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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 September 30, 2010

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  o   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 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 October 28, 2010, 239,215,142 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 established trading market for Huntsman International LLC's units of membership interests. All of Huntsman International LLC's units of membership interests are held by Huntsman Corporation.


         This Quarterly Report on Form 10-Q presents information for two registrants: Huntsman Corporation and Huntsman International LLC. Huntsman International 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 SEPTMEBER 30, 2010

TABLE OF CONTENTS

 
   
   
  Page

PART I

 

FINANCIAL INFORMATION

 
3

ITEM 1.

 

Financial Statements:

 
3

 

Huntsman Corporation and Subsidiaries:

 
3

     

Condensed Consolidated Balance Sheets (Unaudited)

 
3

     

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

 
4

     

Condensed Consolidated Statements of Cash Flows (Unaudited)

 
6

     

Condensed Consolidated Statements of Equity (Unaudited)

 
8

 

Huntsman International LLC and Subsidiaries:

 
9

     

Condensed Consolidated Balance Sheets (Unaudited)

 
9

     

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

 
10

     

Condensed Consolidated Statements of Cash Flows (Unaudited)

 
11

     

Condensed Consolidated Statements of Equity (Unaudited)

 
13

 

Huntsman Corporation and Subsidiaries and Huntsman International LLC and Subsidiaries:

 
14

     

Notes to Condensed Consolidated Financial Statements (Unaudited)

 
14

ITEM 2.

 

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

 
75

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 
105

ITEM 4.

 

Controls and Procedures

 
106

PART II

 

OTHER INFORMATION

 
107

ITEM 1.

 

Legal Proceedings

 
107

ITEM 1A.

 

Risk Factors

 
107

ITEM 6.

 

Exhibits

 
107

Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Millions, Except Share and Per Share Amounts)

 
  September 30,
2010 		  December 31,
2009 		 

ASSETS

             

Current assets:

             
 

Cash and cash equivalents(a)

  $ 1,003   $ 1,745  
 

Restricted cash(a)

    8     5  
 

Accounts and notes receivable (net of allowance for doubtful accounts of $56 each), ($647 and nil pledged as collateral, respectively)(a)

    1,611     1,018  
 

Accounts receivable from affiliates

    9     1  
 

Inventories(a)

    1,375     1,184  
 

Prepaid expenses(a)

    57     42  
 

Deferred income taxes

    36     36  
 

Other current assets(a)

    146     109  
           
   

Total current assets

    4,245     4,140  

Property, plant and equipment, net(a)

    3,594     3,516  

Investment in unconsolidated affiliates

    234     250  

Intangible assets, net(a)

    112     125  

Goodwill

    94     94  

Deferred income taxes(a)

    108     138  

Notes receivable from affiliates

    7     8  

Other noncurrent assets(a)

    472     355  
           
   

Total assets

  $ 8,866   $ 8,626  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             
 

Accounts payable(a)

  $ 817   $ 730  
 

Accounts payable to affiliates

    28     25  
 

Accrued liabilities(a)

    626     623  
 

Deferred income taxes

    2     2  
 

Current portion of debt(a)

    384     431  
           
   

Total current liabilities

    1,857     1,811  

Long-term debt(a)

    3,953     3,781  

Notes payable to affiliates

    4     5  

Deferred income taxes

    336     289  

Other noncurrent liabilities(a)

    828     875  
           
   

Total liabilities

    6,978     6,761  

Commitments and contingencies (Notes 14 and 15)

             

Equity

             

Huntsman Corporation stockholders' equity:

             
 

Common stock $0.01 par value, 1,200,000,000 shares authorized, 239,215,142 and 237,225,258 issued and 236,448,794 and 234,081,490 outstanding in 2010 and 2009, respectively

    2     2  
 

Additional paid-in capital

    3,185     3,155  
 

Unearned stock-based compensation

    (13 )   (11 )
 

Accumulated deficit

    (1,096 )   (1,015 )
 

Accumulated other comprehensive loss

    (249 )   (287 )
           
   

Total Huntsman Corporation stockholders' equity

    1,829     1,844  

Noncontrolling interests in subsidiaries

    59     21  
           
   

Total equity

    1,888     1,865  
           
   

Total liabilities and equity

  $ 8,866   $ 8,626  
           
(a)
At September 30, 2010 and December 31, 2009, respectively, $6 and nil of cash and cash equivalents, $3 and nil of restricted cash, $12 and $9 of accounts and notes receivable (net), $48 and $33 of inventories, $1 each of prepaid expenses, $2 each of other current assets, $267 and $16 of property, plant and equipment (net), $7 and nil of intangible assets (net), $38 each of deferred income taxes, $52 and $32 of other noncurrent assets, $72 and $42 of accounts payable, $16 and $9 of accrued liabilities, $18 and $2 of current portion of debt, $181 and nil of long-term debt, and $100 and $93 of other noncurrent liabilities from consolidated variable interest entities are included in their respective Balance Sheet captions above. See "Note 6. Variable Interest Entities."

