 212  

Long-term portion

    3,601     3,730  
           

Total debt—excluding debt to affiliates

  $ 3,744   $ 3,942  
           

Total debt—excluding debt to affiliates

  $ 3,744   $ 3,942  

Notes payable to affiliates-current

    100     100  

Notes payable to affiliates-noncurrent

    523     439  
           

Total debt

  $ 4,367   $ 4,481  
           

DIRECT AND SUBSIDIARY DEBT

        Huntsman Corporation's direct debt and guarantee obligations consist of a guarantee of certain indebtedness incurred from time to time to finance certain insurance premiums.

        Substantially all of our other debt, including the facilities described below, has been incurred by our subsidiaries (primarily Huntsman International); such subsidiary debt is nonrecourse to us and we have no contractual obligation to fund our subsidiaries' respective operations.

Senior Credit Facilities

        As of June 30, 2012, our senior credit facilities ("Senior Credit Facilities") consisted of our revolving credit facility ("Revolving Facility"), our term loan B facility ("Term Loan B"), our extended term loan B facility ("Extended Term Loan B"), our extended term loan B facility—Series 2

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. DEBT (Continued)

("Extended Term Loan B—Series 2") and our term loan C facility ("Term Loan C") as follows (dollars in millions):

Facility
  Committed
Amount
  Principal
Outstanding
  Carrying
Value
  Interest Rate(2)   Maturity  

Revolving Facility

  $ 400   $ (1) $ (1) USD LIBOR plus 2.50%     2017 (3)

Term Loan B

    NA   $ 304   $ 304   USD LIBOR plus 1.50%     2014  

Extended Term Loan B

    NA   $ 643   $ 643   USD LIBOR plus 2.50%     2017 (3)

Extended Term Loan B—Series 2

    NA   $ 346   $ 346   USD LIBOR plus 3.00%     2017 (3)

Term Loan C

    NA   $ 423   $ 393   USD LIBOR plus 2.25%     2016  

(1)
We had no borrowings outstanding under our Revolving Facility; we had approximately $17 million (U.S. dollar equivalents) of letters of credit and bank guarantees issued and outstanding under our Revolving Facility.

(2)
The applicable interest rate of the Senior Credit Facilities is subject to certain secured leverage ratio thresholds. As of June 30, 2012, the weighted average interest rate on our outstanding balances under the Senior Credit Facilities was approximately 3%.

(3)
The maturity of the Revolving Facility commitments will accelerate if we do not repay, refinance or have a minimum level of liquidity available to enable us to repay our 5.50% senior notes due 2016, Term Loan B due April 19, 2014 and Term Loan C due June 30, 2016. The maturity of Extended Term Loan B and Extended Term Loan B—Series 2 will accelerate if we do not repay, refinance or have a minimum level of liquidity available to enable us to refinance or repay our 5.50% senior notes due 2016 that remain outstanding during the three months prior to the maturity date of such notes.

        Our obligations under the Senior Credit Facilities are guaranteed by our guarantor subsidiaries ("Guarantors"), which consist of substantially all of our domestic subsidiaries and certain of our foreign subsidiaries, and are secured by a first priority lien on substantially all of our domestic property, plant and equipment, the stock of all of our material domestic subsidiaries and certain foreign subsidiaries and pledges of intercompany notes between certain of our subsidiaries.

        During the three months ended June 30, 2012, we paid the annual scheduled repayment of $3 million on our Term Loan B, $7 million on our Extended Term Loan B, and $4 million on our Term Loan C.

Amendment to Credit Agreement

        On March 6, 2012, Huntsman International entered into a seventh amendment to its Senior Credit Facilities. Among other things, the amendment:

    extended the stated termination date of the Revolving Facility commitments from March 9, 2014 to March 20, 2017;

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. DEBT (Continued)

    reduced the applicable interest rate margin on the Revolving Facility commitments by 0.50%;

    set the undrawn commitment fee on the Revolving Facility at 0.50%;

    increased the capacity for the Revolving Facility commitments from $300 million to $400 million;

    extended the stated maturity date of $346 million aggregate principal amount of Term Loan B from April 19, 2014 to April 19, 2017 (now referred to as Extended Term Loan B—Series 2);

    increased the interest rate margin with respect to Extended Term Loan B—Series 2 to LIBOR plus 3.00% (the interest rate margin is subject to a leverage-based step-down, which was achieved based on June 30, 2012 results);

    set the amortization on the Extended Term Loan B—Series 2 at 1% of the principal amount, payable annually commencing on March 31, 2013; and

    made certain other amendments to the Senior Credit Facilities.

Redemption of Notes and Loss on Early Extinguishment of Debt

        During the six months ended June 30, 2012 and 2011, we redeemed or repurchased the following notes (monetary amounts in millions):

Date of Redemption
  Notes   Principal Amount of
Notes Redeemed
  Amount Paid
(Excluding Accrued
Interest)
  Loss on Early
Extinguishment of
Debt
 

March 26, 2012

  7.50% Senior
Subordinated Notes
due 2015
  €64
(approximately $86)
  €65
(approximately $87)
  $ 1  

January 18, 2011

 

7.375% Senior
Subordinated Notes
due 2015

 

$100

 

$102

 
$

3
 

Other Debt

        During the six months ended June 30, 2012, HPS repaid $2 million and RMB 120 million (approximately $19 million) on term loans and working capital loans under its secured facilities. As of June 30, 2012, HPS had $10 million and RMB 354 million (approximately $56 million) outstanding under their secured facilities. In connection with these payments, the lenders agreed to release our Company as a guarantor.

        During the six months ended June 30, 2012, HPS repaid RMB 109 million (approximately $17 million) under its loan facility for working capital loans and discounting of commercial drafts. As of June 30, 2012, HPS had RMB 390 million (approximately $62 million) outstanding, which is classified as current portion of debt on the accompanying condensed consolidated balance sheets (unaudited).

