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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)    

ý

 

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

For the quarterly period ended September 30, 2012

OR

o

 

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

For the transition period from                                to                               

 

Commission
File Number
  Exact Name of Registrant as Specified in its Charter,
Principal Office Address and Telephone Number
  State of Incorporation
or Organization
  I.R.S. Employer
Identification No.
 
 

001-32427

  Huntsman Corporation
500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700
  Delaware     42-1648585  
 

333-85141

 

Huntsman International LLC
500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700

 

Delaware

   
87-0630358
 



         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Huntsman Corporation

  YES ý   NO o

Huntsman International LLC

  YES ý   NO o

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

Huntsman Corporation

  YES ý   NO o

Huntsman International LLC

  YES ý   NO o

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

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

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

Huntsman Corporation

  YES o   NO ý

Huntsman International LLC

  YES o   NO ý



         On October 23, 2012, 239,536,429 shares of common stock of Huntsman Corporation were outstanding and 2,728 units of membership interests of Huntsman International LLC were outstanding. There is no trading market for Huntsman International LLC's units of membership interests. All of Huntsman International LLC's units of membership interests are held by Huntsman Corporation.



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

   


Table of Contents


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

TABLE OF CONTENTS

        

 
   
  Page  

PART I

 

FINANCIAL INFORMATION

    3  

ITEM 1.

 

Financial Statements:

       

 

Huntsman Corporation and Subsidiaries:

     

 

Condensed Consolidated Balance Sheets (Unaudited)

    3  

 

Condensed Consolidated Statements of Operations (Unaudited)

    4  

 

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

    5  

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

    6  

 

Condensed Consolidated Statements of Equity (Unaudited)

    8  

 

Huntsman International LLC and Subsidiaries:

     

 

Condensed Consolidated Balance Sheets (Unaudited)

    9  

 

Condensed Consolidated Statements of Operations (Unaudited)

    10  

 

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

    11  

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

    12  

 

Condensed Consolidated Statements of Equity (Unaudited)

    14  

 

Huntsman Corporation and Subsidiaries and Huntsman International LLC and Subsidiaries:

     

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

    15  

ITEM 2.

 

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

    70  

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    93  

ITEM 4.

 

Controls and Procedures

    95  

PART II

 

OTHER INFORMATION

    95  

ITEM 1.

 

Legal Proceedings

    95  

ITEM 1A.

 

Risk Factors

    96  

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    96  

ITEM 6.

 

Exhibits

    96  

2


Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

 
  September 30,
2012
  December 31,
2011
 

ASSETS

             

Current assets:

             

Cash and cash equivalents(a)

  $ 435   $ 554  

Restricted cash(a)

    9     8  

Accounts and notes receivable (net of allowance for doubtful accounts of $46, each), ($592 and $659 pledged as collateral, respectively)(a)

    1,626     1,529  

Accounts receivable from affiliates

    27     5  

Inventories(a)

    1,807     1,539  

Prepaid expenses

    64     46  

Deferred income taxes

    40     20  

Other current assets(a)

    234     245  
           

Total current assets

    4,242     3,946  

Property, plant and equipment, net(a)

    3,626     3,622  

Investment in unconsolidated affiliates

    223     202  

Intangible assets, net(a)

    74     91  

Goodwill

    107     114  

Deferred income taxes

    190     195  

Notes receivable from affiliates

    2     5  

Other noncurrent assets(a)

    482     482  
           

Total assets

  $ 8,946   $ 8,657  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             

Accounts payable(a)

  $ 1,017   $ 862  

Accounts payable to affiliates

    40     50  

Accrued liabilities(a)

    690     695  

Deferred income taxes

    28     7  

Current portion of debt(a)

    130     212  
           

Total current liabilities

    1,905     1,826  

Long-term debt(a)

    3,550     3,730  

Notes payable to affiliates

    3     4  

Deferred income taxes

    362     309  

Other noncurrent liabilities(a)

    910     1,012  
           

Total liabilities

    6,730     6,881  

Commitments and contingencies (Notes 13 and 14)

             

Equity

             

Huntsman Corporation stockholders' equity:

             

Common stock $0.01 par value, 1,200,000,000 shares authorized, 243,579,955 and 241,836,001 issued and 238,027,939 and 235,746,087 outstanding in 2012 and 2011, respectively

    2     2  

Additional paid-in capital

    3,260     3,228  

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

    (50 )   (50 )

Unearned stock-based compensation

    (14 )   (12 )

Accumulated deficit

    (623 )   (947 )

Accumulated other comprehensive loss

    (483 )   (559 )
           

Total Huntsman Corporation stockholders' equity

    2,092     1,662  

Noncontrolling interests in subsidiaries

    124     114  
           

Total equity

    2,216     1,776  
           

Total liabilities and equity

  $ 8,946   $ 8,657  
           

(a)
At September 30, 2012 and December 31, 2011, respectively, $31 and $44 of cash and cash equivalents, $9 and $2 of restricted cash, $40 and $29 of accounts and notes receivable (net), $42 and $47 of inventories, $1 each of other current assets, $382 and $403 of property, plant and equipment (net), $20 and $23 of intangible assets (net), $27 and $21 of other noncurrent assets, $63 and $55 of accounts payable, $25 and $21 of accrued liabilities, $25 and $16 of current portion of debt, $241 and $264 of long-term debt, and $72 and $111 of other noncurrent liabilities from consolidated variable interest entities are included in the respective balance sheet captions above. See "Note 5. Variable Interest Entities."

   

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

3


Table of Contents


HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in Millions, Except Per Share Amounts)

 
  Three months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Revenues:

                         

Trade sales, services and fees, net

  $ 2,691   $ 2,923   $ 8,406   $ 8,445  

Related party sales

    50     53     162     144  
                   

Total revenues

    2,741     2,976     8,568     8,589  

Cost of goods sold

    2,204     2,486     6,954     7,138  
                   

Gross profit

    537     490     1,614     1,451  

Operating expenses:

                         

Selling, general and administrative

    220     217     673     691  

Research and development

    35     42     112     123  

Other operating (income) expense

        (1 )   7     7  

Restructuring, impairment and plant closing costs

    47     155     52     171  
                   

Total expenses

    302     413     844     992  
                   

Operating income

    235     77     770     459  

Interest expense, net

    (56 )   (63 )   (172 )   (187 )

Equity in income of investment in unconsolidated affiliates

    2     2     5     6  

Loss on early extinguishment of debt

    (1 )   (2 )   (2 )   (5 )

Other income (expense)

    1     (1 )   2      
                   

Income from continuing operations before income taxes

    181     13     603     273  

Income tax expense

    (61 )   (55 )   (186 )   (111 )
                   

Income (loss) from continuing operations

    120     (42 )   417     162  

(Loss) income from discontinued operations, net of tax

    (1 )   10     (7 )   (5 )
                   

Income (loss) before extraordinary gain

    119     (32 )   410     157  

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

    1         1     2  
                   

Net income (loss)

    120     (32 )   411     159  

Net income attributable to noncontrolling interests

    (4 )   (2 )   (8 )   (17 )
                   

Net income (loss) attributable to Huntsman Corporation

  $ 116   $ (34 ) $ 403   $ 142  
                   

Basic income (loss) per share:

                         

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

  $ 0.49   $ (0.19 ) $ 1.72   $ 0.61  

Income (loss) from discontinued operations attributable to Huntsman Corporation common stockholders, net of tax

        0.05     (0.02 )   (0.02 )

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

                0.01  
                   

Net income (loss) attributable to Huntsman Corporation common stockholders

  $ 0.49   $ (0.14 ) $ 1.70   $ 0.60  
                   

Weighted average shares

    237.9     237.6     237.4     238.2  
                   

Diluted income (loss) per share:

                         

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

  $ 0.48   $ (0.19 ) $ 1.70   $ 0.60  

Income (loss) from discontinued operations attributable to Huntsman Corporation common stockholders, net of tax

        0.05     (0.02 )   (0.02 )

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

                0.01  
                   

Net income (loss) attributable to Huntsman Corporation common stockholders

  $ 0.48   $ (0.14 ) $ 1.68   $ 0.59  
                   

Weighted average shares

    240.8     237.6     240.3     242.6  
                   

Amounts attributable to Huntsman Corporation common stockholders:

                         

Income (loss) from continuing operations

  $ 116   $ (44 ) $ 409   $ 145  

(Loss) income from discontinued operations, net of tax

    (1 )   10     (7 )   (5 )

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

    1         1     2  
                   

Net income (loss)