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

3

Table of Contents


HUNTSMAN CORPORATION AND SUBSIDIARIES

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

(In Millions, Except Per Share Amounts)

 
  Three months
ended
September 30, 		  Nine months
ended
September 30, 		 
 
  2010   2009   2010   2009  

Revenues:

                         
 

Trade sales, services and fees, net

  $ 2,360   $ 2,038   $ 6,689   $ 5,533  
 

Related party sales

    41     37     149     68  
                   
   

Total revenues

    2,401     2,075     6,838     5,601  

Cost of goods sold

    1,986     1,733     5,757     4,877  
                   

Gross profit

    415     342     1,081     724  

Operating expenses:

                         
 

Selling, general and administrative

    202     214     628     606  
 

Research and development

    39     36     111     108  
 

Other operating expense (income)

    3     —     2     (9 )
 

Restructuring, impairment and plant closing costs

    4     7     24     83  
                   
   

Total expenses

    248     257     765     788  
                   

Operating income (loss)

    167     85     316     (64 )

Interest expense, net

    (64 )   (65 )   (168 )   (178 )

Loss on accounts receivable securitization program

    —     (3 )   —     (13 )

Equity in income (loss) of investment in unconsolidated affiliates

    3     (1 )   20     1  

Loss on early extinguishment of debt

    (7 )   (21 )   (169 )   (21 )

(Expenses) income associated with the Terminated Merger and related litigation

    (3 )   (2 )   (4 )   835  

Other income

    2     1     3     1  
                   

Income (loss) from continuing operations before income taxes

    98     (6 )   (2 )   561  

Income tax expense

    (41 )   (68 )   (46 )   (517 )
                   

Income (loss) from continuing operations

    57     (74 )   (48 )   44  

(Loss) income from discontinued operations, net of tax

    (1 )   6     48     —  
                   

Net income (loss )

    56     (68 )   —     44  

Net (income) loss attributable to noncontrolling interests

    (1 )   —     (3 )   4  
                   

Net income (loss) attributable to Huntsman Corporation

  $ 55   $ (68 ) $ (3 ) $ 48  
                   

Net income (loss)

  $ 56   $ (68 ) $ —   $ 44  

Other comprehensive income

    146     38     38     86  
                   

Comprehensive income (loss )

    202     (30 )   38     130  

Comprehensive (income) loss attributable to noncontrolling interests

    (1 )   (1 )   (3 )   3  
                   

Comprehensive income (loss) attributable to Huntsman Corporation

  $ 201   $ (31 ) $ 35   $ 133  
                   

(continued)

4

Table of Contents


HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (Continued)

(In Millions, Except Per Share Amounts)

 
  Three months
ended
September 30, 		  Nine months
ended
September 30, 		 
 
  2010   2009   2010   2009  

Basic income (loss) per share:

                         

Income (loss) from continuing operations attributable to Huntsman Corporation common stockholders

  $ 0.24   $ (0.32 ) $ (0.22 ) $ 0.21  

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

    (0.01 )   0.03     0.21     —  
                   

Net income (loss) attributable to Huntsman Corporation common stockholders

  $ 0.23   $ (0.29 ) $ (0.01 ) $ 0.21  
                   

Weighted average shares

    236.4     234.0     235.9     233.9  
                   

Diluted income (loss) per share:

                         

Income (loss) from continuing operations attributable to Huntsman Corporation common stockholders

  $ 0.23   $ (0.32 ) $ (0.22 ) $ 0.20  

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

    —     0.03     0.21     —  
                   

Net income (loss) attributable to Huntsman Corporation common stockholders

  $ 0.23   $ (0.29 ) $ (0.01 ) $ 0.20  
                   

Weighted average shares

    241.0     234.0     235.9     238.1  
                   

Amounts attributable to Huntsman Corporation common stockholders:

                         

Income (loss) from continuing operations

  $ 56   $ (74 ) $ (51 ) $ 48  

(Loss) income from discontinued operations, net of tax

    (1 )   6     48     —  
                   

Net income (loss)

  $ 55   $ (68 ) $ (3 ) $ 48  
                   

Dividends per share

  $ 0.10   $ 0.10   $ 0.30   $ 0.30  
                   

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)

 
  Nine months ended
September 30, 		 
 
  2010   2009  

Operating Activities:

             

Net income

  $ —   $ 44  

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

             

Equity in income of investment in unconsolidated affiliates

    (20 )   (1 )

Depreciation and amortization

    295     338  

Provision for losses on accounts receivable

    5     7  

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

    8     (2 )

Loss on early extinguishment of debt

    169     21  

Noncash interest expense

    12     14  

Noncash restructuring, impairment and plant closing costs

    —     5  

Deferred income taxes

    72     311  

Net unrealized loss (gain) on foreign currency transactions

    8     (8 )

Stock-based compensation

    19     14  

Portion of insurance settlement representing investing activities

    (34 )   —  

Other, net

    4     2  

Changes in operating assets and liabilities:

             
 

Accounts and notes receivable

    (318 )   (225 )
 

Accounts receivable from A/R Programs

    (254 )   —  
 

Inventories

    (184 )   424  
 

Prepaid expenses

    (15 )   (13 )
 

Other current assets

    (36 )   (4 )
 

Other noncurrent assets

    (69 )   (23 )
 

Accounts payable

    61     25  
 

Accrued liabilities

    (15 )   (13 )
 

Other noncurrent liabilities

    (58 )   (9 )
           

Net cash (used in) provided by operating activities

    (350 )   907  
           

Investing Activities:

             

Capital expenditures

    (132 )   (140 )

Proceeds from insurance settlement as reimbursement of capital expenditures

    34     —  

Proceeds from sale of businesses/assets, net of adjustments

    —     5  

Acquisition of business

    —     (31 )