        On March 30, 2012, we repaid the remaining A$26 million (approximately $27 million) outstanding under our Australian subsidiary credit facility ("Australian Credit Facility"), which represents repayment of A$14 million (approximately $15 million) under the revolving facility and A$12 million (approximately $12 million) under the term loan facility.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. DEBT (Continued)

Note Payable from Huntsman International to Huntsman Corporation

        As of June 30, 2012, we have a loan of $619 million to our subsidiary, Huntsman International (the "Intercompany Note"). During the six months ended June 30, 2012, Huntsman International borrowed $84 million from us under the Intercompany Note. The Intercompany Note is unsecured and $100 million of the outstanding amount is classified as current as of both June 30, 2012 and December 31, 2011 on the condensed consolidated balance sheets (unaudited). As of June 30, 2012, under the terms of the Intercompany Note, Huntsman International promises to pay us interest on the unpaid principal amount at a rate per annum based on the previous monthly average borrowing rate obtained under our U.S. accounts receivable securitization program ("U.S. A/R Program"), less ten basis points (provided that the rate shall not exceed an amount that is 25 basis points less than the monthly average borrowing rate obtained for the U.S. LIBOR-based borrowings under our Revolving Facility).

COMPLIANCE WITH COVENANTS

        We believe that we are in compliance with the covenants contained in the agreements governing our material debt instruments, including our Senior Credit Facilities, our U.S. A/R Program and our European accounts receivable securitization program (the "EU A/R Program" and collectively with the U.S. A/R Program the "A/R Programs") and our notes.

        Our material financing arrangements contain certain covenants with which we must comply. A failure to comply with a covenant could result in a default under a financing arrangement if not waived or amended. A default under these material financing arrangements generally allows debt holders the option to declare the underlying debt obligations immediately due and payable.

        Furthermore, certain of our material financing arrangements contain cross default and cross acceleration provisions under which a failure to comply with the covenants in one financing arrangement may result in an event of default under another financing arrangement.

        Our Senior Credit Facilities are subject to a single financial covenant (the "Leverage Covenant") which applies only to the Revolving Facility and is tested at the Huntsman International level. The Leverage Covenant is applicable only if borrowings, letters of credit or guarantees are outstanding under the Revolving Facility (cash collateralized letters of credit or guarantees are not deemed outstanding). The Leverage Covenant is a net senior secured leverage ratio covenant which requires that Huntsman International's ratio of senior secured debt to EBITDA (as defined in the applicable agreement) is not more than 3.75 to 1.

        If in the future Huntsman International fails to comply with the Leverage Covenant, then we may not have access to liquidity under our Revolving Facility. If Huntsman International failed to comply with the Leverage Covenant at a time when we had uncollateralized loans or letters of credit outstanding under the Revolving Facility, Huntsman International would be in default under the Senior Credit Facilities, and, unless Huntsman International obtained a waiver or forbearance with respect to such default (as to which we can provide no assurance), Huntsman International could be required to pay off the balance of the Senior Credit Facilities in full, and we may not have further access to such facilities.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. DEBT (Continued)

        The agreements governing our A/R Programs also contain certain receivable performance metrics. Any material failure to meet the applicable A/R Programs' metrics in the future could lead to an early termination event under the A/R Programs, which could require us to cease our use of such facilities, prohibiting us from additional borrowings against our receivables or, at the discretion of the lenders, requiring that we repay the A/R Programs in full. An early termination event under the A/R Programs would also constitute an event of default under our Senior Credit Facilities, which could require us to pay off the balance of the Senior Credit Facilities in full and could result in the loss of our Senior Credit Facilities.

8. 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.

        All derivatives, whether designated in hedging relationships or not, are recorded on our 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 items 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 loss, to the extent effective, and will be recognized in the income statement when the hedged item affects earnings. To the extent applicable, 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 also hedge our net investment in certain European operations. Changes in the fair value of the hedge in the net investment of certain European operations are recorded in accumulated other comprehensive loss.

        Our cash flows and earnings are subject to fluctuations due to exchange rate variation. Our revenues and expenses are denominated in various foreign currencies. From time to time, we may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. Where practicable, we generally net multi-currency cash balances among our subsidiaries to help reduce exposure to foreign currency exchange rates. Certain other exposures may be managed from time to time through financial market transactions, principally through the purchase of spot or forward foreign exchange contracts (generally with maturities of one year or less). We do not hedge our foreign currency exposures in a manner that would eliminate the effect of changes in exchange rates on our cash flows and earnings. As of June 30, 2012, we had approximately $238 million in notional amount (in U.S. dollar equivalents) outstanding in forward foreign currency contracts.

        On December 9, 2009, we entered into a five-year interest rate contract to hedge the variability caused by monthly changes in cash flow due to associated changes in LIBOR under our Senior Credit Facilities. The notional value of the contract is $50 million, and it has been designated as a cash flow hedge. The effective portion of the changes in the fair value of the swap was recorded in other comprehensive (loss) income. We will pay a fixed 2.6% on the hedge and receive the one-month

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

LIBOR rate. As of June 30, 2012, the fair value of the hedge was $3 million and was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited).

        On January 19, 2010, we entered into an additional five-year interest rate contract to hedge the variability caused by monthly changes in cash flow due to associated changes in LIBOR under our Senior Credit Facilities. The notional value of the contract is $50 million, and it has been designated as a cash flow hedge. The effective portion of the changes in the fair value of the swap was recorded in other comprehensive (loss) income. We will pay a fixed 2.8% on the hedge and receive the one-month LIBOR rate. As of June 30, 2012, the fair value of the hedge was $3 million and was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited).

        On September 1, 2011, we entered into a $50 million forward interest rate contract that will begin in December 2014 with maturity in April 2017 and a $50 million forward interest rate contract that will begin in January 2015 with maturity in April 2017. These two forward contracts are to hedge the variability caused by monthly changes in cash flow due to associated changes in LIBOR under our Senior Credit Facilities once our existing interest rate hedges mature. These swaps are designated as cash flow hedges and the effective portion of the changes in the fair value of the swaps were recorded in other comprehensive (loss) income. Both interest rate contracts will pay a fixed 2.5% on the hedge and receive the one-month LIBOR rate once the contracts begin in 2014 and 2015, respectively. As of June 30, 2012, the combined fair value of these two hedges was $3 million and was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited).