  $ 116   $ (34 ) $ 403   $ 142  
                   

Dividends per share

  $ 0.10   $ 0.10   $ 0.30   $ 0.30  
                   

   

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

4


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HUNTSMAN CORPORATION AND SUBSIDIARIES

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

(Dollars in Millions)

 
  Three months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Net income (loss)

  $ 120   $ (32 ) $ 411   $ 159  

Other comprehensive income (loss), net of tax:

                         

Foreign currency translations adjustments

    94     (117 )   25     30  

Pension and other postretirement benefits adjustments

    14     (78 )   55     (70 )

Other, net

            (2 )   1  
                   

Other comprehensive income (loss)

    108     (195 )   78     (39 )
                   

Comprehensive income (loss)

    228     (227 )   489     120  

Comprehensive income attributable to noncontrolling interests

    (6 )   (2 )   (10 )   (18 )
                   

Comprehensive income (loss) attributable to Huntsman Corporation

  $ 222   $ (229 ) $ 479   $ 102  
                   

   

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

5


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HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 
  Nine months
ended
September 30,
 
 
  2012   2011  

Operating Activities:

             

Net income

  $ 411   $ 159  

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

             

Gain on the consolidation of a variable interest entity

        (12 )

Loss on the consolidation of a business

    4      

Equity in income of investment in unconsolidated affiliates

    (5 )   (6 )

Depreciation and amortization

    324     327  

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

    2     (5 )

Loss on early extinguishment of debt

    2     5  

Noncash interest expense

    27     28  

Noncash restructuring and impairment charges

    10     53  

Deferred income taxes

    47     (4 )

Noncash loss (gain) on foreign currency transactions

    9     (15 )

Stock-based compensation

    21     19  

Other, net

    3      

Changes in operating assets and liabilities:

             

Accounts and notes receivable

    (102 )   (314 )

Inventories

    (252 )   (273 )

Prepaid expenses

    (17 )   (15 )

Other current assets

    12     (150 )

Other noncurrent assets

    (8 )   20  

Accounts payable

    122     81  

Accrued liabilities

    15     123  

Other noncurrent liabilities

    (69 )   4  
           

Net cash provided by operating activities

    556     25  
           

Investing Activities:

             

Capital expenditures

    (248 )   (217 )

Proceeds from settlements treated as reimbursement of capital expenditures

        3  

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

        28  

Cash paid for acquisition of a business

    (18 )   (23 )

Proceeds from sale of business/assets

        7  

Investment in unconsolidated affiliates

    (84 )   (17 )

Cash received from unconsolidated affiliates

    51     19  

Increase in restricted cash

    (2 )    

Other, net

    2      
           

Net cash used in investing activities

    (299 )   (200 )
           

   

(Continued)

6


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HUNTSMAN CORPORATION AND SUBSIDIARIES

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

(Dollars in Millions)

 
  Nine months
ended
September 30,
 
 
  2012   2011  

Financing Activities:

             

Net repayments under revolving loan facilities

  $ (16 ) $  

Net borrowings on overdraft facilities

    2     10  

Repayments of short-term debt

    (40 )   (151 )

Borrowings on short-term debt

        126  

Repayments of long-term debt

    (242 )   (287 )

Proceeds from issuance of long-term debt

    3     89  

Repayments of notes payable

    (33 )   (24 )

Borrowings on notes payable

    34     35  

Debt issuance costs paid

    (4 )   (7 )

Call premiums related to early extinguishment of debt

    (2 )   (5 )

Dividends paid to common stockholders

    (72 )   (72 )

Dividends paid to noncontrolling interest

        (5 )

Repurchase and cancellation of stock awards

    (7 )   (9 )

Repurchase of common stock

        (50 )

Proceeds from issuance of common stock

    2     4  

Excess tax benefit related to stock-based compensation

    4     10  

Other, net

    (7 )   1  
           

Net cash used in financing activities

    (378 )   (335 )
           

Effect of exchange rate changes on cash

    2     (3 )
           

Decrease in cash and cash equivalents

    (119 )   (513 )

Cash and cash equivalents at beginning of period

    554     966  
           

Cash and cash equivalents at end of period

  $ 435   $ 453  
           

Supplemental cash flow information:

             

Cash paid for interest

  $ 177   $ 178  

Cash paid for income taxes

    153     84  

        During the nine months ended September 30, 2012 and 2011, the amount of capital expenditures in accounts payable decreased by $1 million and $12 million, respectively.

   

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

7


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HUNTSMAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Dollars in Millions)

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

Balance, January 1, 2012

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

Net income

                        403         8     411  

Other comprehensive income

                            76     2     78  

Issuance of nonvested stock awards

            12         (12 )                

Vesting of stock awards

    2,155,549         10                         10  

Recognition of stock-based compensation

            6         10                 16  

Repurchase and cancellation of stock awards

    (534,996 )                   (7 )           (7 )

Stock options exercised

    661,299         2                         2  

Excess tax benefit related to stock-based compensation

            4                         4  

Dividends paid on common stock

                        (72 )           (72 )

Acquisition of a business

            (2 )                       (2 )
                                       

Balance, September 30, 2012

    238,027,939   $ 2   $ 3,260   $ (50 ) $ (14 ) $ (623 ) $ (483 ) $ 124   $ 2,216  
                                       

Balance, January 1, 2011

   
236,799,455
 
$

2
 
$

3,186
 
$

 
$

(11

)

$

(1,090

)

$

(297

)

$

60
 
$

1,850
 

Net income

                        142         17     159  

Dividends paid to noncontrolling interest

                                (5 )   (5 )

Other comprehensive (loss) income

                            (40 )   1     (39 )

Consolidation of a variable interest entity

                                61     61  

Issuance of nonvested stock awards

            11         (11 )                

Vesting of stock awards

    2,222,925         13                         13  

Recognition of stock-based compensation

            4         8                 12  

Repurchase of common stock

    (4,043,526 )           (50 )                   (50 )

Repurchase and cancellation of stock awards

    (505,517 )                   (9 )           (9 )

Stock options exercised

    1,246,936         4                         4  

Excess tax benefit related to stock-based compensation

            10                         10  

Dividends paid on common stock

                        (72 )           (72 )
                                       

Balance, September 30, 2011

    235,720,273   $ 2   $ 3,228   $ (50 ) $ (14 ) $ (1,029 ) $ (337 ) $ 134   $ 1,934  
                                       

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

8


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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions)

 
  September 30,
2012
  December 31,
2011
 

ASSETS

             

Current assets:

             

Cash and cash equivalents(a)

  $ 271   $ 231  

Restricted cash(a)

    9     8  

Accounts and notes receivable (net of allowance for doubtful accounts of $46, each), ($592 and $659 pledged as collateral, respectively)(a)

    1,626     1,529  

Accounts receivable from affiliates

    263     148  

Inventories(a)

    1,807     1,539  

Prepaid expenses

    63     46  

Deferred income taxes

    40     40  

Other current assets(a)

    234     220  
           

Total current assets

    4,313     3,761  

Property, plant and equipment, net(a)

    3,531     3,510  

Investment in unconsolidated affiliates

    223     202  

Intangible assets, net(a)

    75     93  

Goodwill

    107     114  

Deferred income taxes

    190     163  

Notes receivable from affiliates

    2     5  

Other noncurrent assets(a)

    484     482  
           

Total assets

  $ 8,925   $ 8,330  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             

Accounts payable(a)

  $ 1,017   $ 862  

Accounts payable to affiliates

    51     64  

Accrued liabilities(a)

    718     694  

Deferred income taxes

    29     29  

Note payable to affiliate

    100     100  

Current portion of debt(a)

    130     212  
           

Total current liabilities

    2,045     1,961  

Long-term debt(a)

    3,550     3,730  

Notes payable to affiliates

    610     439  

Deferred income taxes

    272     106  

Other noncurrent liabilities(a)

    907     1,003  
           

Total liabilities

    7,384     7,239  

Commitments and contingencies (Notes 13 and 14)

             

Equity

             

Huntsman International LLC members' equity:

             

Members' equity, 2,728 units issued and outstanding

    3,103     3,081  

Accumulated deficit

    (1,155 )   (1,493 )

Accumulated other comprehensive loss

    (531 )   (611 )
           

Total Huntsman International LLC members' equity

    1,417     977  

Noncontrolling interests in subsidiaries

    124     114  
           

Total equity

    1,541     1,091  
           

Total liabilities and equity

  $ 8,925   $ 8,330  
           

(a)
At September 30, 2012 and December 31, 2011, respectively, $31 and $44 of cash and cash equivalents, $9 and $2 of restricted cash, $40 and $29 of accounts and notes receivable (net), $42 and $47 of inventories, $1 each of other current assets, $382 and $403 of property, plant and equipment (net), $20 and $23 of intangible assets (net), $27 and $21 of other noncurrent assets, $63 and $55 of accounts payable, $25 and $21 of accrued liabilities, $25 and $16 of current portion of debt, $241 and $264 of long-term debt, and $72 and $111 of other noncurrent liabilities from consolidated variable interest entities are included in the respective balance sheet captions above. See "Note 5. Variable Interest Entities."

