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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, 2005
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 333-115344

HUNTSMAN ADVANCED MATERIALS LLC
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

92-0194012
(I.R.S. Employer Identification No.)

500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700
(Address of principal executive offices and telephone number)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES o NO ý

On August 10, 2005, 4,672,047 units of membership interest of the registrant were outstanding. There is no established trading market for the registrant's units of membership interest. All of the registrant's units of membership interest are held by affiliates.

HUNTSMAN ADVANCED MATERIALS LLC
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2005

TABLE OF CONTENTS

			Page
PART I		FINANCIAL INFORMATION	3
	ITEM 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets (Unaudited)	3
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)	4
		Condensed Consolidated Statements of Members' Equity (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows (Unaudited)	6
		Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	41
	ITEM 4.	Controls and Procedures	43
PART II		OTHER INFORMATION	43
	ITEM 1.	Legal Proceedings	43
	ITEM 6.	Exhibits	44

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions)

			June 30, 2005			December 31, 2004
ASSETS
Current assets:
	Cash and cash equivalents		$	111.3		$	93.8
	Trade accounts receivable (net of allowance for doubtful accounts of $7.2 and $7.3, respectively)			227.4			235.1
	Accounts receivable from affiliates			0.5			—
	Inventories, net			195.8			179.5
	Deferred income taxes			1.1			1.0
	Other current assets			9.2			13.4

		Total current assets		545.3			522.8
Property, plant and equipment, net				334.4			378.6
Deferred income taxes				33.1			34.5
Other noncurrent assets				19.4			17.4

		Total assets	$	932.2		$	953.3

LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
	Accounts payable		$	90.1		$	79.2
	Accounts payable to affiliates			5.6			3.7
	Accrued liabilities			111.7			113.5
	Deferred income taxes			6.1			6.3
	Short-term debt			51.4			1.7

		Total current liabilities		264.9			204.4
Long-term debt, net				298.9			348.7
Other noncurrent liabilities				130.0			142.2

		Total liabilities		693.8			695.3

Commitments and contingencies (Notes 14 & 15)
Minority interest				2.9			2.4
Members' equity:
	Members' equity, 4,672,047 units			222.1			222.1
	Retained earnings			31.6			38.9
	Accumulated other comprehensive loss			(18.2	)		(5.4	)

		Total members' equity		235.5			255.6

		Total liabilities and members' equity	$	932.2		$	953.3

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

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

(Dollars in Millions)

			Three Months Ended June 30,						Six Months Ended June 30,
			2005			2004			2005			2004
Revenues			$	310.5		$	287.6		$	622.0		$	572.3
Cost of goods sold				238.0			218.6			471.5			435.0

Gross profit				72.5			69.0			150.5			137.3
Expenses:
	Selling, general and administrative			35.1			36.1			70.5			77.6
	Research and development			8.3			8.1			17.0			16.8
	Restructuring and plant closing credits, net			(0.6	)		—			(0.6	)		—
	Other operating expense			9.3			6.7			22.2			5.8

		Total expenses		52.1			50.9			109.1			100.2

Operating income				20.4			18.1			41.4			37.1
Interest expense, net				(10.9	)		(10.7	)		(21.1	)		(20.9	)
Other income				0.6			—			0.6			—

Income before income taxes and minority interest				10.1			7.4			20.9			16.2
Income tax expense				(14.3	)		(1.7	)		(27.7	)		(11.7	)
Minority interest in subsidiaries' income				(0.3	)		—			(0.5	)		(0.4	)

Net (loss) income				(4.5	)		5.7			(7.3	)		4.1
Other comprehensive (loss) income				(8.8	)		2.3			(12.8	)		(2.1	)

Comprehensive (loss) income			$	(13.3	)	$	8.0		$	(20.1	)	$	2.0

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (UNAUDITED)

(Dollars and Units in Millions)

	Share Capital/Members' Equity
	Share Capital/Members' Equity			Retained Earnings			Accumulated Other Comprehensive Loss
	Units	Amount		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2004	4.7	$	222.1	$	38.9		$	(5.4	)	$	255.6
Net loss			—		(7.3	)		—			(7.3	)
Other comprehensive loss			—		—			(12.8	)		(12.8	)

Balance, June 30, 2005	4.7	$	222.1	$	31.6		$	(18.2	)	$	235.5

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

		Six Months Ended June 30, 2005			Six Months Ended June 30, 2004
Cash Flows From Operating Activities:
Net (loss) income		$	(7.3	)	$	4.1
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization			23.9			28.5
Noncash interest expense			1.5			1.4
Unrealized loss on foreign currency transactions			15.9			7.3
Other			0.5			(0.1	)
Loss (gain) on sale of assets			0.1			(0.9	)
Deferred income taxes			12.0			17.9
Minority interests in subsidiaries' income			0.5			0.4
Changes in operating assets and liabilities:
	Accounts receivable, net		(7.8	)		(29.8	)
	Inventories, net		(27.6	)		(21.1	)
	Accounts payable		18.0			17.6
	Other operating assets and liabilities		(0.3	)		(22.8	)

Net cash provided by operating activities			29.4			2.5

Investing Activities:
Capital expenditures			(11.1	)		(4.3	)
Proceeds from sale of assets			0.2			1.7
Other			0.3			0.1

Net cash used in investing activities			(10.6	)		(2.5	)

Financing Activities:
	Decrease in short-term debt, net		(0.4	)		(0.3	)
	Other		(0.2	)		—

Net cash used in financing activities			(0.6	)		(0.3	)

Effect of exchange rate changes on cash			(0.7	)		(2.2	)

Increase (decrease) in cash and cash equivalents			17.5			(2.5	)
Cash and cash equivalents at beginning of period			93.8			73.2

Cash and cash equivalents at end of period		$	111.3		$	70.7

Supplemental cash flow information:
	Cash paid for interest	$	19.4		$	20.3
	Cash paid for income taxes	$	3.4		$	1.2

See accompanying notes to unaudited condensed consolidated financial statements.

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. General

Description of Business

Huntsman Advanced Materials LLC (including its subsidiaries, unless the context otherwise requires, the "Company", "our", "us", or "we") is a global producer and marketer of technologically advanced specialty chemicals used in a wide variety of industrial and consumer applications. We provide our customers with:

•: epoxy resin compounds and formulations;
•: cross-linking matter and curing agents; and
•: epoxy, acrylic and polyurethane-based adhesives and tooling resin formulations.

Our products are used to address customer-specific application needs and are utilized in a wide variety of end markets, such as adhesives, electrical and electronic materials, structural composites and surface technologies. We operate 13 manufacturing facilities worldwide, including facilities in North America, South America, Europe, Asia and Africa. We operate in one reportable business segment.

Company

We are a Delaware limited liability company, 90.3% of our membership interests are indirectly owned by Huntsman Corporation through Huntsman Advanced Materials Holdings LLC, a Delaware limited liability company ("AdMat Holdings") and Huntsman Advanced Materials Investment LLC, a Delaware limited liability company ("AdMat Investment") and the balance of the membership interests are held indirectly by third parties, including SISU Capital Limited ("SISU"), a private investment firm based in London, U.K.

On June 30, 2003, a predecessor of Huntsman Corporation, Huntsman Holdings, LLC ("Huntsman Holdings") and other equity affiliates of Huntsman Holdings completed a restructuring and business combination involving Vantico Group S.A. (collectively with its subsidiaries, unless the context otherwise requires, "Vantico" or the "Predecessor Company"), whereby ownership of the equity of Vantico was transferred to us (the "AdMat Transaction").

We accounted for the AdMat Transaction as a purchase business combination.

Initial Public Offering of Huntsman Corporation

On February 16, 2005, Huntsman Corporation, our parent corporation, completed initial public offerings of (i) 55,681,819 shares of its common stock sold by Huntsman Corporation and 13,579,546 shares of its common stock sold by a selling stockholder, in each case at a price to the public of $23 per share, and (ii) 5,750,000 shares of its 5% Mandatory Convertible Preferred Stock sold by Huntsman Corporation at a price to the public of $50 per share. Net proceeds to Huntsman Corporation from the offering were approximately $1,500 million, substantially all of which has been used to repay outstanding indebtedness of certain of Huntsman Corporation's subsidiaries, including HMP Equity Holdings Corporation, Huntsman LLC and Huntsman International Holdings LLC.

Principles of Consolidation

Our consolidated financial statements include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary.

Interim Financial Statements

Our unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in management's opinion, reflect all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements for the year ended December 31, 2004 included in our Registration Statement on Form S-4 filed with the Securities and Exchange Commission on April 5, 2005 (File No. 333-115344).

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 for prior periods have been reclassified to conform with the current presentation.

2. Recently Issued Accounting Pronouncements

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

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

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

In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment." SFAS No. 123R requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which the employee is required to provide services in exchange for the award. This standard eliminates the alternative to use the intrinsic value method of accounting for share-based payments as previously provided in APB Opinion No. 25, "Accounting for Stock Issued to Employees." We adopted SFAS No. 123R effective January 1, 2005, and have applied this standard prospectively to share-based awards issued to our employees in connection with Huntsman Corporation's initial public offering. In connection with Huntsman Corporation's initial public offering of common stock on February 16, 2005, certain of our employees received Huntsman Corporation stock options and restricted stock. Accordingly, we were allocated share-based compensation expense of $0.3 million and $0.4 million during the three and six months ended June 30, 2005 respectively. We did not have share-based awards prior to the awards issued in connection with Huntsman Corporation's initial public offering.