        In 2009, Sasol-Huntsman entered into derivative transactions to hedge the variable interest rate associated with its local credit facility. These hedges include a floating to fixed interest rate contract providing Sasol-Huntsman with EURIBOR interest payments for a fixed payment of 3.62% and a cap for future periods with a strike price of 3.62%. In connection with the consolidation of Sasol-Huntsman as of April 1, 2011, the interest rate contract is now included in our consolidated results. See "Note 5. Variable Interest Entities." The notional amount of the hedge as of June 30, 2012 was €45 million (approximately $56 million) and the derivative transactions do not qualify for hedge accounting. As of June 30, 2012, the fair value of this hedge was €2 million (approximately $3 million) and was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited). For the three months and six months ended June 30, 2012, we recorded interest income of less than €1 million (less than $1 million) due to changes in the fair value of the swap.

        Beginning in 2009, Arabian Amines Company entered into a 12-year floating to fixed interest rate contract providing for a receipt of LIBOR interest payments for a fixed payment of 5.02%. In connection with the consolidation of Arabian Amines Company as of July 1, 2010, the interest rate contract is now included in our consolidated results. See "Note 5. Variable Interest Entities." The notional amount of the swap as of June 30, 2012 was $38 million, and the interest rate contract is not designated as a cash flow hedge. As of June 30, 2012, the fair value of the swap was $6 million and was recorded as other noncurrent liabilities on the condensed consolidated balance sheets (unaudited). For both the three and six months ended June 30, 2012, we recorded a reduction of interest expense of less than $1 million due to changes in the fair value of the swap.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

        In conjunction with the issuance of the 8.625% senior subordinated notes due 2020, we entered into cross-currency interest rate contracts with three counterparties. On March 17, 2010, we paid $350 million to these counterparties and received €255 million from these counterparties and at maturity on March 15, 2015 we are required to pay €255 million and will receive $350 million. On March 15 and September 15 of each year, we will receive U.S. dollar interest payments of approximately $15 million (equivalent to an annual rate of 8.625%) and make interest payments of approximately €11 million (equivalent to an annual rate of approximately 8.41%). These swaps are designated as a hedge of net investment for financial reporting purposes. As of June 30, 2012, the fair value of these swaps was $35 million and was recorded in noncurrent assets in our condensed consolidated balance sheets (unaudited).

        As of and for the three and six months ended June 30, 2012, the changes in fair value of the realized gains (losses) recorded in the condensed consolidated statements of operations (unaudited) of our other outstanding foreign currency rate hedging contracts and derivatives were not considered significant.

        A significant portion of our intercompany debt is denominated in euros. We also finance certain of our non-U.S. subsidiaries with intercompany loans that are, in many cases, denominated in currencies other than the entities' functional currency. We manage the net foreign currency exposure created by this debt through various means, including cross-currency swaps, the designation of certain intercompany loans as permanent loans because they are not expected to be repaid in the foreseeable future ("permanent loans") and the designation of certain debt and swaps as net investment hedges.

        Foreign currency transaction gains and losses on intercompany loans that are not designated as permanent loans are recorded in earnings. Foreign currency transaction gains and losses on intercompany loans that are designated as permanent loans are recorded in other comprehensive (loss) income. From time to time, we review such designation of intercompany loans.

        From time to time, we review our non-U.S. dollar denominated debt and swaps to determine the appropriate amounts designated as hedges. As of June 30, 2012, we have designated €255 million (approximately $318 million) of euro-denominated debt and cross-currency interest rate swaps as a hedge of our net investments. For the three and six months ended June 30, 2012, the amount of gain recognized on the hedge of our net investments was $18 and $5 million, respectively and was recorded as a gain in other comprehensive (loss) income. As of June 30, 2012, we had €1,260 million (approximately $1,572 million) in net euro assets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. FAIR VALUE

        The fair values of financial instruments were as follows (dollars in millions):

 
  June 30, 2012   December 31, 2011  
 
  Carrying
Value
  Estimated
Fair Value
  Carrying
Value
  Estimated
Fair Value
 

Non-qualified employee benefit plan investments

  $ 13   $ 13   $ 12   $ 12  

Cross-currency interest rate contracts

    35     35     27     27  

Interest rate contracts

    (18 )   (18 )   (17 )   (17 )

Long-term debt (including current portion)

    (3,744 )   (3,960 )   (3,942 )   (4,061 )

        The carrying amounts reported in our condensed consolidated balance sheets (unaudited) of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of non-qualified employee benefit plan investments is obtained through market observable pricing using prevailing market prices. The estimated fair values of our long-term debt are based on quoted market prices for the identical liability when traded as an asset in an active market (Level 1).

        The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2012 and December 31, 2011. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since June 30, 2012, and current estimates of fair value may differ significantly from the amounts presented herein.

        The following assets and liabilities are measured at fair value on a recurring basis (dollars in millions):

 
   
  Fair Value Amounts Using  
Description
  June 30,
2012
  Quoted prices in
active markets for
identical assets
(Level 1)(3)
  Significant other
observable inputs
(Level 2)(3)
  Significant
unobservable
inputs (Level 3)
 

Assets:

                         

Available-for-sale equity securities:

                         

Equity mutual funds

  $ 13   $ 13   $   $  

Derivatives:

                         

Cross-currency interest rate contracts(1)

    35         35      
                   

Total assets

  $ 48   $ 13   $ 35   $  
                   

Liabilities:

                         

Derivatives:

                         

Interest rate contracts(2)

  $ (18 ) $   $ (18 ) $  
                   

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. FAIR VALUE (Continued)


 
   
  Fair Value Amounts Using  
Description
  December 31,
2011
  Quoted prices in
active markets for
identical assets
(Level 1)(3)
  Significant other
observable inputs
(Level 2)(3)
  Significant
unobservable
inputs (Level 3)
 

Assets:

                         

Available-for-sale equity securities:

                         

Equity mutual funds

  $ 12   $ 12   $   $  

Derivatives:

                         

Cross-currency interest rate contracts(1)

    27             27  
                   

Total assets

  $ 39   $ 12   $   $ 27  
                   

Liabilities:

                         

Derivatives:

                         

Interest rate contracts(2)

  $ (17 ) $   $ (17 ) $  
                   

(1)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates, exchange rates, and yield curves at stated intervals. There were no material changes to the valuation methods or assumptions used to determine the fair value during the current period.

(2)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates and yield curves at stated intervals. There were no material changes to the valuation methods or assumptions used to determine the fair value during the current period.