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in Millions)

 
  Three months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Revenues:

                         

Trade sales, services and fees, net

  $ 2,691   $ 2,923   $ 8,406   $ 8,445  

Related party sales

    50     53     162     144  
                   

Total revenues

    2,741     2,976     8,568     8,589  

Cost of goods sold

    2,199     2,481     6,940     7,124  
                   

Gross profit

    542     495     1,628     1,465  

Operating expenses:

                         

Selling, general and administrative

    220     216     669     688  

Research and development

    35     42     112     123  

Other operating (income) expense

        (1 )   7     7  

Restructuring, impairment and plant closing costs

    47     155     52     171  
                   

Total expenses

    302     412     840     989  
                   

Operating income

    240     83     788     476  

Interest expense, net

    (59 )   (66 )   (181 )   (197 )

Equity in income of investment in unconsolidated affiliates

    2     2     5     6  

Loss on early extinguishment of debt

    (1 )   (2 )   (2 )   (5 )

Other income (expense)

    1     (1 )   2      
                   

Income from continuing operations before income taxes

    183     16     612     280  

Income tax expense

    (62 )   (55 )   (188 )   (111 )
                   

Income (loss) from continuing operations

    121     (39 )   424     169  

(Loss) income from discontinued operations, net of tax

    (1 )   10     (7 )   (5 )
                   

Income (loss) before extraordinary gain

    120     (29 )   417     164  

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

    1         1     2  
                   

Net income (loss)

    121     (29 )   418     166  

Net income attributable to noncontrolling interests

    (4 )   (2 )   (8 )   (17 )
                   

Net income (loss) attributable to Huntsman International LLC

  $ 117   $ (31 ) $ 410   $ 149  
                   

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

(Dollars in Millions)

 
  Three months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Net income (loss)

  $ 121   $ (29 ) $ 418   $ 166  

Other comprehensive income (loss), net of tax:

                         

Foreign currency translations adjustments

    94     (118 )   25     30  

Pension and other postretirement benefits adjustments

    15     (77 )   58     (66 )

Other, net

        1     (1 )   1  
                   

Other comprehensive income (loss)

    109     (194 )   82     (35 )
                   

Comprehensive income (loss)

    230     (223 )   500     131  

Comprehensive income attributable to noncontrolling interests

    (6 )   (2 )   (10 )   (18 )
                   

Comprehensive income (loss) attributable to Huntsman International LLC

  $ 224   $ (225 ) $ 490   $ 113  
                   

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 
  Nine months
ended
September 30,
 
 
  2012   2011  

Operating Activities:

             

Net income

  $ 418   $ 166  

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

             

Gain on the consolidation of a variable interest entity

        (12 )

Loss on the consolidation of a business

    4      

Equity in income of investment in unconsolidated affiliates

    (5 )   (6 )

Depreciation and amortization

    306     310  

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

    2     (5 )

Loss on early extinguishment of debt

    2     5  

Noncash interest expense

    36     38  

Noncash restructuring and impairment charges

    10     53  

Deferred income taxes

    127     47  

Noncash loss (gain) on foreign currency transactions

    9     (15 )

Noncash compensation

    20     17  

Other, net

    5     (1 )

Changes in operating assets and liabilities:

             

Accounts and notes receivable

    (102 )   (314 )

Inventories

    (252 )   (273 )

Prepaid expenses

    (17 )   (14 )

Other current assets

    (14 )   (150 )

Other noncurrent assets

    (8 )   20  

Accounts payable

    112     72  

Accrued liabilities

    45     122  

Other noncurrent liabilities

    (65 )   8  
           

Net cash provided by operating activities

    633     68  
           

Investing Activities:

             

Capital expenditures

    (248 )   (217 )

Proceeds from settlements treated as reimbursement of capital expenditures

        3  

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

        28  

Cash paid for acquisition of a business

    (18 )   (23 )

Proceeds from sale of business/assets

        7  

Increase in receivable from affiliate

    (97 )   (35 )

Investment in unconsolidated affiliates

    (84 )   (17 )

Cash received from unconsolidated affiliates

    51     19  

Increase in restricted cash

    (2 )    

Other, net

    2      
           

Net cash used in investing activities

    (396 )   (235 )
           

   

(Continued)

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

(Dollars in Millions)

 
  Nine months
ended
September 30,
 
 
  2012   2011  

Financing Activities:

             

Net repayments under revolving loan facilities

  $ (16 ) $  

Net borrowings on overdraft facilities

    2     10  

Repayments of short-term debt

    (40 )   (151 )

Borrowings on short-term debt

        126  

Repayments of long-term debt

    (242 )   (287 )

Proceeds from issuance of long-term debt

    3     89  

Proceeds from notes payable to affiliate

    172     105  

Repayments of notes payable

    (33 )   (24 )

Borrowings on notes payable

    34     35  

Debt issuance costs paid

    (4 )   (7 )

Call premiums related to early extinguishment of debt

    (2 )   (5 )

Dividends paid to noncontrolling interest

        (5 )

Dividends paid to parent

    (72 )   (56 )

Excess tax benefit related to stock-based compensation

    4     10  

Other, net

    (5 )   3  
           

Net cash used in financing activities

    (199 )   (157 )
           

Effect of exchange rate changes on cash

    2     (3 )
           

Increase (decrease) in cash and cash equivalents

    40     (327 )

Cash and cash equivalents at beginning of period

    231     561  
           

Cash and cash equivalents at end of period

  $ 271   $ 234  
           

Supplemental cash flow information:

             

Cash paid for interest

  $ 177   $ 179  

Cash paid for income taxes

    70     34  

        During the nine months ended September 30, 2012 and 2011, the amount of capital expenditures in accounts payable decreased by $1 million and $12 million, respectively. During the nine months ended September 30, 2012 and 2011, Huntsman Corporation contributed $20 million and $17 million related to stock-based compensation, respectively.

   

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Dollars in Millions)

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

Balance, January 1, 2012

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

Net income

            410         8     418  

Other comprehensive income

                80     2     82  

Contribution from parent

        20                 20  

Dividends paid to parent

            (72 )           (72 )

Acquisition of a business

        (2 )               (2 )

Excess tax benefit related to stock-based compensation

        4                 4  
                           

Balance, September 30, 2012

    2,728   $ 3,103   $ (1,155 ) $ (531 ) $ 124   $ 1,541  
                           

Balance, January 1, 2011

   
2,728
 
$

3,049
 
$

(1,667

)

$

(354

)

$

60
 
$

1,088
 

Net income

            149         17     166  

Dividends paid to noncontrolling interest

                    (5 )   (5 )

Other comprehensive (loss) income

                (36 )   1     (35 )

Consolidation of a variable interest entity

                    61     61  

Contribution from parent

        17                 17  

Dividends paid to parent

            (56 )           (56 )

Excess tax benefit related to stock-based compensation

        10                 10  
                           

Balance, September 30, 2011

    2,728   $ 3,076   $ (1,574 ) $ (390 ) $ 134   $ 1,246  
                           

   

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

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

CERTAIN DEFINITIONS

        For convenience in this report, the terms "Company," "our," "us" or "we" may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. In this report, "Huntsman International" refers to Huntsman International LLC (our 100% owned subsidiary) and, unless the context otherwise requires, its subsidiaries; "HPS" refers to Huntsman Polyurethanes Shanghai Ltd. (our consolidated splitting joint venture with Shanghai Chlor-Alkali Chemical Company, Ltd); "Sasol-Huntsman" refers to Sasol-Huntsman GmbH and Co. KG (our consolidated joint venture with Sasol that owns and operates a maleic anhydride facility in Moers, Germany); and "HCCA" refers to Huntsman Chemical Company Australia Pty Limited (our 100% owned subsidiary).

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

INTERIM FINANCIAL STATEMENTS

        Our interim condensed consolidated financial statements (unaudited) and Huntsman International's interim condensed consolidated financial statements (unaudited) were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP" or "U.S. GAAP") and in management's opinion reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, comprehensive income, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 for our Company and Huntsman International.