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

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

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

3. Inventories

Inventories consisted of the following (dollars in millions):

	June 30, 2005			December 31, 2004
Raw materials and supplies	$	38.5		$	34.6
Work in process		24.2			29.4
Finished goods		143.8			126.5

Total		206.5			190.5
Allowance for obsolete and slow moving inventories		(10.7	)		(11.0	)

Inventories, net	$	195.8		$	179.5

4. Property, Plant and Equipment

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

	June 30, 2005			December 31, 2004
Land	$	17.8		$	19.5
Buildings		131.4			142.7
Plant and equipment		263.1			279.8
Construction in progress		15.9			12.7

Total		428.2			454.7
Less accumulated depreciation		(93.8	)		(76.1	)

Property, Plant and Equipment, net	$	334.4		$	378.6

Depreciation expense was $11.7 million and $12.9 million for the three months ended June 30, 2005 and 2004, respectively, and $23.9 million and $26.8 million for the six months ended June 30, 2005 and 2004, respectively.

The amortization expense related to intangible assets was nil and $0.7 million for the three months ended June 30, 2005 and 2004, respectively, and nil and $1.7 million for the six months ended June 30, 2005 and 2004, respectively.

5. Other Current Assets

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

	June 30, 2005		December 31, 2004
Prepaid expenses	$	1.6	$	3.2
Other current assets		7.6		10.2

Total	$	9.2	$	13.4

6. Other Noncurrent Assets

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

	June 30, 2005		December 31, 2004
Debt issuance costs, net	$	11.9	$	13.1
Fair value of cross-currency swap		1.1		—
Prepaid pension costs		1.0		1.2
Other noncurrent assets		5.4		3.1

Total	$	19.4	$	17.4

In connection with the issuance of certain long-term debt and other obligations, direct fees and expenses were incurred. These financing costs have been capitalized and are amortized as interest expense through the consolidated statements of operations over the term of the associated debt using the effective interest method. The amortization expense related to capitalized financing costs amortization and the amortization of debt discount included in interest expense was $0.9 million and $0.7 million for the three months ended June 30, 2005 and 2004, respectively, and $1.5 million and $1.4 million for the six months ended June 30, 2005 and 2004, respectively.

7. Accrued Liabilities

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

	June 30, 2005		December 31, 2004
Payroll and related costs	$	18.4	$	25.8
Taxes other than income taxes		18.7		19.0
Interest		19.1		17.8
Income taxes payable		22.4		6.5
Restructuring and plant closing costs		9.5		21.1
Other accrued liabilities		23.6		23.3

Total	$	111.7	$	113.5

8. Other Noncurrent Liabilities

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

	June 30, 2005		December 31, 2004
Pension and postretirement liabilities	$	98.4	$	112.0
Loss contingencies		9.9		11.7
Deferred tax liability		12.8		0.5
Restructuring and plant closing costs		3.2		11.9
Other noncurrent liabilities		5.7		6.1

Total	$	130.0	$	142.2

9. Restructuring and Plant Closing Costs

As of December 31, 2004, accrued restructuring and plant closing costs consisted of $33.0 million related to the restructuring programs implemented in association with the AdMat Transaction, the realignment and simplification of the commercial and technical organization and the closure of the Kaohsiung, Taiwan production facility.

During the second quarter of 2005, we assessed the remaining restructuring reserves established in association with the AdMat Transaction and other 2004 initiatives and concluded that $5.3 million and $0.8 million, respectively, were no longer necessary. Accordingly, we reversed these restructuring reserves during the second quarter of 2005. The AdMat Transaction reserve reversal was recorded as a reduction to property, plant and equipment in accordance with EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The reversal of the restructuring reserve for the other 2004 initiatives was recorded as a credit to earnings. Also during the second quarter of 2005, we recorded restructuring and plant closing charges of $0.2 million for relocation and other costs.

During the six months ended June 30, 2005, activity in our restructuring reserves consisted of the following (dollars in millions):

		Workforce Reductions			Plant Closure Costs			Other			Total
Accrued liability as of January 1, 2005		$	28.1		$	1.1		$	3.8		$	33.0
	Payments—AdMat Transaction opening balance sheet initiatives		(5.6	)		(0.2	)		(1.1	)		(6.9	)
	Payments—2004 initiatives		(5.7	)		—			(0.2	)		(5.9	)
	Partial reversal of AdMat Transaction opening balance sheet liability		(3.7	)		(0.8	)		(0.8	)		(5.3	)
	Partial reversal of 2004 initiative liability		(0.8	)		—			—			(0.8	)
	2005 charges for 2004 initiatives		—			—			0.2			0.2
	Impact of foreign currency translation		(1.2	)		—			(0.4	)		(1.6	)

Accrued liability as of June 30, 2005		$	11.1		$	0.1		$	1.5		$	12.7

10. Debt

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

	June 30, 2005			December 31, 2004
Debt:
AdMat Senior Secured Notes	$	348.8		$	348.6
Other debt		1.5			1.8

Total		350.3			350.4
Less short-term debt		(51.4	)		(1.7	)

Total long-term debt	$	298.9		$	348.7

Revolving Credit Facility

On June 30, 2003, we entered into the AdMat Revolving Credit Facility that provides up to $60 million of borrowings and is secured by a first lien on substantially all of our assets and those of certain of our subsidiaries. The collateral includes substantially all real property and equipment relating to our manufacturing plants located at Bergkamen, Germany; Monthey, Switzerland; McIntosh, Alabama; and Duxford, U.K. The collateral also includes intercompany notes of certain of our subsidiaries, and certain other assets, principally including inventory and accounts receivable. Our obligations under the AdMat Revolving Credit Facility have been initially guaranteed by all of our U.S. subsidiaries and certain of our non-U.S. subsidiaries (collectively, the "AdMat Guarantors"). The agent for the lenders under the AdMat Revolving Credit Facility and the trustee under the indenture governing the Senior Secured Notes are parties to an intercreditor agreement (the "AdMat Intercreditor Agreement").

Revolving Credit Facility and had approximately $4.0 million of letters of credit issued and outstanding under the AdMat Revolving Credit Facility. The AdMat Revolving Credit Facility allows us to borrow up to $20 million secured by letters of credit; however, the $60 million revolving credit facility is reduced dollar-for-dollar by any letters of credit outstanding. There are no scheduled debt amortization payments on the AdMat Revolving Credit Facility until its maturity date.

The agreement governing the AdMat Revolving Credit Facility contains customary financial covenants; covenants relating to the incurrence of debt, the purchase and sale of assets, limitations on investments and affiliate transactions; change in control provisions; events of default provisions; and acceleration provisions. Management believes that we were in compliance with the covenants of the AdMat Revolving Credit Facility as of June 30, 2005.

Senior Secured Notes

In connection with the AdMat Transaction, on June 30, 2003, we issued $250 million of Fixed Rate Notes due 2010 and $100 million of Floating Rate Notes due 2008 (collectively, the "Senior Secured Notes"). The $250 million Fixed Rate Notes bear a per annum fixed rate of interest of 11%, and the Floating Rate Notes bear interest at a rate per annum equal to LIBOR plus 8.0%, subject to a floor with respect to LIBOR of 2.0%. As of June 30, 2005, the interest rate on the Floating Rate Notes was approximately 10.9%. Interest on the Floating Rate Notes resets semiannually. The $100 million Floating Rate Notes were issued with an original issue discount of 2.0%, or for $98 million. The $2 million discount is being amortized to interest expense over the term of the Floating Rate Notes. Interest is payable on the Senior Secured Notes semiannually on January 15 and July 15 of each year. The effective interest rate on the Floating Rate Notes was approximately 11.1% as of June 30, 2005.

The Senior Secured Notes are secured by a second lien, subject to the AdMat Intercreditor Agreement, on substantially all of the assets that secure the AdMat Revolving Credit Facility. The Senior Secured Notes effectively rank senior in right of payment to all existing and future obligations of our company that are unsecured or secured by liens on the collateral junior to the liens securing the Senior Secured Notes. The Senior Secured Notes are initially guaranteed on a senior basis by the AdMat Guarantors and are also supported by liens on substantially all of the assets of the AdMat Guarantors.

The Fixed Rate Notes are redeemable on or after July 15, 2007 at our option at a price declining ratably from 105.5% to 100.0% of par value by the year 2009. The Floating Rate Notes are redeemable on or after July 15, 2005 at our option at a price declining ratably from 105.0% to 100.0% of par value by the year 2007. On June 13, 2005, we issued a notice of a partial redemption to redeem $50 million aggregate principal amount of the Floating Rate Notes. On July 15, 2005, we completed the partial redemption and paid call premiums in the amount of $2.5 million. Accordingly, we have classified the $50 million redemption amount as current in the balance sheet as of June 30, 2005. Following this redemption, we have $50 million aggregate principal amount outstanding on the Floating Rate Notes. At any time prior to July 15, 2007 for the Fixed Rate Notes and July 15, 2005 for the Floating Rate Notes, we may redeem all or part of such notes at 100% of their principal amount, plus a "make whole" premium, as defined in the indenture. In addition, at any time prior to July 15, 2006 for the Fixed Rate Notes and July 15, 2005 for the Floating Rate Notes, we may redeem up to 35% of the original aggregate principal amount of the Senior Secured Notes at a redemption price of 111% of the principal thereof with the net cash proceeds of one or more qualified equity offerings, subject to certain conditions and limitations. There are no scheduled debt amortization payments on the Senior Secured Notes until their maturity date.

Secured Notes upon a change of control. Management believes that we were in compliance with the covenants of the indenture as of June 30, 2005.

11. Derivative Instruments and Hedging Activities

On June 1, 2005, we entered into a cross-currency interest rate swap. The cross-currency swap requires us to pay euros and receive U.S. dollars on the maturity date of July 15, 2007. The U.S. dollar notional amount is $31.3 million and bears interest at a fixed rate of 11.0%, payable semiannually on January 15 and July 15. The euro notional amount is €25.0 million and bears interest at a fixed rate of approximately 9.4%, payable semiannually on January 15 and July 15. The swap is not designated as a hedge for reporting purposes and is recorded at fair value. As of June 30, 2005, the fair value gain of $1.1 million was recorded in other noncurrent assets and as a decrease in other operating expenses for both the three and six months ended June 30, 2005.