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

    11     —  

Investment in unconsolidated affiliates

    (4 )   —  

Change in restricted cash

    1     —  

Other, net

    5     2  
           

Net cash used in investing activities

    (85 )   (164 )
           

(continued)

6

Table of Contents


HUNTSMAN CORPORATION AND SUBSIDIARIES

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

(Dollars in Millions)

 
  Nine months ended
September 30, 		 
 
  2010   2009  

Financing Activities:

             

Net repayments under revolving loan facilities

  $ (7 ) $ (10 )

Revolving loan facility from A/R Programs

    254     —  

Net borrowings (repayments) on overdraft facilities

    6     (14 )

Repayments of short-term debt

    (153 )   (120 )

Borrowings on short-term debt

    188     95  

Repayments of long-term debt

    (1,073 )   (528 )

Proceeds from issuance of long-term debt

    725     874  

Repayments of notes payable

    (36 )   (55 )

Borrowings on notes payable

    38     63  

Debt issuance costs paid

    (25 )   (5 )

Call premiums related to early extinguishment of debt

    (159 )   (14 )

Dividends paid to common stockholders

    (72 )   (71 )

Repurchase and cancellation of stock awards

    (6 )   —  

Proceeds from issuance of common stock

    2     —  

Excess tax benefit related to stock-based compensation

    4     —  

Other, net

    —     (1 )
           

Net cash (used in) provided by financing activities

    (314 )   214  
           

Effect of exchange rate changes on cash

    7     5  
           

(Decrease) increase in cash and cash equivalents

    (742 )   962  

Cash and cash equivalents at beginning of period

    1,745     657  
           

Cash and cash equivalents at end of period

  $ 1,003   $ 1,619  
           

Supplemental cash flow information:

             
 

Cash paid for interest

  $ 142   $ 160  
 

Cash paid for income taxes

    19     145  

        During the nine months ended September 30, 2010 and 2009, the amount of capital expenditures in accounts payable decreased by $6 million and $29 million, respectively. The value of share awards that vested during the nine months ended September 30, 2010 and 2009 was $18 million and $11 million, respectively. In connection with our June 23, 2009 acquisition of the Baroda Division of Metrochem Industries Limited, $5 million of payables from us to Metrochem Industries Limited were forgiven. Beginning July 1, 2010, we began consolidating Arabian Amines Company, our ethyleneamines manufacturing joint venture in Jubail, Saudi Arabia. For more information, see "Note 6. Variable Interest Entities."

        During the nine months ended September 30, 2010 and 2009, capital expenditures of $132 million and $140 million, respectively, were reimbursed in part by $34 million and nil, respectively, from insurance settlement proceeds. During the nine months ended September 30, 2010 we received $110 million from the settlement of our insurance claims related to the 2006 fire at our Port Arthur Texas plant, $34 million of which was considered as a reimbursement of capital expenditures.

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

7

Table of Contents

HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Dollars in Millions)

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

Balance, January 1, 2010

    234,081,490   $ 2   $ 3,155   $ (11 ) $ (1,015 ) $ (287 ) $ 21   $ 1,865  

Net loss

    —     —     —     —     (3 )   —     3     —  

Other comprehensive income

    —     —     —     —     —     38     —     38  

Consolidation of a VIE

    —     —     —     —     —     —     35     35  

Issuance of nonvested stock awards

    —     —     12     (12 )   —     —     —     —  

Vesting of stock awards

    1,933,030     —     9     —     —     —     —     9  

Recognition of stock-based compensation

    —     —     3     10     —     —     —     13  

Repurchase and cancellation of stock awards

    (428,944 )   —     —     —     (6 )   —     —     (6 )

Stock options exercised

    863,218     —     2     —     —     —     —     2  

Excess tax benefit related to stock- based compensation

    —     —     4     —     —     —     —     4  

Dividends declared on common stock

    —     —     —     —     (72 )   —     —     (72 )
                                   

Balance, September 30, 2010

    236,448,794   $ 2   $ 3,185   $ (13 ) $ (1,096 ) $ (249 ) $ 59   $ 1,888  
                                   

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

Balance, January 1, 2009

    233,553,515   $ 2   $ 3,141   $ (13 ) $ (1,031 ) $ (489 ) $ 22   $ 1,632  

Net income

    —     —     —     —     48     —     (4 )   44  

Other comprehensive income

    —     —     —     —     —     85     1     86  

Issuance of nonvested stock awards

    —     —     7     (7 )   —     —     —     —  

Vesting of stock awards

    550,052     —     —     —     —     —     —     —  

Recognition of stock-based compensation

    —     —     4     8     —     —     —     12  

Repurchase and cancellation of stock awards

    (134,791 )   —     —     —     —     —     —     —  

Dividends declared on common stock

    —     —     —     —     (71 )   —     —     (71 )
                                   

Balance, September 30, 2009

    233,968,776   $ 2   $ 3,152   $ (12 ) $ (1,054 ) $ (404 ) $ 19   $ 1,703  
                                   

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)

 
  September 30,
2010 		  December 31,
2009 		 

ASSETS

             

Current assets:

             
 

Cash and cash equivalents(a)

  $ 603   $ 919  
 

Restricted cash(a)

    8     5  
 

Accounts and notes receivable (net of allowance for doubtful accounts of $56 each), ($647 and nil pledged as collateral, respectively)(a)