DESCRIPTION OF BUSINESS

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

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

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

1. GENERAL (Continued)

COMPANY

        Our Company, a Delaware corporation, was formed in 2004 to hold the Huntsman businesses. Jon M. Huntsman founded the predecessor to our Company in 1970 as a small packaging company. Since then, we have grown through a series of acquisitions and now own a global portfolio of businesses.

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

HUNTSMAN CORPORATION AND HUNTSMAN INTERNATIONAL FINANCIAL STATEMENTS

        Except where otherwise indicated, these notes relate to the condensed consolidated financial statements (unaudited) for both our Company and Huntsman International. The differences between our financial statements and Huntsman International's financial statements relate primarily to the following:

PRINCIPLES OF CONSOLIDATION

        Our condensed consolidated financial statements (unaudited) include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated, except for intercompany sales between continuing and discontinued operations.

USE OF ESTIMATES

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

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

ACCOUNTING PRONOUNCEMENTS ADOPTED DURING 2012

        In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, providing a consistent definition of fair value between U.S. GAAP and International Financial Reporting Standards ("IFRSs") as well as developing common requirements for measuring fair value and for disclosing information

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)

about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU were effective prospectively for interim and annual periods beginning after December 15, 2011. We adopted the amendments of this ASU effective January 1, 2012, and the initial adoption of the amendments in this ASU did not have a significant impact on our condensed consolidated financial statements (unaudited).

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

        In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in this ASU is intended to reduce complexity and costs of the annual goodwill impairment test by providing entities with the option of performing a qualitative assessment to determine whether further impairment testing is necessary. The amendments in this ASU include examples of events and circumstances that might indicate that a reporting unit's fair value is less than its carrying value. The amendments in this ASU were effective prospectively for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted the amendments in this ASU effective January 1, 2012, and the initial adoption of the amendments in this ASU did not have a significant impact on our condensed consolidated financial statements (unaudited).

ACCOUNTING PRONOUNCEMENTS PENDING ADOPTION IN FUTURE PERIODS

        In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The guidance in this ASU is intended to reduce complexity and costs of the annual impairment tests for indefinite-lived intangible assets by providing entities with the option of performing a qualitative assessment to determine whether further impairment testing is necessary. The amendments in this ASU include examples of events and circumstances that might indicate that an asset's fair value is less than its carrying value. The amendments in this ASU are effective for annual and interim indefinite-lived intangible assets impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted. We do not expect the adoption of the amendments in this ASU to have a significant impact on our condensed consolidated financial statements (unaudited).

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

3. BUSINESS COMBINATIONS

RUSSIAN MDI, COATINGS AND SYSTEMS ACQUISITION

        On July 3, 2012, we completed our acquisition of the remaining 55% ownership interest in International Polyurethane Investment B.V. (the "Russian Systems House Acquisition"). This company's wholly owned subsidiary, Huntsman NMG Zao, is a leading supplier of polyurethane systems to the adhesives, coatings and footwear markets in Russia, Ukraine and Belarus and is headquartered in Obninsk, Russia. The acquisition cost was approximately €13 million (approximately $16 million). The acquired business was integrated into our Polyurethanes segment. Transaction costs charged to expense related to this acquisition were not significant. The fair value of our existing 45% ownership interest immediately prior to the acquisition was $13 million, valued by applying the income approach. Key assumptions include a discount rate of 17% and a terminal growth rate of 4%. In connection with this transaction, we recorded a noncash pretax loss of approximately $4 million in other operating (income) expense on the consolidation of this investment. The long-term debt of approximately $7 million that was assumed as part of this transaction was repaid shortly after the acquisition date.

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

Fair value of original 45% ownership interest acquired in 2007

  $ 13  

Acquisition cost of 55% ownership interest acquired in 2012

    16  
       

Total fair value of net assets acquired

  $ 29  
       

Fair value of assets acquired and liabilities assumed:

       

Accounts receivable

  $ 2  

Inventories

    9  

Other current assets

    1  

Property, plant and equipment

    31  

Accounts payable

    (4 )

Accrued liabilities

    (1 )

Deferred income taxes

    (2 )

Long-term debt

    (7 )
       

Total fair value of net assets acquired

  $ 29  
       

        The acquisition cost allocation is preliminary pending final determination of the fair value of assets acquired and liabilities assumed, including final valuation of working capital, property, plant and equipment, intangible assets and the determination of related deferred taxes. For purposes of this preliminary allocation of fair value, we have assigned any excess of the acquisition cost over historical carrying values to property, plant and equipment and no amounts have been allocated to goodwill. It is possible that changes to this preliminary allocation could occur.

        International Polyurethane Investment B.V. had revenues and earnings of $16 million and $3 million, respectively, for the period from the date of acquisition to September 30, 2012. If this

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

3. BUSINESS COMBINATIONS (Continued)

acquisition were to have occurred on January 1, 2011, there would have been no significant impact to the combined earnings attributable to our Company or Huntsman International and the following estimated pro forma revenues attributable to our Company and Huntsman International would have been reported (dollars in millions):

 
  Pro Forma  
 
  Three months
ended
September 30,

  Nine months
ended
September 30,
 
 
  2011   2012   2011  

Revenues

  $ 2,987   $ 8,601   $ 8,614  

EMA ACQUISITION

        On December 30, 2011, we completed the acquisition of EMA Kimya Sistemleri Sanayi ve Ticaret A.S. (the "EMA Acquisition"), an MDI-based polyurethanes systems house in Istanbul, Turkey for approximately $11 million, net of cash acquired and including the repayment of assumed debt. The acquired business was integrated into our Polyurethanes segment. We have accounted for the EMA Acquisition using the acquisition method and transaction costs charged to expense associated with this acquisition were not significant. For purposes of a preliminary allocation of the acquisition cost to assets acquired and liabilities assumed, we have assigned the excess of the acquisition cost over historical carrying values of $7 million to property, plant and equipment. At December 31, 2011, the excess of the acquisition cost over historical carrying values had been assigned as goodwill. This preliminary purchase price allocation is likely to change once we complete the analysis of the fair value of tangible and intangible assets acquired and liabilities assumed during the fourth quarter of 2012. Net sales for the three and nine months ended September 30, 2011 related to the business acquired were approximately $7 million and $19 million, respectively. Net losses for the three and nine months ended September 30, 2011 related to the business acquired were approximately $(1) million and $(3) million, respectively.

LAFFANS ACQUISITION

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

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

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

3. BUSINESS COMBINATIONS (Continued)

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

Acquisition cost

  $ 23  
       

Fair value of assets acquired and liabilities assumed:

       

Accounts receivable

  $ 9  

Inventories

    2  

Other current assets

    2  

Property, plant and equipment

    12  

Intangibles

    3  

Accounts payable

    (3 )

Accrued liabilities

    (1 )

Other noncurrent liabilities

    (1 )
       

Total fair value of net assets acquired

  $ 23  
       

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

Huntsman Corporation

 
  Pro Forma
Nine months
ended
September 30,
2011
 

Revenues

  $ 8,603  

Net income attributable to Huntsman Corporation

    143  

Huntsman International

 
  Pro Forma
Nine months
ended
September 30,
2011
 

Revenues

  $ 8,603  

Net income attributable to Huntsman International

    150  

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

4. INVENTORIES

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

 
  September 30,
2012
  December 31,
2011
 

Raw materials and supplies

  $ 471   $ 374  

Work in progress

    96     92  

Finished goods

    1,314     1,162  
           

Total

    1,881     1,628  

LIFO reserves

    (74 )   (89 )
           

Net

  $ 1,807   $ 1,539  
           

        For September 30, 2012 and December 31, 2011, approximately 10% and 12%, respectively, of inventories were recorded using the LIFO cost method.

        In the normal course of operations we, at times, exchange raw materials and finished goods with other companies for the purpose of reducing transportation costs. The net nonmonetary open exchange positions are valued at cost. The amounts included in inventory under nonmonetary open exchange agreements receivable by us as of September 30, 2012 and December 31, 2011 were $12 million and $3 million, respectively. Other open exchanges are settled in cash and result in a net deferred profit margin. The amount payable under these open exchange agreements as of September 30, 2012 and December 31, 2011 was $2 million and nil, respectively.