12. Employee Benefit Plans

Components of the net periodic benefit costs for the three and six months ended June 30, 2005 and 2004 were as follows (dollars in millions):

		Defined Benefit Plans						Other Postretirement Benefit Plans
		Three Months Ended June 30, 2005			Three Months Ended June 30, 2004			Three Months Ended June 30, 2005		Three Months Ended June 30, 2004
Components of net periodic benefit cost
	Service cost	$	3.1		$	2.0		$	0.1	$	0.1
	Interest cost		4.1			3.5			0.2		0.1
	Expected return on assets		(4.0	)		(3.4	)		—		—
	Prior service cost amortization		(0.8	)		—			—		—
	Actuarial loss amortization		0.1			—			—		—

	Net periodic benefit cost	$	2.5		$	2.1		$	0.3	$	0.2

		Defined Benefit Plans						Other Postretirement Benefit Plans
		Six Months Ended June 30, 2005			Six Months Ended June 30, 2004			Six Months Ended June 30, 2005		Six Months Ended June 30, 2004
Components of net periodic benefit cost
	Service cost	$	6.2		$	4.1		$	0.2	$	0.2
	Interest cost		8.2			6.8			0.4		0.3
	Expected return on assets		(8.0	)		(6.7	)		—		—
	Prior service cost amortization		(1.6	)		—			—		—
	Actuarial loss amortization		0.2			—			—		—

	Net periodic benefit cost	$	5.0		$	4.2		$	0.6	$	0.5

13. Other Comprehensive Loss

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

							Other comprehensive loss
	Accumulated other comprehensive loss						Three Months Ended					Six Months Ended
	June 30, 2005			December 31, 2004			June 30, 2005			June 30, 2004		June 30, 2005			June 30, 2004
Foreign currency translation adjustments, net of deferred tax of $5.0 million and $5.0 million as of June 30, 2005 and December 31, 2004, respectively	$	(16.8	)	$	(4.0	)	$	(8.8	)	$	2.3	$	(12.8	)	$	(2.1	)
Additional minimum pension liability, net of deferred tax benefit of $0.3 million and $0.3 million as of June 30, 2005 and December 31, 2004, respectively		(1.4	)		(1.4	)		—			—		—			—

Total	$	(18.2	)	$	(5.4	)	$	(8.8	)	$	2.3	$	(12.8	)	$	(2.1	)

Items of other comprehensive loss have been recorded net of deferred tax, with the exception of income permanently reinvested, based upon the jurisdiction where the income or losses were realized.

14. Commitments and Contingencies

Purchase Commitments

We have various purchase commitments extending through 2012 for materials, supplies and services entered into in the ordinary course of business. The purchase commitments are contracts that require minimum volume purchases. Certain contracts allow for changes in minimum required purchase volumes in the event of a temporary or permanent shut down of a facility. The contractual purchase price for substantially all of these contracts is variable based upon market prices, subject to annual negotiations.

We are indemnified by Ciba Specialty Chemicals Holdings Inc. ("Ciba") against certain liabilities arising on supply contracts. The indemnification covers the first CHF 50 million ($39.1 million at the June 30, 2005 exchange rate), and 50% of an additional CHF 50 million, thereby providing CHF 75 million ($58.6 million) of coverage against the first CHF 100 million ($78.1 million), of costs arising from onerous supply contracts.

Legal Matters

Vantico concluded that certain of the products of its former Electronics division may have infringed patents owned by Taiyo and it entered into a license agreement in October 2001 with Taiyo to obtain the right to use the Taiyo patents. This license agreement required payment of approximately $4.2 million in back royalties and agreement to pay periodic royalties for future use. We believe that Ciba is liable under the indemnity provisions of certain agreements in connection with the leveraged buy out transaction in 2000 involving Ciba and Vantico for certain payments made under the license agreement and related costs and expenses, and we initiated an arbitration proceeding against Ciba. In July 2004, we entered into a settlement agreement with Ciba with respect to this matter. In general, the settlement agreement provided that Ciba would pay us $11.1 million in 2004. We received additional consideration in the form of modifications to certain operating agreements between us and Ciba. In August 2004, we received payment of the $11.1 million settlement.

We are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various environmental, products liability and other laws. Except as otherwise disclosed in this report, we do not believe that the outcome of any of these matters will have a material adverse effect on our financial condition,

results of operations or liquidity. See Note 15 "—Environmental, Health and Safety Matters" for a discussion of environmental proceedings.

15. Environmental, Health and Safety Matters

General

We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to frequent environmental inspections and monitoring and occasional investigations by governmental enforcement authorities. In addition, our production facilities require operating permits that are subject to renewal, modification and, in certain circumstances, revocation. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as, under some environmental laws, the assessment of strict liability and/or joint and several liability. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory matters may cause us to incur significant unanticipated losses, costs or liabilities.

Environmental, Health and Safety Systems

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

EHS Capital Expenditures

We may incur future costs for capital improvements and general compliance under EHS laws, including costs to acquire, maintain and repair pollution control equipment. For the six months ended June 30, 2005 and 2004, our capital expenditures for EHS matters totaled $0.3 million and $0.5 million, respectively. Since capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, we cannot provide assurance that our recent expenditures will be indicative of future amounts required under EHS laws.

Governmental Enforcement Proceedings

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

follow applicable regulations for the management of asbestos contamination caused by construction activity at the Duxford, U.K. Advanced Materials facility between November 2002 and January 2003. Huntsman Advanced Materials (UK) Ltd was fined £20,000 ($36,000 at the June 30, 2005 exchange rate) for allegedly violating Section 2 of the Health and Safety at Work Act and £5,000 ($9,000) for allegedly violating Regulation 11 of the Construction (Design and Management) Regulations. We were also ordered to pay £8,500 ($15,000) towards prosecutions costs. All other charges were withdrawn and the penalty has been paid.

Remediation Liabilities

We have incurred, and we may in the future incur, liability to investigate and clean up waste or contamination at our current or former facilities or facilities operated by third parties at which we may have disposed of waste or other materials. Similarly, we may incur costs for the cleanup of wastes that were disposed of prior to the purchase of our businesses. Under some circumstances, the scope of our liability may extend to damages to natural resources.

Some of our manufacturing sites have an extended history of industrial chemical manufacturing and use, including on-site waste disposal. We are aware of soil, groundwater and surface water contamination from past operations at some of our sites, and we may find contamination at other sites in the future. For example, we are aware that there is significant contamination, largely related to a landfill and lagoons, at our McIntosh, Alabama plant site. Further, soil and groundwater contamination have been identified at our plants in Duxford, U.K. and Monthey, Switzerland. Pursuant to certain agreements with respect to these sites, we expect that Ciba will have primary financial responsibility for such matters, although we may be required to contribute to the costs of remediation in certain instances, and we believe that Ciba has the intention and ability to honor these agreements. Based on available information and the indemnification rights we believe are likely to be available, we believe that the costs to investigate and remediate known contamination will not have a material adverse effect on our financial condition, results of operations or cash flows, and therefore we have made no accrual for such liabilities as of June 30, 2005. However, if such indemnities are unavailable or do not fully cover the costs of investigation and remediation or we are required to contribute to such costs, and if such costs are material, then such expenditures may have a material adverse effect on our financial condition, results of operations or cash flows. At the current time, we are unable to estimate the full cost, exclusive of indemnification benefits, to remediate known contamination sites.

Regulatory Developments

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

manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk control strategies that would require capital expenditures by us. As proposed, REACH would take effect in three primary stages over the eleven years following the final effective date (assuming final approval). The impacts of REACH on the chemical industry and on us are unclear at this time because the parameters of the program are still being actively debated.

16. Other Operating Expense

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

		Three Months Ended June 30,					Six Months Ended June 30,
		2005		2004			2005		2004
Foreign exchange losses		$	9.2	$	7.2		$	22.1	$	4.5
Legal and contract settlements, net			—		0.4			—		2.2
Other, net			0.1		(0.9	)		0.1		(0.9	)

	Total other operating expense	$	9.3	$	6.7		$	22.2	$	5.8

17. Other Income

Other income consisted of the following (dollars in millions):

		Three Months Ended June 30,				Six Months Ended June 30,
		2005		2004		2005		2004
Early contract termination gain		$	0.4	$	—	$	0.4	$	—
Other, net			0.2		—		0.2		—

	Total other income	$	0.6	$	—	$	0.6	$	—

18. Income Taxes

Income tax expense was $14.3 million and $27.7 million for the three and six months ended June 30, 2005, respectively, and was $1.7 million and $11.7 million for the three and six months ended June 30, 2004, respectively. Substantially all non-U.S. operations are treated as branches of our company for U.S. income tax purposes and are, therefore, subject to both U.S. and non-U.S. income tax. In addition, our tax obligations are affected by the mix of income and losses in the tax jurisdictions in which we operate. Tax expense was a result of losses in jurisdictions where no tax benefit was provided and income in other jurisdictions where tax expense was recorded.

Our effective income tax rate was 142% and 133% for the three and six months ended June 30, 2005, respectively, as compared to 23% and 72% for the same periods in 2004. Excluding the impact of foreign exchange losses of $9.2 million and $22.1 million, which did not provide a benefit for tax purposes, our effective income tax rate would have been 74% and 64% for the three and six months ended June 30, 2005, respectively. Tax expense above the U.S. statutory rate of 35% was primarily a result of losses in jurisdictions where no tax benefit was provided, and income earned in non-U.S. jurisdictions subject to incremental U.S. tax.