    1,611     1,018  
 

Accounts receivable from affiliates

    74     32  
 

Inventories(a)

    1,375     1,184  
 

Prepaid expenses(a)

    57     42  
 

Deferred income taxes

    34     33  
 

Other current assets(a)

    136     109  
           
   

Total current assets

    3,898     3,342  

Property, plant and equipment, net(a)

    3,452     3,357  

Investment in unconsolidated affiliates

    234     250  

Intangible assets, net(a)

    114     129  

Goodwill

    94     94  

Deferred income taxes(a)

    128     158  

Notes receivable from affiliates

    7     8  

Other noncurrent assets(a)

    472     355  
           
   

Total assets

  $ 8,399   $ 7,693  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             
 

Accounts payable(a)

  $ 816   $ 715  
 

Accounts payable to affiliates

    36     41  
 

Accrued liabilities(a)

    633     613  
 

Deferred income taxes

    2     2  
 

Note payable to affiliate

    100     25  
 

Current portion of debt(a)

    384     195  
           
   

Total current liabilities

    1,971     1,591  

Long-term debt(a)

    3,953     3,781  

Notes payable to affiliates

    439     530  

Deferred income taxes

    120     79  

Other noncurrent liabilities(a)

    819     865  
           
   

Total liabilities

    7,302     6,846  

Commitments and contingencies (Notes 14 and 15)

             

Equity

             

Huntsman International LLC members' equity:

             
 

Members' equity, 2,728 units issued and outstanding

    3,042     3,021  
 

Accumulated deficit

    (1,698 )   (1,847 )
 

Accumulated other comprehensive loss

    (306 )   (348 )
           
   

Total Huntsman International LLC members' equity

    1,038     826  

Noncontrolling interests in subsidiaries

    59     21  
           
   

Total equity

    1,097     847  
           
   

Total liabilities and equity

  $ 8,399   $ 7,693  
           
(a)
At September 30, 2010 and December 31, 2009, respectively, $6 and nil of cash and cash equivalents, $3 and nil of restricted cash, $12 and $9 of accounts and notes receivable (net), $48 and $33 of inventories, $1 each of prepaid expenses, $2 each of other current assets, $267 and $16 of property, plant and equipment (net), $7 and nil of intangible assets (net), $38 each of deferred income taxes, $52 and $32 of other noncurrent assets, $72 and $42 of accounts payable, $16 and $9 of accrued liabilities, $18 and $2 of current portion of debt, $181 and nil of long-term debt, and $100 and $93 of other noncurrent liabilities from consolidated variable interest entities are included in their respective Balance Sheet captions above. See "Note 6. 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 AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in Millions)

 
  Three months
ended
September 30, 		  Nine months
ended
September 30, 		 
 
  2010   2009   2010   2009  

Revenues:

                         
 

Trade sales, services and fees, net

  $ 2,360   $ 2,038   $ 6,689   $ 5,533  
 

Related party sales

    41     37     149     68  
                   
   

Total revenues

    2,401     2,075     6,838     5,601  

Cost of goods sold

    1,981     1,728     5,744     4,864  
                   

Gross profit

    420     347     1,094     737  

Operating expenses:

                         
 

Selling, general and administrative

    202     214     625     598  
 

Research and development

    39     36     111     108  
 

Other operating expense (income)

    3     —     (8 )   (9 )
 

Restructuring, impairment and plant closing costs

    4     7     24     83  
                   
   

Total expenses

    248     257     752     780  
                   

Operating income (loss)

    172     90     342     (43 )

Interest expense, net

    (69 )   (64 )   (182 )   (177 )

Loss on accounts receivable securitization program

    —     (3 )   —     (13 )

Equity in (loss) income of investment in unconsolidated affiliates

    3     (1 )   20     1  

Loss on early extinguishment of debt

    (7 )   (21 )   (23 )   (21 )

Other income

    1     1     3     1  
                   

Income (loss) from continuing operations before income taxes

    100     2     160     (252 )

Income tax expense

    (40 )   (49 )   (56 )   (203 )
                   

Income (loss) from continuing operations

    60     (47 )   104     (455 )

(Loss) income from discontinued operations, net of tax

    (1 )   6     48     —  
                   

Net income (loss)

    59     (41 )   152     (455 )

Net (income) loss attributable to noncontrolling interests

    (1 )   —     (3 )   4  
                   

Net income (loss) attributable to Huntsman International LLC

  $ 58   $ (41 ) $ 149   $ (451 )
                   

Net income (loss)

  $ 59   $ (41 ) $ 152   $ (455 )

Other comprehensive income

    148     39     42     90  
                   

Comprehensive income (loss)

    207     (2 )   194     (365 )

Comprehensive (income) loss attributable to noncontrolling interests

    —     (1 )   (2 )   3  
                   

Comprehensive income (loss) attributable to Huntsman International LLC

  $ 207   $ (3 ) $ 192   $ (362 )
                   

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)

 
  Nine months
ended
September 30, 		 
 
  2010   2009  

Operating Activities:

             

Net income (loss)

  $ 152   $ (455 )

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

             

Equity in income of investment in unconsolidated affiliates

    (20 )   (1 )

Depreciation and amortization

    279     321  

Provision for losses on accounts receivable

    5     7  

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

    8     (2 )