5. VARIABLE INTEREST ENTITIES

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

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

5. VARIABLE INTEREST ENTITIES (Continued)

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

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

 
  September 30,
2012
  December 31,
2011
 

Current assets

  $ 166   $ 140  

Property, plant and equipment, net

    382     403  

Other noncurrent assets

    58     61  

Deferred income taxes

    45     45  

Intangible assets

    20     23  

Goodwill

    15     15  
           

Total assets

  $ 686   $ 687  
           

Current liabilities

  $ 187   $ 145  

Long-term debt

    245     269  

Deferred income taxes

    9     9  

Other noncurrent liabilities

    72     110  
           

Total liabilities

  $ 513   $ 533  
           

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

5. VARIABLE INTEREST ENTITIES (Continued)

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

 
  April 1,
2011
 

Current assets

  $ 61  

Property, plant and equipment, net

    155  

Intangible assets

    16  

Goodwill

    17  
       

Total assets

  $ 249  
       

Current liabilities

  $ 23  

Long-term debt

    93  

Deferred income taxes

    8  

Other noncurrent liabilities

    7  
       

Total liabilities

  $ 131  
       

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

        If consolidation of Sasol-Huntsman had occurred on January 1, 2011, the approximate pro forma revenues attributable to both our Company and Huntsman International would have been $8,618 million for the nine months ended September 30, 2011. There would have been no impact to the combined earnings attributable to us or Huntsman International, excluding a one-time noncash gain of approximately $12 million recognized upon consolidation included in other operating expense in the condensed consolidated statements of operations (unaudited). Upon consolidation, we also recognized a one-time noncash income tax expense of approximately $2 million. The fair value of the noncontrolling interest was estimated to be $61 million at April 1, 2011. The noncontrolling interest was valued at 50% of the fair value of the net assets as of April 1, 2011, as dictated by the ownership interest percentages, adjusted for certain tax consequences only applicable to one parent.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS

        As of September 30, 2012 and December 31, 2011, accrued restructuring costs by type of cost and initiative consisted of the following (dollars in millions):

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

Accrued liabilities as of January 1, 2012

  $ 73   $   $ 11   $ 8   $ 92  

2012 charges for 2007 and prior initiatives

    2                 2  

2012 charges for 2009 initiatives

    1             4     5  

2012 charges for 2010 initiatives

                1     1  

2012 charges for 2011 initiatives

    4     1         4     9  

2012 charges for 2012 initiatives

    33             6     39  

Reversal of reserves no longer required

    (13 )           (1 )   (14 )

2012 payments for 2007 and prior initiatives

    (1 )       (1 )   (1 )   (3 )

2012 payments for 2009 initiatives

    (2 )           (4 )   (6 )

2012 payments for 2010 initiatives

    (2 )       (1 )       (3 )

2012 payments for 2011 initiatives

    (19 )   (1 )       (4 )   (24 )

2012 payments for 2012 initiatives

    (4 )           (5 )   (9 )

Foreign currency effect on liability balance

    1                 1  
                       

Accrued liabilities as of September 30, 2012

  $ 73   $   $ 9   $ 8   $ 90  
                       

(1)
The total workforce reduction reserves of $73 million relate to the termination of 581 positions, of which 544 positions had not been terminated as of September 30, 2012.

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

 
  September 30,
2012
  December 31,
2011
 

2007 initiatives and prior

  $ 2   $ 2  

2009 initiatives

    7     11  

2010 initiatives

    9     16  

2011 initiatives

    42     63  

2012 initiatives

    30      
           

Total

  $ 90   $ 92  
           

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

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

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

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

Accrued liabilities as of January 1, 2012

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

2012 charges for 2007 and prior initiatives

                2                 2  

2012 charges for 2009 initiatives

            1         4             5  

2012 charges for 2010 initiatives

                            1     1  

2012 charges for 2011 initiatives

            3     6                 9  

2012 charges for 2012 initiatives

    37         2                     39  

Reversal of reserves no longer required

                (14 )               (14 )

2012 payments for 2007 and prior initiatives

                (2 )   (1 )           (3 )

2012 payments for 2009 initiatives

            (1 )       (5 )           (6 )

2012 payments for 2010 initiatives

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

2012 payments for 2011 initiatives

            (12 )   (12 )               (24 )

2012 payments for 2012 initiatives

    (7 )       (2 )                   (9 )

Foreign currency effect on liability balance

                1     1         (1 )   1  
                                   

Accrued liabilities as of September 30, 2012

  $ 30   $   $ 3   $ 49   $ 2   $ 6   $   $ 90  
                                   

Current portion of restructuring reserves

  $ 18   $   $ 2   $ 28   $ 2   $ 6   $   $ 56  

Long-term portion of restructuring reserve

    12         1     21                 34  

Estimated additional future charges for current restructuring projects

                                                 

Estimated additional charges within one year

    1             15                 16  

Estimated additional charges beyond one year

                4                 4  

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

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

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

 
  Three months
ended
September 30, 2012
  Nine months
ended
September 30, 2012
 

Cash charges:

             

2012 charges for 2007 and prior initiatives

  $   $ 2  

2012 charges for 2009 initiatives

    1     5  

2012 charges for 2010 initiatives

        1  

2012 charges for 2011 initiatives

    5     9  

2012 charges for 2012 initiatives

    33     39  

Reversal of reserves no longer required

    (1 )   (14 )

Noncash charges

    9     10  
           

Total 2012 Restructuring, Impairment and Plant Closing Costs

  $ 47   $ 52  
           

 

 
  Three months
ended
September 30, 2011
  Nine months
ended
September 30, 2011
 

Cash charges:

             

2011 charges for 2007 and prior initiatives

  $   $ 2  

2011 charges for 2009 initiatives

    2     5  

2011 charges for 2010 initiatives

    2     5  

2011 charges for 2011 initiatives

    99     110  

Reversal of reserves no longer required

    (1 )   (4 )

Noncash charges

    53     53  
           

Total 2011 Restructuring, Impairment and Plant Closing Costs

  $ 155   $ 171  
           

2012 RESTRUCTURING ACTIVITIES

        During the nine months ended September 30, 2012, our Polyurethanes segment implemented a restructuring program to reduce annualized fixed costs by approximately $75 million by the third quarter of 2013. In connection with this program, we recorded restructuring expenses of $37 million during the nine months ended September 30, 2012 primarily for workforce reductions. We expect to incur additional charges of approximately $1 million relating to this program through September 2013.

        During the nine months ended September 30, 2012, our Advanced Materials segment recorded charges of $6 million primarily related to the reorganization of our global business structure, the relocation of our divisional headquarters from Basel, Switzerland to The Woodlands, Texas and a redesign of our planning process focused on inventory reduction. In connection with the restructuring in Switzerland, we recorded a $3 million noncash charge related to a pension settlement loss.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

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

        On September 27, 2011, we announced plans to implement a significant restructuring of our Textile Effects segment, including the closure of our production facilities and business support offices in Basel, Switzerland, as part of an ongoing strategic program aimed at improving the Textile Effects segment's long-term global competitiveness. In connection with this plan, during the nine months ended September 30, 2012, we recorded charges of $5 million and a $2 million noncash charge for asset impairments and a $5 million noncash charge for a pension settlement loss. We expect to incur additional restructuring and plant closing charges, excluding site exit costs, of approximately $19 million through December 31, 2014. In addition, during the nine months ended September 30, 2012, our Textile Effects segment recorded charges of $3 million primarily related to the closure of our St. Fons, France facility and a global transfer pricing initiative. Also during the nine months ended September 30, 2012, we reversed $14 million of reserves that were no longer required for workforce reductions at our production facility in Langweid, Germany, the consolidation of manufacturing activities and processes at our site in Basel, Switzerland and closure of our production facilities in Basel, Switzerland.

        During the nine months ended September 30, 2012, our Pigments segment recorded charges of $4 million related to the closure of our Grimsby, U.K. plant.