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 the resulting deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances have been established against the entire U.S. and a material portion of the non-U.S. deferred tax assets due to the uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction-by-jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax asset.

19. Condensed Consolidating Financial Statements

The following condensed consolidating financial statements present, in separate columns, financial information for the following: our company (on a parent only basis), with our investment in subsidiaries recorded under the equity method; the Guarantors on a combined, and where appropriate, consolidated basis and the non-guarantors on a combined, and where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of June 30, 2005 and December 31, 2004 and for the three and six months ended June 30, 2005 and June 30, 2004. There are no contractual restrictions limiting transfers of cash from guarantor subsidiaries to us. Each of the Guarantors is 100% owned by us and has fully and unconditionally guaranteed the Senior Secured Notes on a joint and several basis. We have not presented separate financial statements and other disclosures for each of the Guarantors because we believe that such information is not material to investors.

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)

AS OF JUNE 30, 2005 (Dollars in Millions)

			Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated Advanced Materials LLC
ASSETS
Current Assets:
	Cash and cash equivalents		$	31.1		$	68.8		$	11.4		$	—		$	111.3
	Trade accounts receivable, net			0.3			52.0			175.1			—			227.4
	Intercompany receivables			38.3			151.1			28.0			(216.9	)		0.5
	Inventories, net			—			56.1			141.0			(1.3	)		195.8
	Deferred income taxes			—			—			1.1			—			1.1
	Other current assets			—			3.8			5.4			—			9.2

		Total current assets		69.7			331.8			362.0			(218.2	)		545.3
	Property, plant and equipment, net			—			286.2			48.2			—			334.4
	Investment in unconsolidated affiliates			425.0			46.8			0.1			(471.8	)		0.1
	Other intangible assets, net			(18.9	)		19.5			0.1			—			0.7
	Deferred income taxes			13.5			24.9			(5.3	)		—			33.1
	Other noncurrent assets			407.3			335.7			3.2			(727.6	)		18.6

		Total assets	$	896.6		$	1,044.9		$	408.3		$	(1,417.6	)	$	932.2

LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable		$	—		$	27.2		$	63.0		$	(0.1	)	$	90.1
	Intercompany payables			38.1			66.5			117.8			(216.8	)		5.6
	Accrued liabilities			47.0			36.5			28.2			—			111.7
	Deferred income taxes			5.2			0.8			0.1			—			6.1
	Short-term debt			50.0			—			1.4			—			51.4

		Total current liabilities		140.3			131.0			210.5			(216.9	)		264.9
	Long-term debt, net			514.3			388.6			123.6			(727.6	)		298.9
	Other noncurrent liabilities			6.5			105.3			18.2			—			130.0

		Total liabilities		661.1			624.9			352.3			(944.5	)		693.8

Minority Interest				—			—			—			2.9			2.9
Equity:
	Member's equity			222.1			351.4			22.0			(373.4	)		222.1
	Retained earnings			31.6			73.6			32.9			(106.5	)		31.6
	Accumulated other comprehensive (loss) income			(18.2	)		(5.0	)		1.1			3.9			(18.2	)

		Total equity		235.5			420.0			56.0			(476.0	)		235.5

		Total liabilities and equity	$	896.6		$	1,044.9		$	408.3		$	(1,417.6	)	$	932.2

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)

AS OF DECEMBER 31, 2004 (Dollars in Millions)

			Parent Only			Guarantors		Non- Guarantors		Eliminations			Consolidated Advanced Materials LLC
ASSETS
Current Assets:
	Cash and cash equivalents		$	4.6		$	70.8	$	18.4	$	—		$	93.8
	Trade accounts receivable, net			—			52.9		182.1		0.1			235.1
	Intercompany receivables			76.7			228.0		176.9		(481.6	)		—
	Inventories, net			—			47.1		133.4		(1.0	)		179.5
	Deferred income taxes			—			—		1.0		—			1.0
	Other current assets			0.1			8.9		4.4		—			13.4

		Total current assets		81.4			407.7		516.2		(482.5	)		522.8
	Property, plant and equipment, net			—			329.9		48.7		—			378.6
	Investment in unconsolidated affiliates			416.4			29.4		0.1		(445.6	)		0.3
	Other intangible assets, net			(23.0	)		23.6		0.1		—			0.7
	Deferred income taxes			5.2			28.6		0.7		—			34.5
	Other noncurrent assets			438.7			355.2		3.3		(780.8	)		16.4

		Total assets	$	918.7		$	1,174.4	$	569.1	$	(1,708.9	)	$	953.3

LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable		$	—		$	25.4	$	53.9	$	(0.1	)	$	79.2
	Intercompany payables			33.6			146.9		304.5		(481.3	)		3.7
	Accrued liabilities			25.8			51.0		36.7		—			113.5
	Deferred income taxes			5.3			1.0		—		—			6.3
	Short-term debt			0.7			—		1.0		—			1.7

		Total current liabilities		65.4			224.3		396.1		(481.4	)		204.4
	Long-term debt, net			597.7			420.6		111.3		(780.9	)		348.7
	Other noncurrent liabilities			—			123.7		18.5		—			142.2

		Total liabilities		663.1			768.6		525.9		(1,262.3	)		695.3

Minority Interest				—			—		—		2.4			2.4
Equity:
	Members' equity			222.1			351.4		23.4		(374.8	)		222.1
	Retained earnings			38.9			54.0		19.7		(73.7	)		38.9
	Accumulated other comprehensive (loss) income			(5.4	)		0.4		0.1		(0.5	)		(5.4	)

		Total equity		255.6			405.8		43.2		(449.0	)		255.6

		Total liabilities and equity	$	918.7		$	1,174.4	$	569.1	$	(1,708.9	)	$	953.3

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

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

THREE MONTHS ENDED JUNE 30, 2005 (Dollars in Millions)

			Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated Advanced Materials LLC
Revenues:
	Trade sales and services		$	—		$	73.0		$	237.5		$	—		$	310.5
	Intercompany sales			—			36.2			11.0			(47.2	)		—

		Revenue		—			109.2			248.5			(47.2	)		310.5
Cost of goods sold				—			87.4			197.6			(47.0	)		238.0

Gross profit				—			21.8			50.9			(0.2	)		72.5
Expenses:
	Selling, general and administrative			0.3			1.7			33.1			—			35.1
	Research and development			—			7.5			0.8			—			8.3
	Restructuring and plant closing credits, net			—			(0.6	)		—			—			(0.6	)
	Other operating (income) expense			(5.7	)		17.7			(2.7	)		—			9.3

Total expenses				(5.4	)		26.3			31.2			—			52.1

Operating income (loss)				5.4			(4.5	)		19.7			(0.2	)		20.4
Interest expense, net				(5.7	)		(0.9	)		(4.3	)		—			(10.9	)
Other income				—			0.2			0.4			—			0.6
Equity in earnings of unconsolidated affiliates				3.9			14.0			—			(17.9	)		—

Income before income taxes and minority interest				3.6			8.8			15.8			(18.1	)		10.1
Income tax (expense) benefit				(8.1	)		0.5			(6.6	)		(0.1	)		(14.3	)
Minority interest in subsidiaries' income				—			—			—			(0.3	)		(0.3	)

Net income				(4.5	)		9.3			9.2			(18.5	)		(4.5	)

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

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

SIX MONTHS ENDED JUNE 30, 2005 (Dollars in Millions)

			Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated Advanced Materials LLC
Revenues:
	Trade sales and services		$	—		$	144.3		$	477.7		$	—		$	622.0
	Intercompany sales			—			74.3			20.4			(94.7	)		—

		Revenue		—			218.6			498.1			(94.7	)		622.0
Cost of goods sold				—			174.5			391.4			(94.4	)		471.5

Gross profit				—			44.1			106.7			(0.3	)		150.5
Expenses:
	Selling, general and administrative			(0.1	)		(7.9	)		78.5			—			70.5
	Research and development			—			15.4			1.6			—			17.0
	Restructuring and plant closing credits, net			—			(0.6	)		—			—			(0.6	)
	Other operating (income) expense			(5.6	)		32.1			(4.3	)		—			22.2

Total expenses				(5.7	)		39.0			75.8			—			109.1

Operating income				5.7			5.1			30.9			(0.3	)		41.4
Interest expense, net				(10.8	)		(1.3	)		(9.0	)		—			(21.1	)
Other income				—			0.2			0.4			—			0.6
Equity in earnings of unconsolidated affiliates				14.0			18.1			—			(32.1	)		—

Income before income taxes and minority interest				8.9			22.1			22.3			(32.4	)		20.9
Income tax expense				(16.2	)		(2.5	)		(9.0	)		—			(27.7	)
Minority interest in subsidiaries' income				—			—			—			(0.5	)		(0.5	)

Net (loss) income				(7.3	)		19.6			13.3			(32.9	)		(7.3	)

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

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

THREE MONTHS ENDED JUNE 30, 2004 (Dollars in Millions)

			Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated Advanced Materials LLC
Revenues:
	Trade sales and services		$	—		$	59.7		$	227.9		$	—		$	287.6
	Intercompany sales			—			36.1			8.5			(44.6	)		—

		Revenue		—			95.8			236.4			(44.6	)		287.6
Cost of goods sold				—			74.4			190.7			(46.5	)		218.6

Gross profit				—			21.4			45.7			1.9			69.0
Expenses:
	Selling, general and administrative			2.4			(5.2	)		40.0			(1.1	)		36.1
	Research and development			—			7.6			0.5			—			8.1
	Other operating (income) expense			(0.8	)		6.1			1.4			—			6.7