(3)
There were no transfers between Levels 1 and 2 within the fair value hierarchy for the six months ended June 30, 2012 and the year ended December 31, 2011.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. FAIR VALUE (Continued)

        The following table shows a reconciliation of beginning and ending balances for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (dollars in millions):

 
  Three months
ended
June 30, 2012
  Six months
ended
June 30, 2012
 
Fair Value Measurements Using Significant Unobservable
Inputs (Level 3)
  Cross-Currency Interest
Rate Contracts
  Cross-Currency Interest
Rate Contracts
 

Beginning balance

  $   $ 27  

Transfers into Level 3

         

Transfer out of Level 3(1)

        (27 )

Total gains (losses):

             

Included in earnings

         

Included in other comprehensive (loss) income

         

Purchases, sales, issuances and settlements

         
           

Ending balance, June 30, 2012

  $   $  
           

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30, 2012

  $   $  
           

 

 
  Three months
ended
June 30, 2011
  Six months
ended
June 30, 2011
 
Fair Value Measurements Using Significant Unobservable
Inputs (Level 3)
  Cross-Currency Interest
Rate Contracts
  Cross-Currency Interest
Rate Contracts
 

Beginning balance

  $ 4   $ 19  

Transfers into or out of Level 3

         

Total (losses) gains:

             

Included in earnings

         

Included in other comprehensive (loss) income

    (9 )   (24 )

Purchases, sales, issuances and settlements

         
           

Ending balance, June 30, 2011

  $ (5 ) $ (5 )
           

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30, 2011

  $   $  
           

(1)
We are party to cross-currency interest rate contracts that are measured at fair value in the financial statements. These instruments have historically been categorized by us as Level 3 within the fair value hierarchy due to an unobservable input associated with the credit valuation adjustment, which we deemed to be a significant input to the overall measurement of fair value at inception. During the six months ended June 30, 2012, this credit valuation adjustment has ceased

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. FAIR VALUE (Continued)

    to be a significant input to the entire fair value measurement of these instruments. The remaining inputs which are significant to the fair value measurement of these instruments represent observable market inputs that are inputs other than quoted prices (Level 2 inputs).

            Our policy is to recognize transfers between levels within the fair value hierarchy as of the beginning of the reporting period. Due to the change in significance of the credit valuation adjustment to the entire fair value measurement of these instruments, effective January 1, 2012 we have categorized our cross-currency interest rate contracts as Level 2 within the fair value hierarchy.

            Gains and losses (realized and unrealized) included in earnings for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are reported in interest expense and other comprehensive (loss) income as follows (dollars in millions):

 
  Three months
ended
June 30, 2012
  Six months
ended
June 30, 2012
 
 
  Interest
expense
  Other
comprehensive
(loss) income
  Interest
expense
  Other
comprehensive
(loss) income
 

Total net gains included in earnings

  $   $   $   $  

Changes in unrealized gains relating to assets still held at June 30, 2012

                 

 

 
  Three months
ended
June 30, 2011
  Six months
ended
June 30, 2011
 
 
  Interest
expense
  Other
comprehensive
(loss) income
  Interest
expense
  Other
comprehensive
(loss) income
 

Total net gains included in earnings

  $   $   $   $  

Changes in unrealized losses relating to assets still held at June 30, 2011

        (9 )       (24 )

            We also have assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include property, plant and equipment and those associated with acquired businesses, including goodwill and intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and six months ended June 30, 2012 and 2011, we had no impairments related to these assets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10. EMPLOYEE BENEFIT PLANS

        Components of the net periodic benefit costs for the three and six months ended June 30, 2012 and 2011 were as follows (dollars in millions):

Huntsman Corporation

 
  Defined
Benefit Plans
  Other
Postretirement
Benefit Plans
 
 
  Three months
ended
June 30,
  Three months
ended
June 30,
 
 
  2012   2011   2012   2011  

Service cost

  $ 15   $ 17   $ 1   $ 1  

Interest cost

    36     39     1     2  

Expected return on assets

    (45 )   (48 )        

Amortization of prior service cost

    (2 )   (2 )        

Amortization of actuarial loss

    11     7     1      
                   

Net periodic benefit cost

  $ 15   $ 13   $ 3   $ 3  
                   

 

 
  Defined
Benefit Plans
  Other
Postretirement
Benefit Plans
 
 
  Six months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Service cost

  $ 31   $ 33   $ 2   $ 2  

Interest cost

    73     77     3     4  

Expected return on assets

    (91 )   (94 )        

Amortization of prior service cost

    (4 )   (3 )   (1 )   (1 )

Amortization of actuarial loss

    22     14     1      
                   

Net periodic benefit cost

  $ 31   $ 27   $ 5   $ 5  
                   

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10. EMPLOYEE BENEFIT PLANS (Continued)

Huntsman International

 
  Defined
Benefit Plans
  Other
Postretirement
Benefit Plans
 
 
  Three months
ended
June 30,
  Three months
ended
June 30,
 
 
  2012   2011   2012   2011  

Service cost

  $ 15   $ 17   $ 1   $ 1  

Interest cost

    36     39     1     2  

Expected return on assets

    (45 )   (48 )        

Amortization of prior service cost

    (2 )   (2 )        

Amortization of actuarial loss

    12     9     1      
                   

Net periodic benefit cost

  $ 16   $ 15   $ 3   $ 3  
                   

 

 
  Defined
Benefit Plans
  Other
Postretirement
Benefit Plans
 
 
  Six months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Service cost

  $ 31   $ 33   $ 2   $ 2  

Interest cost

    73     77     3     4  

Expected return on assets

    (91 )   (94 )        

Amortization of prior service cost

    (4 )   (3 )   (1 )   (1 )

Amortization of actuarial loss

    24     17     1      
                   

Net periodic benefit cost

  $ 33   $ 30   $ 5   $ 5  
                   

        During the first quarter of 2012, certain U.K. pension plans were closed to new entrants. For existing participants, benefits will only grow as a result of increases in pay. Defined contribution plans were established to replace these pension plans for future benefit accruals. This change did not have a significant impact on our pension liability.

        During 2012, a certain U.S. pension plan formula was converted from an average pay design to a cash balance plan design. The existing defined contribution plan match was enhanced to offset this reduction in benefits. In connection with this plan change, we reduced our pension liability by approximately $23 million with a corresponding offset to other comprehensive (loss) income during the six months ended June 30, 2012.