7. DEBT

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

Huntsman Corporation

 
  September 30,
2012
  December 31,
2011
 

Senior Credit Facilities:

             

Term loans

  $ 1,613   $ 1,696  

Amounts outstanding under A/R programs

    237     237  

Senior notes

    490     472  

Senior subordinated notes

    892     976  

HPS (China) debt

    109     167  

Variable interest entities

    266     281  

Other

    73     113  
           

Total debt—excluding debt to affiliates

  $ 3,680   $ 3,942  
           

Total current portion of debt

  $ 130   $ 212  

Long-term portion

    3,550     3,730  
           

Total debt—excluding debt to affiliates

  $ 3,680   $ 3,942  
           

Total debt—excluding debt to affiliates

  $ 3,680   $ 3,942  

Notes payable to affiliates-noncurrent

    3     4  
           

Total debt

  $ 3,683   $ 3,946  
           

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

7. DEBT (Continued)

Huntsman International

 
  September 30,
2012
  December 31,
2011
 

Senior Credit Facilities:

             

Term loans

  $ 1,613   $ 1,696  

Amounts outstanding under A/R programs

    237     237  

Senior notes

    490     472  

Senior subordinated notes

    892     976  

HPS (China) debt

    109     167  

Variable interest entities

    266     281  

Other

    73     113  
           

Total debt—excluding debt to affiliates

  $ 3,680   $ 3,942  
           

Total current portion of debt

  $ 130   $ 212  

Long-term portion

    3,550     3,730  
           

Total debt—excluding debt to affiliates

  $ 3,680   $ 3,942  
           

Total debt—excluding debt to affiliates

  $ 3,680   $ 3,942  

Notes payable to affiliates-current

    100     100  

Notes payable to affiliates-noncurrent

    610     439  
           

Total debt

  $ 4,390   $ 4,481  
           

DIRECT AND SUBSIDIARY DEBT

        Huntsman Corporation's direct debt and guarantee obligations consist of a guarantee of certain indebtedness incurred from time to time to finance certain insurance premiums. Substantially all of our other debt, including the facilities described below, has been incurred by our subsidiaries (primarily Huntsman International); Huntsman Corporation is not a guarantor of such subsidiary debt.

Senior Credit Facilities

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

7. DEBT (Continued)

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

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

Revolving Facility

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

Term Loan B

    NA     243     243   USD LIBOR plus 1.50%     2014  

Extended Term Loan B

    NA     637     637   USD LIBOR plus 2.50%     2017 (3)

Extended Term Loan B—Series 2

    NA     342     342   USD LIBOR plus 2.75%     2017 (3)

Term Loan C

    NA     419     391   USD LIBOR plus 2.25%     2016  

(1)
We had no borrowings outstanding under our Revolving Facility; we had approximately $19 million (U.S. dollar equivalents) of letters of credit and bank guarantees issued and outstanding under our Revolving Facility.

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

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

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

        During the nine months ended September 30, 2012, we made the following payments on our Senior Credit Facilities:

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

7. DEBT (Continued)

        In connection with these debt repayments, we recognized a loss on early extinguishment of debt of approximately $1 million during the nine months ended September 30, 2012.

Amendment to Credit Agreement

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

7. DEBT (Continued)

Redemption of Notes and Loss on Early Extinguishment of Debt

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

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

March 26, 2012

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

Three months ended September 30, 2011

 

6.875% Senior
Subordinated Notes
due 2013

 

€14
(approximately $19)

 

€14
(approximately $19)

 
$

 

Three months ended September 30, 2011

 

7.50% Senior
Subordinated Notes
due 2013

 

€12
(approximately $17)

 

€12
(approximately $17)

 
$

 

July 25, 2011

 

7.375% Senior
Subordinated Notes
due 2013

 

$75

 

$77

 
$

2
 

January 18, 2011

 

7.375% Senior
Subordinated Notes
due 2015

 

$100

 

$102

 
$

3
 

Other Debt

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

        During the nine months ended September 30, 2012, HPS repaid RMB 229 million (approximately $36 million) under its loan facility for working capital loans and discounting of commercial drafts. As of September 30, 2012, HPS had RMB 270 million (approximately $43 million) outstanding, which is classified as current portion of debt on the accompanying condensed consolidated balance sheets (unaudited).

        On March 30, 2012, we repaid the remaining A$26 million (approximately $27 million) outstanding under our Australian subsidiary's credit facility (the "Australian Credit Facility"), which represents

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

7. DEBT (Continued)

repayment of A$14 million (approximately $15 million) under the revolving facility and A$12 million (approximately $12 million) under the term loan facility.

Note Payable from Huntsman International to Huntsman Corporation

        As of September 30, 2012, there was $707 million outstanding under the Intercompany Note owed us by Huntsman International. The Intercompany Note is unsecured and $100 million of the outstanding amount is classified as current as of both September 30, 2012 and December 31, 2011 on the condensed consolidated balance sheets (unaudited). As of September 30, 2012, under the terms of the Intercompany Note, Huntsman International promises to pay us interest on the unpaid principal amount at a rate per annum based on the previous monthly average borrowing rate obtained under our U.S. accounts receivable securitization program ("U.S. A/R Program"), less ten basis points (provided that the rate shall not exceed an amount that is 25 basis points less than the monthly average borrowing rate obtained for the U.S. LIBOR-based borrowings under our Revolving Facility).

COMPLIANCE WITH COVENANTS

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

        Our material financing arrangements contain certain covenants with which we must comply. A failure to comply with a covenant could result in a default under a financing arrangement unless we obtained an appropriate waiver or forbearance (as to which we can provide no assurance). A default under these material financing arrangements generally allows debt holders the option to declare the underlying debt obligations immediately due and payable. Furthermore, certain of our material financing arrangements contain cross default and cross acceleration provisions under which a failure to comply with the covenants in one financing arrangement may result in an event of default under another financing arrangement.

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

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

7. DEBT (Continued)

pay off the balance of the Senior Credit Facilities in full, and we may not have further access to such facilities.

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

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

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

        We also hedge our net investment in certain European operations. Changes in the fair value of the hedge in the net investment of certain European operations are recorded in accumulated other comprehensive loss.

        Our cash flows and earnings are subject to fluctuations due to exchange rate variation. Our revenues and expenses are denominated in various foreign currencies. From time to time, we may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. Where practicable, we generally net multi-currency cash balances among our subsidiaries to help reduce exposure to foreign currency exchange rates. Certain other exposures may be managed from time to time through financial market transactions, principally through the purchase of spot or forward foreign exchange contracts (generally with maturities of one year or less). We do not hedge our foreign currency exposures in a manner that would eliminate the effect of changes in exchange rates on our cash flows and earnings. As of September 30, 2012, we had approximately $199 million in notional amount (in U.S. dollar equivalents) outstanding in forward foreign currency contracts.

        On December 9, 2009, we entered into a five-year interest rate contract to hedge the variability caused by monthly changes in cash flow due to associated changes in LIBOR under our Senior Credit Facilities. The notional value of the contract is $50 million, and it has been designated as a cash flow hedge. The effective portion of the changes in the fair value of the swap was recorded in other

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

comprehensive income (loss). We will pay a fixed 2.6% on the hedge and receive the one-month LIBOR rate. As of September 30, 2012, the fair value of the hedge was $3 million and was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited).

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

        On September 1, 2011, we entered into a $50 million forward interest rate contract that will begin in December 2014 with maturity in April 2017 and a $50 million forward interest rate contract that will begin in January 2015 with maturity in April 2017. These two forward contracts are to hedge the variability caused by monthly changes in cash flow due to associated changes in LIBOR under our Senior Credit Facilities once our existing interest rate hedges mature. These swaps are designated as cash flow hedges and the effective portion of the changes in the fair value of the swaps were recorded in other comprehensive income (loss). Both interest rate contracts will pay a fixed 2.5% on the hedge and receive the one-month LIBOR rate once the contracts begin in 2014 and 2015, respectively. As of September 30, 2012, the combined fair value of these two hedges was $4 million and was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited).

        In 2009, Sasol-Huntsman entered into derivative transactions to hedge the variable interest rate associated with its local credit facility. These hedges include a floating to fixed interest rate contract providing Sasol-Huntsman with EURIBOR interest payments for a fixed payment of 3.62% and a cap for future periods with a strike price of 3.62%. In connection with the consolidation of Sasol-Huntsman as of April 1, 2011, the interest rate contract is now included in our consolidated results. See "Note 5. Variable Interest Entities." The notional amount of the hedge as of September 30, 2012 was €47 million (approximately $61 million) and the derivative transactions do not qualify for hedge accounting. As of September 30, 2012, the fair value of this hedge was €2 million (approximately $3 million) and the hedge was recorded in other noncurrent liabilities on the condensed consolidated balance sheets (unaudited). For the three months and nine months ended September 30, 2012, we recorded interest expense of less than €1 million (less than $1 million) due to changes in the fair value of the swap.