Total expenses				1.6			8.5			41.9			(1.1	)		50.9

Operating (loss) income				(1.6	)		12.9			3.8			3.0			18.1
Interest expense, net				(1.5	)		(2.9	)		(5.2	)		(1.1	)		(10.7	)
Equity in earnings (losses) of unconsolidated affiliates				10.5			(5.1	)		—			(5.4	)		—

Income (loss) before income taxes and minority interest				7.4			4.9			(1.4	)		(3.5	)		7.4
Income tax (expense) benefit				(1.7	)		0.9			(0.9	)		—			(1.7	)
Minority interest in subsidiaries' income				—			—			—			—			—

Net income (loss)				5.7			5.8			(2.3	)		(3.5	)		5.7

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

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

SIX MONTHS ENDED JUNE 30, 2004 (Dollars in Millions)

			Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated Advanced Materials LLC
Revenues:
	Trade sales and services		$	—		$	119.0		$	453.3		$	—		$	572.3
	Intercompany sales			—			151.2			15.5			(166.7	)		—

		Revenue		—			270.2			468.8			(166.7	)		572.3
Cost of goods sold				—			228.7			377.3			(171.0	)		435.0

Gross profit				—			41.5			91.5			4.3			137.3
Expenses:
	Selling, general and administrative			4.0			(9.0	)		83.7			(1.1	)		77.6
	Research and development			—			15.7			1.1			—			16.8
	Other operating (income) expense			(0.2	)		5.0			0.9			0.1			5.8

Total expenses				3.8			11.7			85.7			(1.0	)		100.2

Operating (loss) income				(3.8	)		29.8			5.8			5.3			37.1
Interest expense, net				(3.7	)		(8.4	)		(7.8	)		(1.0	)		(20.9	)
Equity in earnings (losses) of unconsolidated affiliates				14.7			(10.5	)		—			(4.2	)		—

Income (loss) before income taxes and minority interest				7.2			10.9			(2.0	)		0.1			16.2
Income tax expense				(3.1	)		(7.8	)		(0.8	)		—			(11.7	)
Minority interest in subsidiaries' income				—			—			—			(0.4	)		(0.4	)

Net income (loss)				4.1			3.1			(2.8	)		(0.3	)		4.1

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2005 (Dollars in Millions)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated Advanced Materials LLC
Net cash provided by operating activities	$	27.4		$	0.5		$	1.5		$	—		$	29.4
Investing activities:
Capital expenditures		—			(8.0	)		(3.1	)		—			(11.1	)
Proceeds from sale of fixed assets		—			—			0.2			—			0.2
Other		—			1.7			—			(1.4	)		0.3

Net cash used in investing activities		—			(6.3	)		(2.9	)		(1.4	)		(10.6	)

Financing activities:
(Decrease) increase in short-term debt, net		(0.7	)		—			0.3			—			(0.4	)
Net borrowings (repayments) of interco debt		—			3.7			(5.1	)		1.4			—
Other		(0.2	)		—			—			—			(0.2	)

Net cash (used in) provided by financing activities		(0.9	)		3.7			(4.8	)		1.4			(0.6	)

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

Increase (decrease) in cash and cash equivalents		26.5			(2.1	)		(6.9	)		—			17.5
Cash and cash equivalents at beginning of period		4.6			70.8			18.4			—			93.8

Cash and cash equivalents at end of period	$	31.1		$	68.7		$	11.5		$	—		$	111.3

HUNTSMAN ADVANCED MATERIALS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2004 (Dollars in Millions)

	Parent Only			Guarantors			Non- Guarantors			Eliminations		Consolidated Advanced Materials LLC
Net cash (used in) provided by operating activities	$	(27.9	)	$	109.1		$	(78.7	)	$	—	$	2.5
Investing activities:
Capital expenditures		—			(3.8	)		(0.5	)		—		(4.3	)
Proceeds from sale of assets		—			0.1			1.6			—		1.7
Other		—			—			0.1			—		0.1

Net cash (used in) provided by investing activities		—			(3.7	)		1.2			—		(2.5	)

Financing activities:
Decrease in short-term debt, net		—			—			(0.3	)		—		(0.3	)
Net borrowings (repayments) of intercompany debt		22.9			(94.4	)		71.5			—		—

Net cash provided by (used in) financing activities		22.9			(94.4	)		71.2			—		(0.3	)

Effect of exchange rate changes on cash		—			(0.7	)		(1.5	)		—		(2.2	)

(Decrease) increase in cash and cash equivalents		(5.0	)		10.3			(7.8	)		—		(2.5	)
Cash and cash equivalents at beginning of period		9.8			45.8			17.6			—		73.2

Cash and cash equivalents at end of period	$	4.8		$	56.1		$	9.8		$	—	$	70.7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

Some of the statements contained in this report are forward-looking in nature. In some cases, you can identify forward-looking statements by terminology such as "believes," "expects," "may," "will," "should," "anticipates" or "intends" or the negative of such terms or other comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Some of the risks and uncertainties are discussed below in "—Cautionary Statement for Forward Looking Information" and elsewhere in this report.

Certain Defined Terms

For convenience in this report, the terms "Company," "our," "us" or "we" may be used to refer to Huntsman Advanced Materials LLC and, unless the context otherwise requires, its subsidiaries. In this report, "Vantico" or "Predecessor Company" refers to Vantico Group S.A. and, unless the context otherwise requires, its subsidiaries, and "Ciba" refers to Ciba Specialty Chemicals Holdings Inc.

Overview

We are a leading global manufacturer and marketer of technologically advanced epoxy, acrylic and polyurethane-based polymer products. We focus on formulations and systems that are used to address customer-specific needs in a wide variety of specialized industrial and consumer applications. Our products are used either as replacements for traditional materials such as metal, wood, clay, glass, stone and ceramics, or in applications where traditional materials do not meet demanding engineering specifications. Our business is characterized by the breadth of our product offering, our expertise in complex chemistry, our long-standing relationships with our customers and our ability to develop and adapt our technology and our applications expertise for new markets and new applications. We operate 13 facilities in North America, Europe, Asia, South America and Africa. During the first quarter of 2005, we restructured our marketing organization, reducing our total market groups from five to three. We currently market over 6,000 products to more than 5,000 customers in the following market groups: Coatings, Construction and Adhesives; Power and Electronics; Design and Composites Engineering, as described below. Our operations have one reportable business segment.

Coatings, Construction and Adhesives

We produce formulated polymer systems, additives, basic and advanced epoxy resin compounds to provide structural stability and broad application functionality, combined with overall economic efficiency, for a broad range of industrial coatings, construction and consumer applications. These products are used to make coatings for the protection of steel and concrete substrates, such as floorings, metal furniture and appliances, buildings, linings of storage tanks and food and beverage cans, and the primer coat of automobile bodies and ships, among other applications. We are a leading producer of basic liquid-epoxy resin and its basic derivatives, the building blocks for epoxy-based products in coating applications. In addition, we are a leading manufacturer of complex chemicals and additives, such as curing agents, matting agents, accelerators, cross-linkers, reactive diluents and thermoplastic polyamides, which are used in combination with epoxy resins to impart properties such as chemical and abrasion resistance and improved surface appearance.

We produce innovative formulated polymer systems used as industrial and consumer adhesives based upon epoxy, polyurethane, acrylic and other materials, primarily marketed under the Araldite® brand name. Our adhesives are used to bond materials such as steel, aluminum, and engineering plastics. The sales of our adhesive systems have experienced rapid growth due to the continued

substitution of adhesives for traditional joining techniques, such as welding and soldering, and the use of metal fasteners and clamps. We sell our adhesive products into industry-specific markets, the general industrial bonding market and the consumer do-it-yourself market. Our primary industry-specific markets are DVD, printing inks, engineering adhesives, and liquefied natural gas transport markets.

Power and Electronics

We produce formulated polymer systems based on epoxy and polyurethane resins which are used to insulate, protect or shield either the environment from electrical current or electrical devices from the environment, such as temperature or humidity. We primarily sell our electrical products to customers in the electric power generation, transmission and distribution, consumer and industrial electronics, automotive and appliance markets. We believe we have a leading market position globally in epoxy-based electrical insulating materials.

We produce liquid formulated polymer systems used in the manufacture of electrolaminates, soldermasks, inner layer resists and dielectric materials for printed circuit boards. Soldermasks are permanent coatings, resistant to heat, chemicals and the environment, that allow various components and circuitry to be soldered to the surface of a printed circuit board. Inner layer resists are temporary photo-imageable materials that enable the generation of circuitry on the inner layers of printed circuit boards. Dielectric materials are materials with electrical insulation properties that constitute an insulating layer in high-density, multi-layer printed circuit boards.

We also produce electronic adhesive products for printed circuit board component assembly, hard disk drive gaskets and LED applications.

Design and Composites Engineering

We produce formulated polymer systems, complex chemicals and additives and basic and advanced epoxy resin compounds which are used to manufacture a variety of fiber-reinforced materials with enhanced structural properties, known as structural composites. Structural composites are lightweight, high-strength, rigid materials with high resistance to chemicals, moisture and high temperatures. We primarily sell our products to customers in the aerospace, automotive, wind power generation, and recreational sports equipment markets.

We produce and market mainly polyurethane-based and epoxy formulated polymer systems used in the production of models, prototypes, patterns, molds and a variety of related products for design, prototyping and short-run manufacture. Our products are used in the automotive, aerospace and industrial markets as productivity tools to quickly and efficiently create accurate prototypes and develop experimental models, and to lower the cost of manufacturing items in limited quantities primarily using computer-aided-design techniques. These products are valued for their strength, resilience, heat resistance, dimensional stability, low shrinkage, ease of curing and ability to simulate the look and feel of a variety of materials. These characteristics have allowed our tooling and modeling materials to replace other materials traditionally used in these applications, such as wood, clay and engineering thermoplastics. Our products include photopolymers used in stereolithography, a process that combines computer-aided-design, laser technology and chemistry to permit a complex three-dimensional design to be rapidly replicated in finely-finished solid form.