Loss on early extinguishment of debt

    23     21  

Noncash interest expense

    26     24  

Noncash restructuring, impairment and plant closing costs

    —     5  

Deferred income taxes

    66     125  

Net unrealized loss (gain) on foreign currency transactions

    8     (8 )

Noncash compensation

    17     10  

Portion of insurance settlement representing investing activities

    (34 )   —  

Other, net

    2     1  

Changes in operating assets and liabilities:

             
 

Accounts and notes receivable

    (318 )   (225 )
 

Accounts receivable from A/R Programs

    (254 )   —  
 

Inventories

    (184 )   424  
 

Prepaid expenses

    (14 )   (12 )
 

Other current assets

    (26 )   (19 )
 

Other noncurrent assets

    (69 )   (23 )
 

Accounts payable

    60     2  
 

Accrued liabilities

    2     37  
 

Other noncurrent liabilities

    (54 )   (5 )
           

Net cash (used in) provided by operating activities

    (325 )   227  
           

Investing Activities:

             

Capital expenditures

    (132 )   (140 )

Proceeds from insurance settlement as reimbursement of capital expenditures

    34     —  

Proceeds from sale of businesses/assets, net of adjustments

    —     5  

Acquisition of business

    —     (31 )

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

    11     —  

Investment in unconsolidated affiliates

    (4 )   —  

Change in restricted cash

    1     —  

(Increase) decrease in receivable from affiliate

    (42 )   8  

Other, net

    5     2  
           

Net cash used in investing activities

    (127 )   (156 )
           

(continued)

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

(Dollars in Millions)

 
  Nine months
ended
September 30, 		 
 
  2010   2009  

Financing Activities:

             

Net repayments under revolving loan facilities

  $ (7 ) $ (10 )

Revolving loan facility from A/R Programs

    254     —  

Net borrowings (repayments) on overdraft facilities

    6     (14 )

Repayments of short-term debt

    (153 )   (120 )

Borrowings on short-term debt

    188     95  

Repayments of long-term debt

    (837 )   (528 )

Proceeds from issuance of long-term debt

    725     874  

Repayments of notes payable to affiliate

    (125 )   (403 )

Proceeds from notes payable to affiliate

    110     529  

Repayments of notes payable

    (36 )   (52 )

Borrowings on notes payable

    38     60  

Debt issuance costs paid

    (25 )   (5 )

Call premiums related to early extinguishment of debt

    (13 )   (14 )

Dividends paid to parent

    —     (23 )

Excess tax benefit related to stock-based compensation

    4     —  

Contribution from parent

    —     236  

Other, net

    —     (1 )
           

Net cash provided by financing activities

    129     624  
           

Effect of exchange rate changes on cash

    7     6  
           

(Decrease) increase in cash and cash equivalents

    (316 )   701  

Cash and cash equivalents at beginning of period

    919     87  
           

Cash and cash equivalents at end of period

  $ 603   $ 788  
           

Supplemental cash flow information:

             
 

Cash paid for interest

  $ 133   $ 153  
 

Cash paid for income taxes

    17     18  

        During the nine months ended September 30, 2010 and 2009, the amount of capital expenditures in accounts payable decreased by $6 million and $29 million, respectively. During the nine months ended September 30, 2010 and 2009, Huntsman Corporation contributed $17 million and $10 million, respectively, related to stock-based compensation. In connection with our June 23, 2009 acquisition of the Baroda Division of Metrochem Industries Limited, $5 million of payables from us to Metrochem Industries Limited were forgiven. Beginning July 1, 2010, we began consolidating Arabian Amines Company, our ethyleneamines manufacturing joint venture in Jubail, Saudi Arabia. For more information, see "Note 6. Variable Interest Entities."

        During the nine months ended September 30, 2010 and 2009, capital expenditures of $132 million and $140 million, respectively, were reimbursed in part by $34 million and nil, respectively, from insurance settlement proceeds. During the nine months ended September 30, 2010 we received $110 million from the settlement of our insurance claims related to the 2006 fire at our Port Arthur Texas plant, $34 million of which was considered as a reimbursement of capital expenditures.

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
other
comprehensive
loss 		   
   
 
 
  Accumulated
deficit 		  Noncontrolling
interests in
subsidiaries 		  Total
equity 		 
 
  Units   Amount  

Balance, January 1, 2010

    2,728   $ 3,021   $ (1,847 ) $ (348 ) $ 21   $ 847  

Net income

    —     —     149     —     3     152  

Other comprehensive income

    —     —     —     42     —     42  

Consolidation of a VIE

    —     —     —     —     35     35  

Contribution from parent, net of distributions

    —     17     —     —     —     17  

Excess tax benefit related to stock-based compensation

    —     4     —     —     —     4  
                           

Balance, September 30, 2010

    2,728   $ 3,042   $ (1,698 ) $ (306 ) $ 59   $ 1,097  
                           

 

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

Balance, January 1, 2009

    2,728   $ 2,865   $ (1,414 ) $ (554 ) $ 22   $ 919  

Net loss

    —     —     (451 )   —     (4 )   (455 )

Other comprehensive income

    —     —     —     89     1     90  

Contribution from parent, net of distributions

    —     246     —     —     —     246  

Dividends paid to parent

    —     —     (23 )   —     —     (23 )
                           

Balance, September 30, 2009

    2,728   $ 3,111   $ (1,888 ) $ (465 ) $ 19   $ 777  
                           

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. Any references to our "Company," "we," "us" or "our" as of a date prior to October 19, 2004 (the date of our Company's formation) are to Huntsman Holdings, LLC and its subsidiaries (including their respective predecessors). In this report, "Huntsman International" refers to Huntsman International LLC (our 100% owned subsidiary) and, unless the context otherwise requires, its subsidiaries; "HPS" refers to Huntsman Polyurethanes Shanghai Ltd. (our consolidated splitting joint venture with Shanghai Chlor-Alkali Chemical Company, Ltd); and "SLIC" refers to Shanghai Liengheng Isocyanate Company (our unconsolidated manufacturing joint venture with BASF AG and three Chinese chemical companies).