        During the six months ended June 30, 2012 and 2011, we made contributions to our pension and other postretirement benefit plans of $84 million and $96 million, respectively. During the remainder of 2012, we expect to contribute an additional amount of $70 million to these plans.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

11. HUNTSMAN CORPORATION STOCKHOLDERS' EQUITY

SHARE REPURCHASE PROGRAM

        Effective August 5, 2011, our Board of Directors authorized our Company to repurchase up to $100 million in shares of our common stock. Repurchases under this program may be made through the open market or in privately negotiated transactions, and repurchases may be commenced or suspended from time to time without prior notice. Shares of common stock acquired through the repurchase program are held in treasury at cost. During the six months ended June 30, 2012, we did not repurchase any shares of our outstanding common stock under the repurchase program. As of June 30, 2012, there remained approximately $50 million of the amount authorized under the program that could be used for stock repurchases.

COMMON STOCK DIVIDENDS

        On each of June 29, 2012 and March 30, 2012, we paid cash dividends of $24 million, or $0.10 per share, to common stockholders of record as of June 15, 2012 and March 15, 2012, respectively. On each of June 30, 2011 and March 31, 2011, we paid cash dividends of $24 million, or $0.10 per share, to common stockholders of record as of June 15, 2011 and March 15, 2011, respectively.

12. OTHER COMPREHENSIVE (LOSS) INCOME

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

Huntsman Corporation

 
   
   
  Other comprehensive (loss) income  
 
  Accumulated other
comprehensive loss
  Three months
ended
  Six months
ended
 
 
  June 30,
2012
  December 31,
2011
  June 30,
2012
  June 30,
2011
  June 30,
2012
  June 30,
2011
 

Foreign currency translation adjustments, net of tax of $23 and $24 as of June 30, 2012 and December 31, 2011, respectively

  $ 149   $ 218   $ (142 ) $ 56   $ (69 ) $ 147  

Pension and other postretirement benefit adjustments, net of tax of $112 and $124 as of June 30, 2012 and December 31, 2011, respectively

    (759 )   (800 )   22     4     41     8  

Other comprehensive income (loss) of unconsolidated affiliates

    7     8     (1 )       (1 )    

Other, net

    2     3     (2 )       (1 )   1  
                           

Total

    (601 )   (571 )   (123 )   60     (30 )   156  

Amounts attributable to noncontrolling interests

    12     12     2             (1 )
                           

Amounts attributable to Huntsman Corporation

  $ (589 ) $ (559 ) $ (121 ) $ 60   $ (30 ) $ 155  
                           

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12. OTHER COMPREHENSIVE (LOSS) INCOME (Continued)

Huntsman International

 
   
   
  Other comprehensive (loss) income  
 
  Accumulated other
comprehensive loss
  Three months
ended
  Six months
ended
 
 
  June 30,
2012
  December 31,
2011
  June 30,
2012
  June 30,
2011
  June 30,
2012
  June 30,
2011
 

Foreign currency translation adjustments, net of tax of $10 and $11 as of June 30, 2012 and December 31, 2011, respectively

  $ 148   $ 217   $ (142 ) $ 55   $ (69 ) $ 148  

Pension and other postretirement benefit adjustments, net of tax of $143 and $156 as of June 30, 2012 and December 31, 2011, respectively

    (802 )   (845 )   22     6     43     11  

Other comprehensive income (loss) of unconsolidated affiliates

    7     8     (1 )       (1 )    

Other, net

    (3 )   (3 )   (1 )            
                           

Total

    (650 )   (623 )   (122 )   61     (27 )   159  

Amounts attributable to noncontrolling interests

    12     12     2             (1 )
                           

Amounts attributable to Huntsman International

  $ (638 ) $ (611 ) $ (120 ) $ 61   $ (27 ) $ 158  
                           

        Items of other comprehensive (loss) income 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.

13. COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

Asbestos Litigation

        We have been named as a premises defendant in a number of asbestos exposure cases, typically claims by nonemployees 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 complaints have 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.

        Where a claimant's alleged exposure occurred prior to our ownership of the relevant premises, the prior owners generally have contractually agreed to retain liability for, and to indemnify us against, asbestos exposure claims. This indemnification 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. Rarely do the complaints in these cases state the amount of damages being sought. The prior owner accepts responsibility for the conduct of the defense of the cases and payment of any amounts due to the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. COMMITMENTS AND CONTINGENCIES (Continued)

claimants. In our eighteen-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 have the intention and ability to continue to honor their indemnity obligations, 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 periods indicated certain information about cases for which service has been received that we have tendered to the prior owner, all of which have been accepted.

 
  Six months
ended
June 30,
 
 
  2012   2011  

Unresolved at beginning of period

    1,080     1,116  

Tendered during period

    2     9  

Resolved during period(1)

        39  

Unresolved at end of period

    1,082     1,086  

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

        We have never made any payments with respect to these cases. As of June 30, 2012, we had an accrued liability of $10 million relating to these cases and a corresponding receivable of $10 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; accordingly, 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 June 30, 2012.

        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 periods indicated certain information about

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. COMMITMENTS AND CONTINGENCIES (Continued)

these cases. Cases include all cases for which service has been received by us. Certain prior cases that were filed in error against us have been dismissed.

 
  Six months
ended
June 30,
 
 
  2012   2011  

Unresolved at beginning of period

    36     37  

Filed during period

    5     8  

Resolved during period

    3     5  

Unresolved at end of period

    38     40  

        We paid gross settlement costs for asbestos exposure cases that are not subject to indemnification of $82,000 and $342,000 during the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, we had an accrual of $225,000 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; accordingly, 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 June 30, 2012.

Antitrust Matters

        We were named as a defendant in civil class action antitrust suits alleging that between 1999 and 2004 we conspired with Bayer, BASF, Dow and Lyondell to fix the prices of MDI, TDI, polyether polyols, and related systems ("polyether polyol products") sold in the U.S. in violation of the federal Sherman Act. These cases are consolidated as the "Polyether Polyols" cases in multidistrict litigation pending in the U.S. District Court for the District of Kansas.

        In addition, we and the other Polyether Polyols defendants were named as defendants in three civil antitrust suits brought by certain direct purchasers of polyether polyol products that opted out of the class certified in the Kansas multidistrict litigation. The relevant time frame for these cases is 1994 to 2004 and they are referred to as the "direct action cases." The class action and the direct action cases were consolidated in the Kansas court for the purposes of discovery and other pretrial matters.