Recent Developments

On June 13, 2005, we issued a notice of a partial redemption to redeem $50 million aggregate principal amount of the Floating Rate Notes. On July 15, 2005, we completed the partial redemption and paid call premiums in the amount of $2.5 million. Following this redemption, we have $50 million aggregate principal amount outstanding of Floating Rate Notes.

Results of Operations

The following sets forth the consolidated results of operations for the three and six months ended June 30, 2005 and 2004.

		Three Months Ended June 30,								Six Months Ended June 30,
		2005			2004			Percent Change		2005			2004			Percent Change
Revenues		$	310.5		$	287.6		8	%	$	622.0		$	572.3		9	%
Cost of goods sold			238.0			218.6		9	%		471.5			435.0		8	%

Gross profit			72.5			69.0		5	%		150.5			137.3		10	%
Expenses:
	Operating expenses		52.1			50.9		2	%		109.1			100.2		9	%

Operating income			20.4			18.1		13	%		41.4			37.1		12	%
Interest expense, net			(10.9	)		(10.7	)	2	%		(21.1	)		(20.9	)	1	%
Other income			0.6			—		NM			0.6			—		NM

Income before income taxes and minority interest			10.1			7.4		36	%		20.9			16.2		29	%
Income tax expense			(14.3	)		(1.7	)	741	%		(27.7	)		(11.7	)	137	%
Minority interests in subsidiaries' income			(0.3	)		—		NM			(0.5	)		(0.4	)	25	%

Net (loss) income			(4.5	)		5.7		NM			(7.3	)		4.1		NM
Interest expense, net			10.9			10.7		2	%		21.1			20.9		1	%
Income tax expense			14.3			1.7		741	%		27.7			11.7		137	%
Depreciation and amortization			11.7			13.6		(14	)%		23.9			28.5		(16	)%

EBITDA(1)		$	32.4		$	31.7		2	%	$	65.4		$	65.2		—

NM= Not Meaningful.

Included in EBITDA are the following items of (income) expense:

	Three Months Ended June 30,					Six Months Ended June 30,
	2005			2004		2005			2004
Legal and contract settlement charges	$	—		$	0.4	$	—		$	2.2
Restructuring and plant closing credits, net		(0.6	)		—		(0.6	)		—

Total items of (income) expense included in EBITDA	$	(0.6	)	$	0.4	$	(0.6	)	$	2.2

(1): EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. We believe that EBITDA enhances an investor's understanding of our financial performance and our ability to satisfy principal and interest obligations with respect to our indebtedness. However, EBITDA should not be considered in isolation or viewed as a substitute for net income, cash flow from operations or other measures of performance as defined by generally accepted accounting principles in the U.S. ("GAAP"). Moreover, EBITDA as used herein is not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the method of calculation. Our management uses EBITDA to assess financial performance and debt service capabilities. In assessing financial performance, our management reviews EBITDA as a general indicator of economic performance compared to prior

periods. Because EBITDA excludes interest, income taxes, depreciation and amortization, EBITDA provides an indicator of general economic performance that is not affected by debt restructurings, fluctuations in interest rates or effective tax rates, or levels of depreciation and amortization. Accordingly, our management believes this type of measurement is useful for comparing general operating performance from period to period and making certain related management decisions. EBITDA is also used by securities analysts, lenders and others in their evaluation of different companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company's capital structure, debt levels and credit ratings. Therefore, the impact of interest expense on earnings can vary significantly among companies. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies. Finally, companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets. This can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Our management also believes that our investors use EBITDA as a measure of our ability to service indebtedness as well as to fund capital expenditures and working capital requirements. Nevertheless, our management recognizes that there are material limitations associated with the use of EBITDA in the evaluation of our Company as compared to net income, which reflects overall financial performance, including the effects of interest, income taxes, depreciation and amortization. EBITDA excludes interest expense. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate revenue. Therefore, any measure that excludes interest expense has material limitations. EBITDA also excludes taxes. Because the payment of taxes is a necessary element of our operations, any measure that excludes tax expense has material limitations. Finally, EBITDA excludes depreciation and amortization expense. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue. Therefore, any measure that excludes depreciation and amortization expense has material limitations. Our management compensates for the limitations of using EBITDA by using it to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Our management also uses other metrics to evaluate capital structure, tax planning and capital investment decisions. For example, our management uses credit ratings and net debt ratios to evaluate capital structure, effective tax rate by jurisdiction to evaluate tax planning, and payback period and internal rate of return to evaluate capital investments. Our management also uses trade working capital to evaluate its investment in accounts receivable and inventory, net of accounts payable.

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

is most directly comparable to EBITDA. The following table reconciles EBITDA to our net income (loss) and to our cash provided by (used in) operations:

	Six Months Ended June 30, 2005			Six Months Ended June 30, 2004
EBITDA	$	65.4		$	65.2
Depreciation and amortization expense		(23.9	)		(28.5	)
Interest expense, net		(21.1	)		(20.9	)
Income tax expense		(27.7	)		(11.7	)

Net (loss) income		(7.3	)		4.1
Depreciation and amortization expense		23.9			28.5
Non-cash interest expense		1.5			1.4
Deferred income taxes		12.0			17.9
Unrealized loss on foreign currency transactions		15.9			7.3
Other, net		1.1			(0.6	)
Changes in operating assets and liabilities		(17.7	)		(56.1	)

Net cash provided by operating activities	$	29.4		$	2.5

Three months ended June 30, 2005 Compared to Three months ended June 30, 2004

Revenues for the three months ended June 30, 2005 increased by $22.9 million, or 8%, to $310.5 million from $287.6 million, as compared to the same period in 2004, primarily attributable to a 13% increase in average selling prices, with sales volumes down 4%. Average selling prices were higher due to price increase initiatives in certain markets in response to improved demand and higher raw material costs. Our ongoing portfolio re-alignment activities resulted in higher sales volumes in some of our markets, which were more than offset by lower sales volumes of basic epoxy resins in the coatings and construction markets and reduced volumes of electronic laminates products in Power and Electronics. By market group, our revenues are as follows:

• CCA (Coatings, Construction and Adhesives)		$165.4 million, up $22.7 million or 16%
• P&E (Power and Electronics)		$62.1 million, down $11.9 million or 16%
• DCE (Design and Composite Engineering)		$83.0 million, up $12.1 million or 17%

Gross profit for the three months ended June 30, 2005 increased by $3.5 million, or 5%, to $72.5 million from $69.0 million in the same period in 2004. The increase mainly resulted from stronger contribution margins in second quarter 2005. Margins improved on higher revenues, and improved product mix resulting from increased sales volumes of higher margin Adhesives, Power and Design and Composite Engineering applications, which more than offset higher raw material and manufacturing costs.

Operating expenses for the three months ended June 30, 2005 remained relatively constant and increased by $1.2 million, or 2%, as compared to the same period in 2004.

Income tax expense for the three months ended June 30, 2005 increased by $12.6 million, or 741%, to $14.3 million from $1.7 million in the same period in 2004. Increased income tax expense was primarily due to increases in pre-tax income. Substantially all of our non-U.S. operations are treated as branches of the Company for U.S. income tax purposes and are, therefore, subject to both U.S. and non-U.S. income tax. In addition, our tax obligations are affected by the mix of income and losses in the tax jurisdictions in which we operate. Tax expense increased significantly as a result of increased losses in jurisdictions where little or no tax benefit was provided and income in other jurisdictions where tax expense was recorded.

Our effective income tax rate was 142% for the three months ended June 30, 2005 as compared to 23% for the same period in 2004. Excluding the impact of foreign exchange losses of $9.2 million, for which we received no tax benefit, our effective income tax rate would have been 74% for the three months ended June 30, 2005. Tax expense above the U.S. statutory rate of 35% was primarily a result of losses in jurisdictions where no tax benefit was provided and income earned in non-U.S. jurisdictions subject to incremental U.S. tax.

Six months ended June 30, 2005 Compared to Six months ended June 30, 2004

Revenues for the six months ended June 30, 2005 increased by $49.7 million, or 9%, to $622.0 million from $572.3 million, as compared to the same period in 2004, primarily attributable to an 11% increase in average selling prices, with sales volumes down 2%. Average selling prices were higher due to price increase initiatives in certain markets in response to improved demand and higher raw material costs. Our ongoing portfolio re-alignment activities resulted in higher sales volumes in some of our markets, more than offset by lower sales volumes of basic epoxy resins in the coatings and construction markets and strongly reduced volumes of electronic laminates products in Power and Electronics. By market group, our revenues are as follows:

• CCA (Coatings, Construction and Adhesives)		$325.6 million, up $44.9 million or 16%
• P&E (Power and Electronics)		$126.8 million, down $20.1 million or 14%
• DCE (Design and Composite Engineering)		$169.6 million, up $24.9 million or 17%

Gross profit for the six months ended June 30, 2005 increased by $13.2 million, or 10%, to $150.5 million from $137.3 million in the same period in 2004. The increase mainly resulted from stronger contribution margins in the 2005 period. Margins improved on higher revenues, and improved product mix resulting from increased sales volumes of higher margin Adhesives, Power and Design and Composite Engineering applications, which more than offset higher raw material and manufacturing costs.

Operating expenses for the six months ended June 30, 2005 increased by $8.9 million, or 9%, as compared to the same period in 2004, $17.6 million as a result of foreign currency exchange losses, partially offset by our cost reduction initiatives.