        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) have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP" or "U.S. GAAP") and in management's opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in our Form 8-K filed on June 8, 2010.

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, 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. We ceased operation of our Australian styrenics business during the first quarter of 2010 and report the results of that business as discontinued operations. See "Note 20. Discontinued Operations."

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

1. GENERAL (Continued)

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 the early 1970s as a small packaging company. Since then, we have grown through a series of acquisitions and now own a global portfolio of businesses.

        Currently, we operate all of our businesses through Huntsman International, our 100% owned subsidiary. Huntsman International is a Delaware limited liability company and was formed in 1999.

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;

    •
    a note payable from Huntsman International to us;

    •
    (expenses) income associated with our terminated merger with a subsidiary of Hexion (the "Terminated Merger" or the "Hexion Merger");

    •
    the $250 million 7% convertible notes due 2018 (the "Convertible Notes") issued in connection with our December 14, 2008 settlement agreement with Apollo, Hexion and certain of their affiliates (the "Apollo Settlement Agreement"), which we repurchased on January 11, 2010 (see "Note 8. Debt—Transactions Affecting Our Debt—Redemption of Notes" and "Note 18. (Expenses) Income Associated with the Terminated Merger and Related Litigation"); and

    •
    the results of our settlement agreement (the "Texas Bank Litigation Settlement Agreement") in connection with our litigation (the "Texas Bank Litigation") against affiliates of Credit Suisse Securities (USA) LLC and Deutsche Bank Inc. (collectively, the "Banks") (see "Note 18. (Expenses) Income Associated with the Terminated Merger and Related Litigation").

PRINCIPLES OF CONSOLIDATION

        Our condensed consolidated financial statements (unaudited) and Huntsman International's condensed consolidated financial statements (unaudited) include the accounts of our wholly-owned and majority-owned and controlled subsidiaries and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated.

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

1. GENERAL (Continued)

USE OF ESTIMATES

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

RECLASSIFICATIONS

        Certain amounts in the condensed consolidated financial statements (unaudited) for prior periods have been reclassified to conform with the current presentation. In connection with the closure and abandonment of our Australian styrenics operations in the first quarter of 2010, we have treated this business as discontinued operations beginning in the first quarter of 2010. All relevant information for prior periods has been restated to reflect this change.

        During the first quarter of 2010, we began reporting our last-in, first-out ("LIFO") inventory valuation reserve charges as part of Corporate and other. These charges were previously reported in our Performance Products segment. All segment information for prior periods has been restated to reflect this change.

        During the third quarter of 2010, we began reporting the amounts outstanding under our accounts receivable securitization programs as part of our Polyurethanes, Performance Products, Advanced Materials, Textile Effects and Pigments segments. These amounts were previously reported in our Corporate and other segment. In addition, we eliminated intercompany balances from the assets of each reportable segment. All segment information for prior periods has been restated to reflect these changes.

RECENT DEVELOPMENTS

2021 Subordinated Notes

        On September 24, 2010, Huntsman International completed a $350 million offering of 8.625% subordinated notes due March 15, 2021 (the "2021 Subordinated Notes"). We used the net proceeds of $343 million to redeem a portion of our euro-denominated senior subordinated notes due 2013 (€132 million (approximately $177 million)) and a portion of U.S. dollar senior subordinated notes due 2014 ($159 million of which settled on October 12, 2010). See "Note 8. Debt—Transactions Affecting our Debt—Redemption of Notes." As of September 30, 2010, $159 million of these notes were classified as Current portion of long term debt on the accompanying condensed consolidated balance sheets (unaudited).

        On October 28, 2010, the Company announced that it had priced an issuance of an additional $180 million principal amount of 2021 Subordinated Notes through Huntsman International. The closing of the offering is expected to occur on November 12, 2010, subject to satisfaction of customary closing conditions. The Company intends to use all of the net proceeds to redeem the remaining $188 million aggregate principal amount of its outstanding 7.875% senior subordinated notes due 2014, including the payment of accrued interest.

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

1. GENERAL (Continued)

Note Redemptions

        On October 12, 2010, Huntsman International repaid $159 million of its 7.875% senior subordinated notes due 2014. The amount paid to redeem the notes, excluding accrued interest, was $165 million, which included principal of $159 million and premium of $6 million. During the fourth quarter of 2010, we expect to recognize a loss on early extinguishment of debt of approximately $7 million related to the partial redemption of these notes.

        On September 27, 2010, Huntsman International repaid €132 million (approximately $177 million) of its 6.875% senior subordinated notes due 2013. The amount paid to redeem the notes, excluding accrued interest, was €137 million (approximately $183 million), which included principal of €132 million (approximately $177 million) and premium of €5 million (approximately $6 million). As of September 30, 2010, the 6.875% senior subordinated notes due 2013 have a remaining balance of €84 million (approximately $113 million).