        In the second quarter of 2011, we settled the class action and were dismissed as a defendant. On December 29, 2011, we entered into a settlement agreement with the direct action plaintiffs for an amount immaterial to our financial statements and were dismissed from those cases on December 30, 2011.

        Two similar civil antitrust class action cases were filed May 5 and 17, 2006 in the Superior Court of Justice, Ontario Canada and Superior Court, Province of Quebec, District of Quebec, on behalf of purported classes of Canadian direct and indirect purchasers of MDI, TDI and polyether polyols. On April 11, 2012, we reached agreement to resolve these cases for an amount immaterial to our condensed consolidated financial statements (unaudited). The Canadian settlement is subject to court approval.

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13. COMMITMENTS AND CONTINGENCIES (Continued)

        A purported class action case filed February 15, 2005 by purchasers in California of products containing rubber and urethane chemicals and pending in Superior Court of California, County of San Francisco is stayed pending resolution of the Kansas multidistrict litigation. The plaintiffs in this matter make similar claims against the defendants as the class plaintiffs in the Kansas multidistrict litigation.

        We have been named as a defendant in two purported class action civil antitrust suits alleging that we and our co-defendants and other co-conspirators conspired to fix prices of titanium dioxide sold in the U.S. between at least March 1, 2002 and the present. The cases were filed on February 9 and 12, 2010 in the U.S. District Court for the District of Maryland and a consolidated complaint was filed on April 12, 2010. The other defendants named in this matter are E.I. du Pont de Nemours and Company, Kronos Worldwide Inc., Millennium Inorganic Chemicals, Inc. and the National Titanium Dioxide Company Limited (d/b/a Cristal). A class certification hearing is scheduled for August 13, 2012 and trial is set to begin September 9, 2013. Discovery is ongoing.

        In all of the antitrust litigation currently pending against us, the plaintiffs generally are seeking injunctive relief, treble damages, costs of suit and attorneys fees. We are not aware of any illegal conduct by us or any of our employees. Nevertheless, we have incurred costs relating to these claims and could incur additional costs in amounts material to us. As alleged damages in these cases have not been specified, and because of the overall complexity of these cases, we are unable to reasonably estimate any possible loss or range of loss with respect to these claims.

Product Delivery Claim

        We have been notified by a customer of potential claims related to our allegedly delivering a different product from that which it had ordered. Our customer claims that it was unaware that the different product had been delivered until after it had been used to manufacture materials which were subsequently sold. The customer has indicated that it has been notified of claims of up to an aggregate of €153 million (approximately $191 million) relating to this matter and believes that we may be responsible for all or a portion of these potential claims. We are investigating this matter and based on the facts currently available to us, we believe that we are insured for any liability we may ultimately have in excess of $10 million. However, no assurance can be given regarding our ultimate liability or costs to us. We believe the range of possible loss to our Company in this matter to be between €0 and €153 million and have made no accrual with respect to this matter.

Indemnification Matter

        On July 3, 2012, Deutsche Bank Securities Inc. and Credit Suisse Securities (USA) LLC (the "Banks") demanded that we indemnify them for claims brought by certain MatlinPatterson entities that were formerly our shareholders (the "Plaintiffs") in litigation filed June 19, 2012 in the 9th District Court in Montgomery County, Texas. The Banks assert that they are entitled to indemnification pursuant to the Agreement of Compromise and Settlement between the Banks and our Company, dated June 22, 2009, wherein the Banks and our Company settled claims that we brought relating to the failed merger with Hexion Specialty Chemicals, Inc. ("Hexion"). Plaintiffs claim that the Banks knowingly made materially false representations about the nature of the financing for the acquisition of our Company by Hexion and that they suffered substantial losses to their 19 million shares of our

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13. COMMITMENTS AND CONTINGENCIES (Continued)

common stock as a result of the Banks' misrepresentations. Plaintiffs are asserting statutory fraud, common law fraud and aiding and abetting statutory fraud and are seeking actual damages, exemplary damages, costs and attorney's fees, pre-judgment and post-judgment interest. We have denied the Banks' demand and continue to monitor the litigation. At this time, we are unable to estimate the amount or range of possible losses with respect to these claims.

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 effect on our financial condition, results of operations or liquidity.

14. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

General

        We are subject to extensive federal, state, local and international laws, regulations, rules and ordinances relating to safety, pollution, protection of the environment, product management and distribution, 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 or product distribution, 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.

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14. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS (Continued)

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 six months ended June 30, 2012 and 2011, our capital expenditures for EHS matters totaled $39 million and $34 million, respectively. Because capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, our capital expenditures for EHS matters have varied significantly from year to year and we cannot provide assurance that our recent expenditures are indicative of future amounts we may spend related to EHS and other applicable laws.

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 waste that was disposed of prior to the purchase of our businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources.

        Under the Comprehensive Environmental Response, Compensation, and Liability Act ("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. Outside the U.S., analogous contaminated property laws, such as those in effect in France and Australia, can hold past owners and/or operators liable for remediation at former facilities. Currently, there are approximately 10 former facilities or third party sites in the U.S. for which we have been notified of potential claims against us for cleanup liabilities, including, but not limited to, sites listed under CERCLA. Based on current information and past experiences at other CERCLA sites, we do not expect these third party claims to have a material impact on our condensed consolidated financial statements (unaudited).

        One of these sites, the North Maybe Canyon Mine site, involves a former phosphorous mine near Soda Springs, Idaho, which is believed to have been operated by a predecessor company to us. In 2004, the U.S. Forest Service ("USFS") notified us that we are a CERCLA potentially responsible party ("PRP") for contaminated surface water issues. In February 2010, we and Wells Cargo (another PRP) agreed to conduct a Remedial Investigation/Feasibility Study (RI/FS) of a portion of the site and are currently engaged in that process. At this time, we are unable to reasonably estimate our potential losses in this matter.

        In addition, under the Resource Conservation and Recovery Act ("RCRA") and similar state laws, we may be required to remediate contamination originating from our properties as a condition to our hazardous waste permit. 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 or surface contamination from past operations at some of our sites, and we may find contamination at other sites in the future. For example, our Port Neches, Texas, and Geismar, Louisiana, facilities are

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the subject of ongoing remediation requirements under RCRA authority. Similar laws exist in a number of locations in which we currently operate, or previously operated, manufacturing facilities, such as Australia, India, France, Hungary and Italy.