Income tax expense for the six months ended June 30, 2005 increased by $16.0 million, or 137%, to $27.7 million from $11.7 million in the same period in 2004. Increased income tax expense was primarily due to increases in pre-tax income. Substantially all of our non-U.S. operations are treated as branches of the Company for U.S. income tax purposes and are, therefore, subject to both U.S. and non-U.S. income tax. In addition, our tax obligations are affected by the mix of income and losses in the tax jurisdictions in which we operate. Tax expense increased significantly as a result of increased losses in jurisdictions where little or no tax benefit was provided and income in other jurisdictions where tax expense was recorded.

Our effective income tax rate was 133% for the six months ended June 30, 2005 as compared to 72% for the same period in 2004. Excluding the impact of foreign exchange losses of $22.1 million, which did not provide a benefit for tax purposes, our effective income tax rate would have been 64% for the six months ended June 30, 2005. Tax expense above the U.S. statutory rate of 35% was primarily a result of losses in jurisdictions where no tax benefit was provided and income earned in non-U.S. jurisdictions is subject to incremental U.S. tax.

Liquidity and Capital Resources

Cash

Net cash provided by operating activities for the six months ended June 30, 2005 was $29.4 million as compared to $2.5 million during the comparable period in 2004. The increase of $26.9 million in cash flow from operating activities during the 2005 period was primarily attributable to a net decrease in changes in operating assets and liabilities of $38.4 million and a favorable variance in adjustments to reconcile net income (loss) to net cash from operating activities attributed to unrealized loss on foreign currency transactions of $8.6 million, which was partially offset by a decrease in net income of $11.4 million and an unfavorable variance in deferred income taxes of $5.9 million.

Net cash used in investing activities for the six months ended June 30, 2005 was $10.6 million as compared to $2.5 million used in investing activities during the comparable period in 2004. Capital expenditures increased $6.8 million from $4.3 million in the six months ended June 30, 2004 to $11.1 million in the comparable period in 2005 largely due to increased capital spending on projects associated with our restructuring activities.

Net cash used in financing activities for the six months ended June 30, 2005 was $0.6 million as compared to $0.3 million during the comparable period in 2004.

Changes in Financial Condition

The following information summarizes our working capital position as of June 30, 2005 and December 31, 2004 (dollars in millions):

			June 30, 2005		December 31, 2004		Difference			Percentage Change
Current assets:
	Cash and cash equivalents		$	111.3	$	93.8	$	17.5		19	%
	Accounts receivable, net			227.9		235.1		(7.2	)	(3	)%
	Inventories, net			195.8		179.5		16.3		9	%
	Deferred income taxes			1.1		1.0		0.1		10	%
	Other current assets			9.2		13.4		(4.2	)	(31	)%

		Total current assets		545.3		522.8		22.5		4	%

Current liabilities:
	Accounts payable			95.7		82.9		12.8		15	%
	Accrued liabilities			111.7		113.5		(1.8	)	(2	)%
	Deferred income taxes			6.1		6.3		(0.2	)	(3	)%
	Short-term debt			51.4		1.7		49.7		NM

		Total current liabilities		264.9		204.4		60.5		30	%

Working capital			$	280.4	$	318.4	$	(38.0	)	(12	)%

NM = Not Meaningful.

As of June 30, 2005, our working capital decreased by $38.0 million as a result of the net impact of the following significant changes:

•: The increase in cash and cash equivalents of $17.5 million was mainly due to matters identified in the Condensed Consolidated Statements of Cash Flows contained elsewhere in this report.
•: The decrease in accounts receivable, net of $7.2 million was largely attributable to improved accounts receivable collections management during the six months ended June 30, 2005.
•: The increase in inventories, net of $16.3 million was mainly due to increased raw material and energy costs, and higher inventories in certain locations in anticipation of our ongoing restructuring activities.
•: The increase in accounts payable of $12.8 million was mainly due to increased raw materials and energy costs.
•: The increase in short-term debt of $49.7 million was principally a result of the current classification of the $50 million of Floating Rate Notes partially redeemed on July 15, 2005.

Debt and Liquidity

AdMat Revolving Credit Facility

On June 17, 2005, we amended the AdMat Revolving Credit Facility. This amendment included, among other things, the extension of the facility's maturity date from June 30, 2007 to July 15, 2007, the reduction in interest rate margins and the elimination of pledges of capital stock in subsidiaries as collateral under the facility. Interest rates, at our option, are based upon either a eurocurrency rate (LIBOR) or a base rate (prime), plus an applicable spread. The applicable spreads vary based on a pricing grid. In the case of the eurocurrency-based loans, spreads range from 1.25% to 1.5% per annum, depending on whether specified conditions have been satisfied, and, in the case of base rate loans, from 0.25% to 0.5% per annum. As of June 30, 2005, we had no amounts drawn on the AdMat Revolving Credit Facility and had approximately $4.0 million of letters of credit issued and outstanding under the AdMat Revolving Credit Facility. The AdMat Revolving Credit Facility allows us to borrow up to $20 million secured by letters of credit; however, the $60 million revolving credit facility is reduced dollar-for-dollar by any letters of credit outstanding. There are no scheduled debt amortization payments on the AdMat Revolving Credit Facility prior to its maturity date.

Senior Secured Notes

In connection with the AdMat Transaction, on June 30, 2003, we issued $250 million of Fixed Rate Notes due 2010 and $100 million of Floating Rate Notes due 2008, (collectively, the "Senior Secured Notes"). The $250 million Fixed Rate Notes bear a per annum fixed rate of interest of 11%, and the Floating Rate Notes bear interest at a rate per annum equal to LIBOR plus 8.0%, subject to a floor with respect to LIBOR of 2.0%. As of June 30, 2005, the interest rate on the Floating Rate Notes was approximately 10.9%. Interest on the Floating Rate Notes resets semiannually. The $100 million Floating Rate Notes were issued with an original issue discount of 2.0%, or for $98 million. The $2 million discount is being amortized to interest expense over the term of the Floating Rate Notes. Interest is payable on the Senior Secured Notes semiannually on January 15 and July 15 of each year. The effective interest rate on the Floating Rate Notes was approximately 11.1% as of June 30, 2005.

AdMat Guarantors and are also supported by liens on substantially all of the assets of the AdMat Guarantors.

The Fixed Rate Notes are redeemable on or after July 15, 2007 at our option at a price declining ratably from 105.5% to 100.0% of par value by the year 2009. The Floating Rate Notes are redeemable on or after July 15, 2005 at our option at a price declining ratably from 105.0% to 100.0% of par value by the year 2007. On June 13, 2005, we issued a notice of partial redemption to redeem $50 million aggregate principal amount of the Floating Rate Notes. On July 15, 2005, we completed the partial redemption and paid call premiums in the amount of $2.5 million. Accordingly, we have classified the $50 million redemption amount as current in the balance sheet as of June 30, 2005. Following this redemption, we have $50 million aggregate principal amount outstanding on the Floating Rate Notes. At any time prior to July 15, 2007 for the Fixed Rate Notes and July 15, 2005 for the Floating Rate Notes, we may redeem all or part of such notes at 100% of their principal amount, plus a "make whole" premium, as defined in the indenture. In addition, at any time prior to July 15, 2006 for the Fixed Rate Notes and July 15, 2005 for the Floating Rate Notes, we may redeem up to 35% of the original aggregate principal amount of the Senior Secured Notes at a redemption price of 111% of the principal thereof with the net cash proceeds of one or more qualified equity offerings, subject to certain conditions and limitations. There are no scheduled debt amortization payments on the Senior Secured Notes until their maturity date.

The indenture governing the Senior Secured Notes contains covenants relating to the incurrence of debt, limitations on distributions, asset sales and affiliate transactions, among other things. The indenture also contains a change of control provision requiring us to offer to repurchase the Senior Secured Notes upon a change of control. Management believes that we were in compliance with the covenants of the indenture as of June 30, 2005.

Short-Term and Long-Term Liquidity; Compliance with Covenants

As of June 30, 2005, we had $167.3 million of cash and unused borrowing capacity, including $111.3 million of cash and $56.0 million in undrawn commitments on the AdMat Revolving Credit Facility. As noted above, on July 15, 2005, we used $52.5 million of our available cash to partially redeem $50 million aggregate principal amount of our Floating Rate Notes, including call premiums. We believe our current available liquidity, together with funds generated by our businesses, will be sufficient to meet the short-term and long-term needs of our businesses, including the funding of our operations and capital expenditures and the servicing of our debt obligations in the ordinary course. We believe that we are currently in compliance with the covenants contained in our credit agreements and the indentures governing our notes.

Off-Balance Sheet Arrangements

We issue certain letters of credit and guarantees of certain short-term debt facilities and other obligations for some of our consolidated subsidiaries. The maximum exposure under these letters of credit and guarantees is approximately $4.0 million as of June 30, 2005. We do not expect any material amounts to be drawn on these instruments.

Other than certain operating leases that are not material and the letter of credit arrangements noted above, all of which have been entered into in the normal course of business, we do not have any off-balance sheet financing arrangements such as synthetic leases or securitization agreements. As such, we believe that we are not materially exposed to any financing, liquidity, market or credit risk that may arise if we had engaged in such financing agreements.

Restructuring and Plant Closing Costs

During the second quarter of 2005, we assessed the remaining restructuring reserves established in association with the AdMat Transaction and the 2004 initiatives described above and concluded that $5.3 million and $0.8 million respectively were no longer necessary. Accordingly, we reversed these restructuring reserves during the second quarter of 2005. The AdMat Transaction reserve reversal was recorded as a reduction to property, plant and equipment in accordance with EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The reversal of the restructuring reserve for the other 2004 initiatives was recorded as a credit to earnings. Also during the second quarter of 2005, we recorded restructuring and plant closing charges of $0.2 million for relocation and other costs.