        Beginning in 2009, Arabian Amines Company entered into a 12-year floating to fixed interest rate contract providing for a receipt of LIBOR interest payments for a fixed payment of 5.02%. In connection with the consolidation of Arabian Amines Company as of July 1, 2010, the interest rate contract is now included in our consolidated results. See "Note 5. Variable Interest Entities." The notional amount of the swap as of September 30, 2012 was $36 million, and the interest rate contract is not designated as a cash flow hedge. As of September 30, 2012, the fair value of the swap was $6 million and was recorded as other noncurrent liabilities on the condensed consolidated balance sheets (unaudited). For both the three and nine months ended September 30, 2012, we recorded interest expense of less than $1 million due to changes in the fair value of the swap.

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HUNTSMAN CORPORATION AND SUBSIDIARIES

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

        In conjunction with the issuance of the 8.625% senior subordinated notes due 2020, we entered into cross-currency interest rate contracts with three counterparties. On March 17, 2010, we paid $350 million to these counterparties and received €255 million from these counterparties and at maturity on March 15, 2015 we are required to pay €255 million and will receive $350 million. On March 15 and September 15 of each year, we will receive U.S. dollar interest payments of approximately $15 million (equivalent to an annual rate of 8.625%) and make interest payments of approximately €11 million (equivalent to an annual rate of approximately 8.41%). These swaps are designated as a hedge of net investment for financial reporting purposes. As of September 30, 2012, the fair value of these swaps was $29 million and was recorded in noncurrent assets in our condensed consolidated balance sheets (unaudited).

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

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

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

        From time to time, we review our non-U.S. dollar denominated debt and swaps to determine the appropriate amounts designated as hedges. As of September 30, 2012, we have designated €255 million (approximately $327 million) of euro-denominated debt and cross-currency interest rate swaps as a hedge of our net investments. For the three and nine months ended September 30, 2012, the amount of loss recognized on the hedge of our net investments was $6 million and approximately $1 million, respectively, and was recorded in other comprehensive income (loss). As of September 30, 2012, we had €1,211 million (approximately $1,558 million) in net euro assets.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

9. FAIR VALUE

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

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

Non-qualified employee benefit plan investments

  $ 14   $ 14   $ 12   $ 12  

Cross-currency interest rate contracts

    29     29     27     27  

Interest rate contracts

    (19 )   (19 )   (17 )   (17 )

Long-term debt (including current portion)

    (3,680 )   (3,941 )   (3,942 )   (4,061 )

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

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

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

9. FAIR VALUE (Continued)

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

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

Assets:

                         

Available-for-sale equity securities:

                         

Equity mutual funds

  $ 14   $ 14   $   $  

Derivatives:

                         

Cross-currency interest rate contracts(1)

    29         29      
                   

Total assets

  $ 43   $ 14   $ 29   $  
                   

Liabilities:

                         

Derivatives:

                         

Interest rate contracts(2)

  $ (19 ) $   $ (19 ) $  
                   

 

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

Assets:

                         

Available-for-sale equity securities:

                         

Equity mutual funds

  $ 12   $ 12   $   $  

Derivatives:

                         

Cross-currency interest rate contracts(1)

    27             27  
                   

Total assets

  $ 39   $ 12   $   $ 27  
                   

Liabilities:

                         

Derivatives:

                         

Interest rate contracts(2)

  $ (17 ) $   $ (17 ) $  
                   

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

(2)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates and yield

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

9. FAIR VALUE (Continued)

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

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

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

Beginning balance

  $   $ 27  

Transfers into Level 3

         

Transfer out of Level 3(1)

        (27 )

Total gains (losses):

             

Included in earnings

         

Included in other comprehensive income (loss)

         

Purchases, sales, issuances and settlements

         
           

Ending balance, September 30, 2012

  $   $  
           

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

  $   $  
           

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

9. FAIR VALUE (Continued)


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

Beginning balance

  $ (5 ) $ 19  

Transfers into or out of Level 3

         

Total (losses) gains:

             

Included in earnings

         

Included in other comprehensive income (loss)

    24      

Purchases, sales, issuances and settlements

         
           

Ending balance, September 30, 2011

  $ 19   $ 19  
           

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

  $   $  
           

(1)
We are party to cross-currency interest rate contracts that are measured at fair value in our financial statements (unaudited). These instruments have historically been categorized by us as Level 3 within the fair value hierarchy due to an unobservable input associated with the credit valuation adjustment, which we deemed to be a significant input to the overall measurement of fair value at inception. During the nine months ended September 30, 2012, this credit valuation adjustment has ceased to be a significant input to the entire fair value measurement of these instruments. The remaining inputs which are significant to the fair value measurement of these instruments represent observable market inputs that are inputs other than quoted prices (Level 2 inputs).

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

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

 
  Three months
ended
September 30, 2012
  Nine months
ended
September 30, 2012
 
 
  Interest
expense
  Other
comprehensive
income (loss)
  Interest
expense
  Other
comprehensive
income (loss)
 

Total net gains included in earnings

  $   $   $   $  

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

                 

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

9. FAIR VALUE (Continued)


 
  Three months
ended
September 30, 2011
  Nine months
ended
September 30, 2011
 
 
  Interest
expense
  Other
comprehensive
income (loss)
  Interest
expense
  Other
comprehensive
income (loss)
 

Total net gains included in earnings

  $   $   $   $  

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

        24          

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

10. EMPLOYEE BENEFIT PLANS

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

Huntsman Corporation

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

Service cost

  $ 12   $ 18   $ 1   $  

Interest cost

    36     39     2     2  

Expected return on assets

    (45 )   (47 )        

Amortization of prior service cost

    (2 )   (2 )   (1 )   (1 )

Amortization of actuarial loss

    11     9         1  

Settlement loss

    8              
                   

Net periodic benefit cost

  $ 20   $ 17   $ 2   $ 2  
                   

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

10. EMPLOYEE BENEFIT PLANS (Continued)


 
  Defined Benefit
Plans
  Other
Postretirement
Benefit Plans
 
 
  Nine months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Service cost

  $ 43   $ 51   $ 3   $ 2  

Interest cost

    109     116     5     6  

Expected return on assets

    (136 )   (141 )        

Amortization of prior service cost

    (6 )   (5 )   (2 )   (2 )

Amortization of actuarial loss

    33     23     1     1  

Settlement loss

    8              
                   

Net periodic benefit cost

  $ 51   $ 44   $ 7   $ 7  
                   

Huntsman International

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

Service cost

  $ 12   $ 18   $ 1   $  

Interest cost

    36     39     2     2  

Expected return on assets

    (45 )   (47 )        

Amortization of prior service cost

    (2 )   (2 )   (1 )   (1 )

Amortization of actuarial loss

    13     9         1  

Settlement loss

    8              
                   

Net periodic benefit cost

  $ 22   $ 17   $ 2   $ 2  
                   

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

10. EMPLOYEE BENEFIT PLANS (Continued)

 
  Defined
Benefit Plans
  Other
Postretirement
Benefit Plans
 
 
  Nine months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Service cost

  $ 43   $ 51   $ 3   $ 2  

Interest cost

    109     116     5     6  

Expected return on assets

    (136 )   (141 )        

Amortization of prior service cost

    (6 )   (5 )   (2 )   (2 )

Amortization of actuarial loss

    37     26     1     1  

Settlement loss

    8              
                   

Net periodic benefit cost

  $ 55   $ 47   $ 7   $ 7  
                   

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

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

        During the nine months ended September 30, 2012 and 2011, we made contributions to our pension and other postretirement benefit plans of $124 million and $132 million, respectively. During the remainder of 2012, we expect to contribute an additional amount of $31 million to these plans.

        In connection with employee terminations in Switzerland related to restructuring programs, we recorded a noncash pension settlement loss of $8 million in the third quarter of 2012.

11. HUNTSMAN CORPORATION STOCKHOLDERS' EQUITY

SHARE REPURCHASE PROGRAM

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

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

11. HUNTSMAN CORPORATION STOCKHOLDERS' EQUITY (Continued)

COMMON STOCK DIVIDENDS

        On each of September 28, June 29 and March 30, 2012, we paid cash dividends of $24 million, or $0.10 per share, to common stockholders of record as of September 14, June 15, and March 15, 2012, respectively. On each of September 30, June 30 and March 31, 2011, we paid cash dividends of $24 million, or $0.10 per share, to common stockholders of record as of September 15, June 15, and March 15, 2011, respectively.