        By letter dated March 7, 2006, our former Base Chemicals and Polymers facility in West Footscray, Australia, was issued a clean-up notice by the Environmental Protection Authority Victoria ("EPA Victoria") due to concerns about soil and groundwater contamination emanating from the site. On August 23, 2010, EPA Victoria revoked the second clean-up notice and issued a revised notice that included a requirement for financial assurance for the remediation. We have reached agreement with the agency that a mortgage on the land will be held by the agency as financial surety during the period covered by the current clean-up notice, which ends on July 30, 2014. As of June 30, 2012, we had an accrued liability of $30 million related to estimated environmental remediation costs at this site. We can provide no assurance that the agency will not seek to institute additional requirements for the site or that additional costs will not be associated with the clean up.

Environmental Reserves

        We have accrued liabilities 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 calculated using present value techniques as appropriate and are based upon requirements placed upon us by regulators, available facts, existing technology and past experience. The environmental liabilities do not include amounts recorded as asset retirement obligations. We had accrued $34 million and $36 million for environmental liabilities as of June 30, 2012 and December 31, 2011, respectively. Of these amounts, $4 million and $7 million were classified as accrued liabilities in our condensed consolidated balance sheets (unaudited) as of June 30, 2012 and December 31, 2011, respectively, and $30 million and $29 million were classified as other noncurrent liabilities in our condensed consolidated balance sheets (unaudited) as of June 30, 2012 and December 31, 2011, respectively. In certain cases, our remediation liabilities may be payable over periods of up to 30 years.

REGULATORY DEVELOPMENTS

        On June 1, 2007, the EU regulatory framework for chemicals called "REACH" took effect, designed to be phased in over 11 years. As a REACH-regulated company that manufactures in or imports more than one metric ton per year of a chemical substance into the European Economic Area, we were required to pre-register with the European Chemicals Agency ("ECHA"), such chemical substances and isolated intermediates to take advantage of the 11 year phase-in period. To meet our compliance obligations, a cross-business REACH team was established, through which we were able to fulfill all required pre-registrations and our first phase registrations by the November 30, 2010 deadline. While we continue our registration efforts to meet the next registration deadline of June 2013, our REACH implementation team is now strategically focused on the authorization phase of the REACH process, directing its efforts to address "Substances of Very High Concern" and evaluating potential business implications. Where warranted, evaluation of substitute chemicals will be an important element of our ongoing manufacturing sustainability efforts. As a chemical manufacturer with global operations,

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we are also actively monitoring and addressing analogous regulatory regimes being considered or implemented outside of the EU.

        Although the total long-term cost for REACH compliance is unknown at this time, we spent approximately $5 million, $9 million and $3 million in 2011, 2010 and 2009, respectively, to meet the initial REACH requirements. We cannot provide assurance that these recent expenditures are indicative of future amounts that we may be required to spend for REACH compliance.

GREENHOUSE GAS REGULATION

        Although the existence of binding emissions limitations under international treaties such as the Kyoto Protocol is in doubt after 2012, we expect some or all of our operations to be subject to regulatory requirements to reduce emissions of greenhouse gases ("GHGs"). Even in the absence of a new global agreement to limit GHGs, we may be subject to additional regulation under the European Union Emissions Trading System as well as new national and regional GHG trading programs. For example, our operations in Australia and selected U.S. states may be subject to future GHG regulations under emissions trading systems in those jurisdictions.

        Because the United States has not adopted federal climate change legislation, domestic GHG efforts are likely to be guided by EPA regulations in the near future. While EPA's GHG programs are currently subject to judicial challenge, our domestic operations may become subject to EPA's regulatory requirements when implemented. In particular, expansions of our existing facilities or construction of new facilities may be subject to the Clean Air Act's Prevention of Significant Deterioration Requirements under EPA's GHG "Tailoring Rule." In addition, certain aspects of our operations may be subject to GHG emissions monitoring and reporting requirements. If we are subject to EPA GHG regulations, we may face increased monitoring, reporting, and compliance costs.

        We are already managing and reporting GHG emissions, to varying degrees, as required by law for our sites in locations subject to Kyoto Protocol obligations and/or EU emissions trading scheme requirements. Although these sites are subject to existing GHG legislation, few have experienced or anticipate significant cost increases as a result of these programs, although it is possible that GHG emission restrictions may increase over time. Potential consequences of such restrictions include capital requirements to modify assets to meet GHG emission restrictions and/or increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites.

        Finally, it should be noted that some scientists have concluded that increasing concentrations of GHG in the earth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any of those effects were to occur, they could have an adverse effect on our assets and operations.

INDIA INVESTIGATION

        During the third quarter of 2010, we completed an internal investigation of the operations of Petro Araldite Pvt. Ltd. ("PAPL"), our majority owned joint venture in India. PAPL manufactures base liquid resins, base solid resins and formulated products in India. The investigation initially focused on

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allegations of illegal disposal of hazardous waste and waste water discharge and related reporting irregularities. Based upon preliminary findings, the investigation was expanded to include a review of the production and off-book sales of certain products and waste products. The investigation included the legality under Indian law and U.S. law, including the U.S. Foreign Corrupt Practices Act, of certain payments made by employees of the joint venture to government officials in India. Records at the facility covering nine months in 2009 and early 2010 show that less than $11,000 in payments were made to officials for that period; in addition, payments in unknown amounts may have been made by individuals from the facility in previous years.

        In May and July 2010, PAPL fully disclosed the environmental noncompliance issues to the local Indian environmental agency, the TNPCB. All environmental compliance and reporting issues have been addressed to the agency's satisfaction other than the use of freshwater for the dilution of wastewater effluent discharges and including the remediation of several off-site solid waste disposal areas. Both remaining issues are being addressed. At TNPCB's direction, we submitted a plan for the remediation of the off-site waste disposal areas, which the TNPCB approved. The impacted off-site soil was excavated and relocated to the site. We received a hazardous waste license from the TNPCB on June 15, 2012 and the removed waste was transported to an authorized disposal facility in June 2012.

        Also in May 2010, we voluntarily contacted the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") to advise them of our investigation and that we intend to cooperate fully with each of them. We met with the SEC and the DOJ in October 2010 to discuss this matter and we continue to cooperate with these agencies. Steps have been taken to halt all known illegal or improper activity, including the termination of employment of management employees as appropriate. In May 2012, the SEC and DOJ notified us that they would not recommend any enforcement action be taken against our Company in this matter.