        For more information, see "Note 8. Debt—Transactions Affecting Our Debt—Redemption of Notes."

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted During 2010

        In February 2010, the Financial Accounting Standards Board ("FASB") issued and we adopted ASU No. 2010-09, Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure Requirements . This ASU provides a definition of the term "SEC filer" and removes the requirement for entities that are SEC filers to disclose the date through which subsequent events have been evaluated. We evaluate subsequent events through the date the financial statements are issued.

        In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements . This ASU clarifies existing disclosure requirements to provide a greater level of disaggregated information and to provide more information regarding valuation techniques and inputs to fair value measurements. It requires additional disclosure related to transfers between the three levels of fair value measurement, as well as information about purchases, sales, issuances, and settlements in the roll forward of activity for Level 3 measurements. The enhanced disclosures required by this ASU are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity for Level 3 measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010. See "Note 10. Fair Value."

        Effective January 1, 2010, we adopted ASU No. 2009-17, Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities , which codified Statement of Financial Accounting Standards ("SFAS") No. 167, Amendments to FASB Interpretation No. 46(R) . This statement amends FASB Interpretation No. ("FIN") 46(R), Consolidation of Variable Interest Entities , to replace the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity ("VIE") with a qualitative approach. This new approach focuses on identifying which enterprise has the power to direct the activities of a VIE that

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)

most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, and amends the types of events that trigger a reassessment of whether an entity is a VIE. Further, it requires additional disclosures about an enterprise's involvement in variable interest entities. The initial adoption of this statement did not have a significant impact on our condensed consolidated financial statements (unaudited). See "Note 6. Variable Interest Entities."

        Effective January 1, 2010, we adopted ASU No. 2009-16, Transfers and Servicing (Topic 860)—Accounting for Transfers of Financial Assets , which codified SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 . This statement removes the concept of a qualifying special-purpose entity ("QSPE") from SFAS No. 140 and removes the exception from applying FIN 46(R) to QSPEs. SFAS No. 166 modifies the derecognition provisions in SFAS No. 140 and requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor's beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. It also requires additional disclosures regarding the transferor's continuing involvement with transferred financial assets and the related risks retained. Upon adoption of this statement, transfers of accounts receivable under our accounts receivable securitization programs no longer qualified for derecognition and were accounted for as secured borrowings beginning in January 2010. See "Note 8. Debt—Transactions Affecting Our Debt—Accounts Receivable Securitization." Prior to the adoption of this statement, receivables transferred under our U.S. and European accounts receivable securitization programs (the "U.S. A/R Program," the "EU A/R Program" and collectively the "A/R Programs") qualified as sales.

Accounting Pronouncements Pending Adoption in Future Periods

        In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force . This ASU provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. The amendments in this ASU replace the term "fair value" in the revenue allocation guidance with "selling price" to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant, and they establish a selling price hierarchy for determining the selling price of a deliverable. The amendments in this ASU will eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, and they significantly expand the required disclosures related to multiple-deliverable revenue arrangements. The amendments in this ASU will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010. We are evaluating this ASU to determine its impact on our 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) (Continued)

3. BUSINESS COMBINATIONS

LAFFANS ACQUISITION

        On July 31, 2010, we announced that we entered into a definitive agreement to acquire the chemicals business of Laffans Petrochemicals Ltd ("Laffans"). Located in Ankleshwar, India, Laffans manufactures amines and surfactants, had annual 2009 sales of approximately $45 million and has 130 employees. The acquisition, with a cost of approximately $21 million, including debt, a non-compete agreement and other obligations, is subject to certain terms and conditions and is expected to occur in the first half of 2011. The acquired business will be integrated into our Performance Products segment.

BARODA ACQUISITION

        On June 23, 2009, we announced the acquisition of the Baroda Division ("Baroda") of Metrochem Industries Limited ("MCIL"), a manufacturing facility for the production of intermediates and specialty dyes for textiles, located in Baroda, India. Baroda had been a significant supplier to our Textile Effects division and this acquisition strengthens the Textile Effects division's competitiveness and supports its development in Asia. We initially entered into an agreement to acquire Baroda on June 29, 2007. The initial agreement provided either party with the right to terminate the agreement if a transaction was not consummated by April 30, 2008. On February 6, 2009, we entered into a non-binding agreement in principle with MCIL under which the purchase price was revised to be approximately $35 million (U.S. dollar equivalents), which included receivables existing on the closing date due to MCIL from our affiliates, which were also settled at acquisition. Payment of the acquisition cost was phased in various tranches. The first tranche of $7 million was paid during 2008; additional tranches were paid during 2009; and a final payment of $2 million was made upon completion of the audit of net working capital acquired in the first quarter of 2010. In addition, $5 million of accounts payable by us to MCIL were forgiven in connection with this acquisition.