12. OTHER COMPREHENSIVE INCOME (LOSS)

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

Huntsman Corporation

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

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

  $ 243   $ 218   $ 94   $ (117 ) $ 25   $ 30  

Pension and other postretirement benefit adjustments, net of tax of $109 and $124 as of September 30, 2012 and December 31, 2011, respectively

    (745 )   (800 )   14     (78 )   55     (70 )

Other comprehensive income (loss) of unconsolidated affiliates

    7     8         3     (1 )   3  

Other, net

    2     3         (3 )   (1 )   (2 )
                           

Total

    (493 )   (571 )   108     (195 )   78     (39 )

Amounts attributable to noncontrolling interests

    10     12     (2 )       (2 )   (1 )
                           

Amounts attributable to Huntsman Corporation

  $ (483 ) $ (559 ) $ 106   $ (195 ) $ 76   $ (40 )
                           

Huntsman International

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

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

  $ 242   $ 217   $ 94   $ (118 ) $ 25   $ 30  

Pension and other postretirement benefit adjustments, net of tax of $140 and $156 as of September 30, 2012 and December 31, 2011, respectively

    (787 )   (845 )   15     (77 )   58     (66 )

Other comprehensive income (loss) of unconsolidated affiliates

    7     8         3     (1 )   3  

Other, net

    (3 )   (3 )       (2 )       (2 )
                           

Total

    (541 )   (623 )   109     (194 )   82     (35 )

Amounts attributable to noncontrolling interests

    10     12     (2 )       (2 )   (1 )
                           

Amounts attributable to Huntsman International

  $ (531 ) $ (611 ) $ 107   $ (194 ) $ 80   $ (36 )
                           

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES

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

12. OTHER COMPREHENSIVE INCOME (LOSS) (Continued)

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

13. COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

Asbestos Litigation

        We have been named as a premises defendant in a number of asbestos exposure cases, typically claims by nonemployees of exposure to asbestos while at a facility. In the past, these cases typically involved multiple plaintiffs bringing actions against multiple defendants, and the complaints have not indicated which plaintiffs were making claims against which defendants, where or how the alleged injuries occurred or what injuries each plaintiff claimed. Rarely do the complaints in these cases state the amount of damages being sought. These facts, which would be central to any estimate of probable loss, generally have been learned only through discovery.

        Where a claimant's alleged exposure occurred prior to our ownership of the relevant premises, the prior owners generally have contractually agreed to retain liability for, and to indemnify us against, asbestos exposure claims. This indemnification is not subject to any time or dollar amount limitations. Upon service of a complaint in one of these cases, we tender it to the prior owner. The prior owner accepts responsibility for the conduct of the defense of the cases and payment of any amounts due to the claimants. In our eighteen-year experience with tendering these cases, we have not made any payment with respect to any tendered asbestos cases. We believe that the prior owners have the intention and ability to continue to honor their indemnity obligations, although we cannot assure you that they will continue to do so or that we will not be liable for these cases if they do not.

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

 
  Nine months
ended
September 30,
 
 
  2012   2011  

Unresolved at beginning of period

    1,080     1,116  

Tendered during period

    3     10  

Resolved during period(1)

    2     43  

Unresolved at end of period

    1,081     1,083  

(1)
Although the indemnifying party informs us when tendered cases have been resolved, it generally does not inform us of the settlement amounts relating to such cases, if any. The indemnifying party has informed us that it typically manages our defense together with the defense of other entities in such cases and resolves claims involving multiple defendants simultaneously, and that it considers the allocation of settlement amounts, if

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13. COMMITMENTS AND CONTINGENCIES (Continued)

 
  Nine months
ended
September 30,
 
 
  2012   2011  

Unresolved at beginning of period

    36     37  

Filed during period

    8     9  

Resolved during period

    3     8  

Unresolved at end of period

    41     38  

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13. COMMITMENTS AND CONTINGENCIES (Continued)

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14. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS (Continued)

Environmental Reserves

        We have accrued liabilities relating to anticipated environmental cleanup obligations, site reclamation and closure costs and known penalties. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are calculated using present value techniques as appropriate and are based upon requirements placed upon us by regulators, available facts, existing technology and past experience. The environmental liabilities do not include amounts recorded as asset retirement obligations. We had accrued $35 million and $36 million for environmental liabilities as of September 30, 2012 and December 31, 2011, respectively. Of these amounts, $10 million and $7 million were classified as accrued liabilities in our condensed consolidated balance sheets (unaudited) as of September 30, 2012 and December 31, 2011, respectively, and $25 million and $29 million were classified as other noncurrent liabilities in our condensed consolidated balance sheets (unaudited) as of September 30, 2012 and December 31, 2011, respectively. In certain cases, our remediation liabilities may be payable over periods of up to 30 years.

REGULATORY DEVELOPMENTS

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

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

GREENHOUSE GAS REGULATION

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

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example, our operations in Australia and selected U.S. states may be subject to future GHG regulations under emissions trading systems in those jurisdictions.

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

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

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

15. STOCK-BASED COMPENSATION PLANS

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

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15. STOCK-BASED COMPENSATION PLANS (Continued)

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

 
  Three months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Huntsman Corporation compensation costs

  $ 6   $ 3   $ 21   $ 19  

Huntsman International compensation costs

    6     2     20     17  

        The total income tax benefit recognized in the statements of operations for us and Huntsman International for stock-based compensation arrangements was $6 million and $5 million for the nine months ended September 30, 2012 and 2011, respectively.

STOCK OPTIONS

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

 
  Three months
ended
September 30,
  Nine months
ended
September 30,
 
 
  2012   2011   2012   2011  

Dividend yield

  NA     3.6 %   3.0 %   2.3 %

Expected volatility

  NA     65.0 %   65.3 %   65.6 %

Risk-free interest rate

  NA     1.8 %   1.3 %   2.8 %

Expected life of stock options granted during the period

  NA     6.6 years     6.6 years     6.6 years  

        During the three months ended September 30, 2012, no stock options were granted.

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15. STOCK-BASED COMPENSATION PLANS (Continued)

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

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

Outstanding at January 1, 2012

    10,345   $ 13.83              

Granted

    1,363     13.41              

Exercised

    (661 )   3.25              

Forfeited

    (251 )   19.76              
                         

Outstanding at September 30, 2012

    10,796     14.29     5.6   $ 41  
                         

Exercisable at September 30, 2012

    8,643     14.27     4.8     38  
                         

        The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2012 was $6.36 per option. As of September 30, 2012, there was $11 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the Stock Incentive Plan. That cost is expected to be recognized over a weighted-average period of approximately 1.6 years.

        The total intrinsic value of stock options exercised during the nine months ended September 30, 2012 and 2011 was $7 million and $19 million, respectively.

NONVESTED SHARES

        Nonvested shares granted under the Stock Incentive Plan consist of restricted stock, which is accounted for as an equity award, and phantom stock, which is accounted for as a liability award

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15. STOCK-BASED COMPENSATION PLANS (Continued)

because it can be settled in either stock or cash. A summary of the status of our nonvested shares as of September 30, 2012 and changes during the nine months then ended is presented below:

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

Nonvested at January 1, 2012

    2,287   $ 9.92     1,100   $ 9.42  

Granted

    934     13.41     383     13.41  

Vested

    (1,395) (1)   7.07     (760 )   6.53  

Forfeited

    (27 )   15.26     (63 )   15.32  
                       

Nonvested at September 30, 2012

    1,799     13.86     660     14.51  
                       

(1)
As of September 30, 2012, a total of 516,338 restricted stock units were vested, of which 72,161 vested during the nine months ended September 30, 2012. These shares have not been reflected as vested shares in this table because in accordance with the restricted stock unit agreements, shares of common stock are not issued for vested restricted stock units until termination of employment.

        As of September 30, 2012, there was $21 million of total unrecognized compensation cost related to nonvested share compensation arrangements granted under the Stock Incentive Plan. That cost is expected to be recognized over a weighted-average period of approximately 1.2 years. The value of share awards that vested during the nine months ended September 30, 2012 and 2011 was $21 million and $23 million, respectively.

16. INCOME TAXES

        We use the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on a tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets for each jurisdiction. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the applicable period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable jurisdictions could affect the realization of deferred tax assets in those jurisdictions. During the nine months ended September 30, 2012, on a discrete basis, we changed our judgment about certain valuation allowances, primarily related to operations of our Textile Effects segment, resulting in a net $1 million benefit for changes in valuation allowance related to certain net deferred assets in Guatemala, Indonesia, and China. In addition, due to changes in certain intercompany operations, we increased our estimated future taxable income in Luxembourg and released valuation allowances of

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16. INCOME TAXES (Continued)

$12 million and $8 million on certain net deferred assets during the nine months ended September 30, 2012 and 2011, respectively.

        During the nine months ended September 30, 2012, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $4 million, and during the nine months ended September 30, 2011, we recorded no net ch