15. STOCK-BASED COMPENSATION PLANS

        Under the Huntsman Corporation Stock Incentive Plan, as amended and restated (the "Stock Incentive Plan"), a plan approved by stockholders, we may grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, phantom stock, performance awards and other stock-based awards to our employees, directors and consultants and to employees and consultants of our subsidiaries, provided that incentive stock options may be granted solely to employees. The terms of the grants are fixed at the grant date. As of June 30, 2012, we were authorized to grant up to 32.6 million shares under the Stock Incentive Plan. As of June 30, 2012, we had 8 million shares remaining under the Stock Incentive Plan available for grant. Option awards have a maximum contractual term of 10 years and generally must have an exercise price at least equal to the market price of our common stock on the date the option award is granted. Stock-based awards generally vest over a three-year period.

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15. STOCK-BASED COMPENSATION PLANS (Continued)

        The compensation cost from continuing operations under the Stock Incentive Plan for our Company and Huntsman International were as follows (dollars in millions):

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Huntsman Corporation compensation costs

  $ 5   $ 8   $ 15   $ 16  

Huntsman International compensation costs

    5     8     14     15  

        The total income tax benefit recognized in the statements of operations for us and Huntsman International for stock-based compensation arrangements were $4 million each for the six months ended June 30, 2012 and 2011.

STOCK OPTIONS

        The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of our common stock through the grant date. The expected term of options granted was estimated based on the contractual term of the instruments and employees' expected exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions noted below represent the weighted average of the assumptions utilized for stock options granted during the periods.

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2012   2011   2012   2011  

Dividend yield

  NA   NA     3.0 %   3.3 %

Expected volatility

  NA   NA     65.3 %   65.6 %

Risk-free interest rate

  NA   NA     1.3 %   2.8 %

Expected life of stock options granted during the period

  NA   NA     6.6 years     6.6 years  

        During each of the three months ended June 30, 2012 and 2011, no stock options were granted.

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15. STOCK-BASED COMPENSATION PLANS (Continued)

        A summary of stock option activity under the Stock Incentive Plan as of June 30, 2012 and changes during the six months then ended is presented below:

Option Awards
  Shares   Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
Value
 
 
  (in thousands)
   
  (years)
  (in millions)
 

Outstanding at January 1, 2012

    10,345   $ 13.83              

Granted

    1,363     13.41              

Exercised

    (536 )   2.99              

Forfeited

    (63 )   17.56              
                         

Outstanding at June 30, 2012

    11,109     14.28     5.9   $ 33  
                         

Exercisable at June 30, 2012

    8,936     14.26     5.1     33  
                         

        The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2012 was $6.36 per option. As of June 30, 2012, there was $12 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the Stock Incentive Plan. That cost is expected to be recognized over a weighted-average period of approximately 1.9 years.

        The total intrinsic value of stock options exercised during the six months ended June 30, 2012 and 2011 was $6 million and $19 million, respectively.

NONVESTED SHARES

        Nonvested shares granted under the Stock Incentive Plan consist of restricted stock, which is accounted for as an equity award, and phantom stock, which is accounted for as a liability award because it can be settled in either stock or cash. A summary of the status of our nonvested shares as of June 30, 2012 and changes during the six months then ended is presented below:

 
  Equity Awards   Liability Awards  
 
  Shares   Weighted
Average
Grant-Date
Fair Value
  Shares   Weighted
Average
Grant-Date
Fair Value
 
 
  (in thousands)
   
  (in thousands)
   
 

Nonvested at January 1, 2012

    2,287   $ 9.92     1,100   $ 9.42  

Granted

    934     13.41     383     13.41  

Vested

    (1,385 )(1)   7.05     (757 )   6.53  

Forfeited

    (11 )   15.30     (54 )   15.35  
                       

Nonvested at June 30, 2012

    1,825     13.86     672     14.49  
                       

(1)
As of June 30, 2012, a total of 494,512 restricted stock units were vested, of which 50,335 vested during the six months ended June 30, 2012. These shares have not been reflected as vested shares in this table because, in accordance with the restricted stock unit agreements, shares of common stock are not issued for vested restricted stock units until termination of employment.

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15. STOCK-BASED COMPENSATION PLANS (Continued)

        As of June 30, 2012, there was $24 million of total unrecognized compensation cost related to nonvested share compensation arrangements granted under the Stock Incentive Plan. That cost is expected to be recognized over a weighted-average period of approximately 1.9 years. The value of share awards that vested during the six months ended June 30, 2012 and 2011 was $21 million and $23 million, respectively.

16. INCOME TAXES

        We use 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. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on a tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets for each jurisdiction. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the applicable period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable jurisdictions could affect the realization of deferred tax assets in those jurisdictions. During the six months ended June 30, 2012, on a discrete basis, we changed our judgment about certain valuation allowances, primarily related to operations of the Textile Effects business, resulting in a net $1 million expense for changes in valuation allowance related to certain net deferred assets in Guatemala, Indonesia, and China, with no single change to a valuation allowance greater than $2 million. In addition, due to changes in certain intercompany operations, we increased our estimated future taxable income in Luxembourg and released valuation allowances of $7 million and $6 million on certain net deferred assets during the six months ended June 30, 2012 and 2011, respectively.

        During the six months ended June 30, 2012, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $5 million, and during the six months ended June 30, 2011, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $1 million.

        During the six months ended June 30, 2012, we were granted a tax holiday for the period from January 1, 2012 through December 31, 2016 with respect to certain income from Pigments products manufactured in Malaysia. We are required to make certain investments in order to enjoy the benefits of the tax holiday and we intend to make these investments. During the six months ended June 30, 2012, we recorded a discrete benefit of $3 million from de-recognition of a net deferred tax liability that will reverse during the holiday period. The amount of tax benefit to be realized from the tax holiday is directly dependent on the amount of future pre-tax income generated. We expect that the effects of the tax holiday will not be material to our provision for income taxes.

Huntsman Corporation

        Excluding the tax effects resulting from the net valuation allowance changes, the net unrecognized tax benefit items and the Malaysia tax holiday discussed above, we recorded income tax expense of

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