        We have accounted for the Baroda acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The allocation of

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3. BUSINESS COMBINATIONS (Continued)


acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):

Acquisition cost:

       
 

Cash payments made in 2008

  $ 7  
 

Cash payments made in 2009

    31  
 

Cash payments made in 2010

    2  
 

Forgiveness of amounts payable from us to MCIL

    (5 )
       

Total acquisition cost

  $ 35  
       

Fair value of assets acquired and liabilities assumed:

       
 

Accounts receivable

  $ 2  
 

Inventories

    3  
 

Other current assets

    2  
 

Property, plant and equipment

    31  
 

Intangible assets

    3  
 

Deferred tax asset

    2  
 

Accounts payable

    (3 )
 

Short-term debt

    (3 )
 

Deferred tax liability

    (2 )
       

Total fair value of net assets acquired

  $ 35  
       

4. INVENTORIES

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

 
  September 30,
2010 		  December 31,
2009 		 

Raw materials and supplies

  $ 307   $ 240  

Work in progress

    101     77  

Finished goods

    1,026     917  
           

Total

    1,434     1,234  

LIFO reserves

    (59 )   (50 )
           

Net

  $ 1,375   $ 1,184  
           

        For both September 30, 2010 and December 31, 2009, approximately 10% 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 non-monetary open exchange positions are valued at cost. The amounts included in inventory under non-monetary open

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4. INVENTORIES (Continued)


exchange agreements payable by us as of September 30, 2010 were $3 million. The amounts included in inventory under non-monetary open exchange agreements receivable by us as of December 31, 2009 were $2 million. Other open exchanges are settled in cash and result in a net deferred profit margin. The amounts under these open exchange agreements receivable or payable by us at both September 30, 2010 and December 31, 2009 were nil.

5. INVESTMENT IN UNCONSOLIDATED AFFILIATES

        In 2008, we and our joint venture partner, the Zamil Group, formed Arabian Amines Company ("AAC"), our ethyleneamines manufacturing joint venture in Jubail, Saudi Arabia. AAC's funding requirements have been satisfied through a combination of debt and equity, with the equity already provided on a 50/50 basis by us and the Zamil Group. Trial production commenced in the second quarter of 2010 and from July 2010, AAC generated significant revenues from the sale of product. Final plant testing and certification is expected to be complete in the fourth quarter of 2010. The plant has an approximate annual capacity of 60 million pounds. We will purchase and sell all of the production from this joint venture. We have provided certain guarantees of approximately $14 million for these obligations, which will terminate upon completion of the project and satisfaction of certain conditions. A $1 million guarantee will be provided after project completion. We have estimated that the fair value of these guarantees was nil as of the closing date of this transaction and, accordingly, no amounts have been recorded. While AAC was accounted for under the equity method during its development stage, we began consolidating this joint venture beginning July 1, 2010. For more information, see "Note 6. Variable Interest Entities."

        During the nine months ended September 30, 2010, we recorded a non-recurring $18 million credit to equity income of investment in unconsolidated affiliates to appropriately reflect our investment in the Sasol-Huntsman GmbH and Co. KG ("Sasol-Huntsman") joint venture. This credit represented a cumulative correction of an error that was individually immaterial in each year since our initial investment in the joint venture in 1997. In connection with the current expansion of the maleic anhydride capacity at our Sasol-Huntsman joint venture we believe that the joint venture is a VIE and that we may be the primary beneficiary. Accordingly, we may consolidate this joint venture beginning in the first quarter of 2011 when the plant expansion starts production.

6. VARIABLE INTEREST ENTITIES

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

    •
    Rubicon LLC ("Rubicon") manufactures products for our Polyurethanes segment. The structure of the joint venture is such that the total equity investment at risk is not sufficient to permit the joint venture to finance its activities without additional financial support. By virtue of the operating agreement with this joint venture, we purchase a majority of the output, absorb a majority of the operating costs and provide a majority of the additional funding.

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6. VARIABLE INTEREST ENTITIES (Continued)

    •
    Pacific Iron Products Sdn Bhd ("Pacific Iron Products") manufactures products for our Pigments segment. In this joint venture we supply all the raw materials through a fixed cost supply contract, operate the manufacturing facility and market the products of the joint venture to third party customers. Through a fixed price raw materials supply contract with the joint venture we are exposed to the risk related to the fluctuation of raw material pricing.

    •
    AAC manufactures products for our Performance Products segment. Prior to July 1, 2010, this joint venture was in the development stage and the total equity investment at risk was sufficient for the joint venture to finance its activities without additional support. Therefore, AAC was accounted for under the equity method. In July 2010, AAC exited the development stage, which triggered the reconsideration of AAC as a VIE. As required in the operating agreement governing this joint venture, we purchase all of AAC's production and sell it to our customers. Substantially all of the joint venture's activities are conducted on our behalf. Accordingly, we began consolidating AAC beginning July 1, 2010.

        Creditors of these entities have no recourse to our general credit, except in the event that we offer guarantees of specified indebtedness. As the primary beneficiary of three variable interest entities at September 30, 2010, the joint ventures' assets, liabilities and results of operations are included in our condensed consolidated financial statements (unaudited).

        The following table summarizes the carrying amount of Rubicon and Pacific Iron Products' assets and liabilities included in our condensed consolidated balance sheet (unaudited), before intercompany eliminations, as of September 30, 2010 (dollars in millions):

Current assets

  $ 85  

Property, plant and equipment, net

    17  

Other noncurrent assets

    46  

Deferred income taxes

    38  
       

Total assets

  $ 186  
       

Current liabilities

 
$
94 		 

Long-term debt

    3  

Other noncurrent liabilities

    93  
       

Total liabilities

  $ 190  
       

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6. VARIABLE INTEREST ENTITIES (Continued)