During the six months ended June 30, 2005, activity in our restructuring reserves consisted of the following (dollars in millions):

		Workforce Reductions			Plant Closure Costs			Other			Total
Accrued liability as of January 1, 2005		$	28.1		$	1.1		$	3.8		$	33.0
	Payments—AdMat Transaction opening balance sheet initiatives		(5.6	)		(0.2	)		(1.1	)		(6.9	)
	Payments—2004 initiatives		(5.7	)		—			(0.2	)		(5.9	)
	Partial reversal of AdMat Transaction opening balance sheet liability		(3.7	)		(0.8	)		(0.8	)		(5.3	)
	Partial reversal of 2004 initiative liability		(0.8	)		—			—			(0.8	)
	2005 charges for 2005 initiatives		—			—			0.2			0.2
	Impact of foreign currency translation		(1.2	)		—			(0.4	)		(1.6	)

Accrued liability as of June 30, 2005		$	11.1		$	0.1		$	1.5		$	12.7

Capital Expenditures

Capital expenditures for the six months ended June 30, 2005 were $11.1 million. We expect to spend approximately $37 million in 2005 on capital expenditures, including approximately $20 million in capital projects associated with our restructuring efforts.

Environmental, Health and Safety Matters

General

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

EHS Capital Expenditures

Governmental Enforcement Proceedings

Our subsidiary Huntsman Advanced Materials (U.K.) Ltd appeared at a hearing before the Cambridge Magistrates Court in the U.K in July 2005 with regard to charges filed following an investigation by the U.K. Health and Safety Executive. The charges arose from alleged failures to follow applicable regulations for the management of asbestos contamination caused by construction activity at the Duxford, U.K. Advanced Materials facility between November 2002 and January 2003. Huntsman Advanced Materials (UK) Ltd was fined £20,000 ($36,000 at the June 30, 2005 exchange rate) for allegedly violating Section 2 of the Health and Safety at Work Act and £5,000 ($9,000) for allegedly violating Regulation 11 of the Construction (Design and Management) Regulations. We were also ordered to pay £8,500 ($15,000) towards prosecutions costs. All other charges were withdrawn and the penalty has been paid.

Remediation Liabilities

Regulatory Developments

In October 2003, the European Commission adopted a proposal for a new EU regulatory framework for chemicals. Under this proposed new system called "REACH" (Registration, Evaluation and Authorization of Chemicals), companies that manufacture or import more than one ton of a chemical substance per year would be required to register such manufacture or import in a central database. The REACH initiative, as proposed, would require risk assessment of chemicals, preparations (e.g., soaps and paints) and articles (e.g., consumer products) before those materials could be manufactured or imported into EU countries. Where warranted by a risk assessment, hazardous substances would require authorizations for their use. This regulation could impose risk control strategies that would require capital expenditures by us. As proposed, REACH would take effect in three primary stages over the eleven years following the final effective date (assuming final approval). The impacts of REACH on the chemical industry and on us are unclear at this time because the parameters of the program are still being actively debated.

Recently Issued Accounting Pronouncements

to clarify certain complexities. We adopted this financial interpretation on January 1, 2005. The adoption of the standard had no impact on the financial statements.

unless specific transition provisions are proscribed in the accounting pronouncements. SFAS No. 154 does not change the accounting guidance for reporting a correction of an error in previously issued financial statements or a change in accounting estimate. SFAS No. 154 is effective for accounting changes and error corrections made after December 31, 2005. We will apply this standard prospectively.

Critical Accounting Policies

There have been no changes in the six months ended June 30, 2005 with respect to our critical accounting policies as presented in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Registration Statement on Form S-4 filed with the SEC on April 5, 2005 (File No. 333-115344).

Cautionary Statement for Forward-Looking Information

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

All forward-looking statements, including without limitation, management's examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

There are a number of risks and uncertainties, including those discussed elsewhere in this report, that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of all such factors and the risks specified in our Registration Statement on Form S-4 filed with the SEC on April 5, 2005 (File No. 333-115344).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including changes in currency exchange rates, interest rates and certain commodity prices. To manage the volatility relating to these exposures, from time to time, we enter into various derivative transactions. We hold and issue derivative financial instruments for economic hedging purposes only.

Currency Exchange Rates

Our cash flows and earnings are subject to fluctuations due to exchange rate variation. Our sales prices are typically denominated in euros or U.S. dollars. From time to time, we may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. Short-term exposures to changing foreign currency exchange rates at certain foreign subsidiaries are generally netted where practicable with exposures of other subsidiaries and the remaining exposures that, from time to time, may be managed through financial market transactions, principally through the purchase of spot or forward foreign exchange contracts (with maturities of nine months or less) with

various financial institutions, to reflect the currency denomination of our cash flows. We do not hedge our currency exposures in a manner that would entirely eliminate the effect of changes in exchange rates on our cash flows and earnings. As of June 30, 2005, we had an outstanding forward foreign exchange contract, entered into on June 15, 2005, to sell €12 million and purchase $14.5 million on July 13, 2005.

We finance certain of our non-U.S. subsidiaries with intercompany loans. In some cases, these loans are denominated in currencies other than the subsidiaries' functional currency. Foreign currency transaction gains and losses on intercompany loans that are expected to be repaid in the foreseeable future are recorded in earnings. Foreign currency transaction gains and losses on intercompany loans that are not expected to be repaid in the foreseeable future ("Permanent Loans") are recorded in other comprehensive income. As a result of our review of certain of our intercompany loans in the first half of 2005, we have increased the amount of our Permanent Loans. We expect that this will result in less foreign currency transaction gains and losses reflected in earnings.

Interest Rates

As of June 30, 2005, we had outstanding $250 million aggregate principal amount of 11% Fixed Rate Notes due 2010 and we have $100 million aggregate principal amount (issued with an original issue discount of 2%, or for $98 million) of Floating Rate Notes due 2008 that bear an annual interest rate equal to LIBOR plus 8%, with a LIBOR floor of 2%. The undrawn AdMat Revolving Credit Facility due in 2007 is subject to variable rates of interest based upon either a eurocurrency rate (LIBOR) or a base rate (prime), plus an applicable spread. As of June 30, 2005, except for the cross-currency interest rate swap discussed below, we had not entered into any interest rate agreements and we do not hedge our interest rate exposure in a manner that would eliminate the effects of changes in market interest rates on our cash flow and earnings. Prior to the July 15, 2005 partial redemption of $50 million of the Floating Rate Notes, assuming a 1.0% (100 basis points) increase in interest rates, the effect on the annual interest expense relative to the Floating Rate Notes would be an increase of approximately $1 million.

On June 1, 2005, we entered into a cross-currency interest rate swap. The cross-currency swap requires us to pay euros and receive U.S. dollars on the maturity date of July 15, 2007. The U.S. dollar notional amount is $31.3 million and bears interest at a fixed rate of 11.0%, payable semiannually on January 15 and July 15. The euro notional amount is €25.0 million and bears interest at a fixed rate of approximately 9.4%, payable semiannually on January 15 and July 15. The swap is not designated as a hedge for reporting purposes and is recorded at fair value. As of June 30, 2005, the fair value gain of $1.1 million was recorded as in other noncurrent assets and as a decrease in other operating expenses for both the three and six months ended June 30, 2005.

As of June 30, 2005, the estimated fair value of our consolidated debt was approximately $388.7 million, and the weighted average interest rate of our combined borrowings was approximately 10.9%.

Commodity Prices

We do not hedge our commodity exposure in a manner that would entirely eliminate the effects of changes in commodity prices on our cash flows and earnings. At June 30, 2005, we had no outstanding forward purchase contracts. For further information regarding our financial and debt instruments, see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Debt and Liquidity."

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2005. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30, 2005, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

No changes to our internal control over financial reporting occurred during the three months ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Huntsman Corporation and its subsidiaries, including our Company, have engaged Ernst & Young LLP to assist management in its evaluation of our internal controls in preparation for the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our "internal control over financial reporting" that will be required when the SEC's rules under Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning with our Annual Report on Form 10-K for the year ending December 31, 2006 to be filed in the first quarter of 2007. We cannot give any assurance, however, that our internal controls will be effective when Section 404 becomes applicable to us. Ineffective internal controls could cause investors to lose confidence in our reported financial information and could result in a lower trading price for our securities.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

results of operations or liquidity. See "Part I Financial Information, Item 1. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 15 —Environmental, Health and Safety Matters" for a discussion of environmental proceedings.

ITEM 6. EXHIBITS

10.1		First Amendment to Credit Agreement, dated as of June 17, 2005, among Huntsman Advanced Materials LLC, the financial institutions signatory thereto, including Deutsche Bank AG New York Branch, in their capacities as lenders thereunder, Deutsche Bank AG New York Branch, as administrative agent for the lenders, Deutsche Bank Securities Inc., as lead arranger, and UBS Securities LLC, as syndication agent (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Huntsman Advanced Materials LLC filed June 20, 2005)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 10, 2005

		HUNTSMAN ADVANCED MATERIALS LLC
		By:	/s/ J. KIMO ESPLIN J. Kimo Esplin Executive Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial Officer)
		By:	/s/ L. RUSSELL HEALY L. Russell Healy Vice President and Controller (Authorized Signatory and Principal Accounting Officer)

EXHIBIT INDEX

Number		Description
10.1		First Amendment to Credit Agreement, dated as of June 17, 2005, among Huntsman Advanced Materials LLC, the financial institutions signatory thereto, including Deutsche Bank AG New York Branch, in their capacities as lenders thereunder, Deutsche Bank AG New York Branch, as administrative agent for the lenders, Deutsche Bank Securities Inc., as lead arranger, and UBS Securities LLC, as syndication agent (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Huntsman Advanced Materials LLC filed June 20, 2005)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Huntsman Advanced Materials LLC 10-Q