<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                   FORM 10-K/A

                                (Amendment No. 2)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

[_]  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: 1-12091

                                   ----------

                            MILLENNIUM CHEMICALS INC.
             (Exact name of registrant as specified in its charter)

                                   ----------

                  Delaware                                22-3436215
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
       incorporation or organization)

         20 Wight Avenue, Suite 100                         21030
              Hunt Valley, MD                            (Zip Code)
 (Address of principal executive offices)

        Registrant's telephone number, including area code: 410-229-4400

                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:

                                            Name of each exchange
                 Title of each class         on which registered
               -----------------------     -----------------------
               Common Stock, par value     New York Stock Exchange
                   $0.01 per share

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

     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 is required to file such reports) and (2) has been subject to such
filing requirements for the past 75 days. Yes [X] No [_].

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [_].

     The aggregate market value of voting stock held by non-affiliates as of the
last business day of the registrant's most recently completed second fiscal
quarter (based upon the closing price of $9.51 per common share as quoted on the
New York Stock Exchange), was approximately $593 million. For purposes of this
computation, the shares of voting stock held by directors, officers and employee
benefit plans of the registrant and its wholly-owned subsidiaries were deemed to
be stock held by affiliates. The number of shares of common stock outstanding at
March 5, 2004, was 64,605,553 shares, excluding 13,291,033 shares held by the
registrant, its subsidiaries and certain Company trusts that are not entitled to
vote.

Documents Incorporated by Reference

None.


                                        1



<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item                                                                        Page
----                                                                        ----
<S>    <C>                                                                   <C>
       Explanatory Note.....................................................  2

                                     PART II

6.     Selected Financial Data..............................................  5

7.     Management's Discussion and Analysis of Financial Condition and

          Results of Operations.............................................  8

8.     Financial Statements and Supplementary Data.......................... 35

9A.    Controls and Procedures.............................................. 80

                                     PART IV

15.    Exhibits, Financial Statement Schedule and Reports on Form 8-K....... 81

       Signatures........................................................... 86
</TABLE>

                                EXPLANATORY NOTE

     Millennium Chemicals Inc. (the "Company") is filing this Amendment No. 2 to
its Annual Report on Form 10-K/A for the year ended December 31, 2003
("Amendment No. 2") to reflect the restatement of its financial statements for
the years ended December 31, 2001 through 2003. Included herein are restated
consolidated balance sheets as of December 31, 2003 and 2002, restated
consolidated statements of changes in Shareholders' equity (deficit) for the
three years ended December 31, 2003 and restated selected financial data for the
five years ended December 31, 2003. The restatement corrects errors in the
computation of deferred income taxes relating to the Company's investment in
Equistar Chemicals, LP ("Equistar"), a partnership in which the Company owns
a 29.5% interest. This restatement decreased the Company's liability for
deferred income taxes and Shareholders' deficit at December 31, 2003 and 2002 by
$15 million. This restatement similarly decreased liabilities for deferred
income taxes and increased Shareholders' equity at December 31, 2001 and 2000
by $15 million. The restatement did not affect the Company's cash flow or
operating income in any year.

     The restatement was initially reported by the Company on July 29, 2004, in
a press release, a copy of which was appended as an exhibit to a Current Report
on Form 8-K of the same date.

     A discussion of the restatement is set forth in Note 19 to the Consolidated
Financial Statements included in this Amendment No. 2. Changes also have been
made to the following items in this Amendment No. 2 as a result of the
restatement:

     o    Item 6, Selected Financial Data, has been revised to reflect
          this restatement;

     o    Item 7, Management's Discussion and Analysis of Financial Condition
          and Results of Operations has been revised to reflect the restatement.
          (The only revisions to this item are: (1) The addition of two
          paragraphs to the end of "Introduction - Restatement of Financial
          Statements" to describe this restatement; (2) the reduction of the
          amount of the deferred income taxes reported in the first line of
          the footnote for the table in "Liquidity and Capital Resources -
          Contractual Obligations" from $287 million to $272 million; and (3)
          cross-references to the original Form 10-K for the year ended
          December 31, 2003 and Amendment No. 1 thereto.);

     o    Item 8, Financial Statements and Supplementary Data has been revised
          to reflect the restatement; and

     o    Item 9A, Controls and Procedures has been updated to reflect the
          evaluation made in connection with this Amendment No. 2.

     This Amendment No. 2 does not reflect events that have occurred after March
12, 2004, the date the Annual Report on Form 10-K was originally filed.
Information with respect to those events has been or will be set forth, as
appropriate, in the Company's Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K. Any reference to facts and circumstances at a "current" date refer
to such facts and circumstances as of such original filing date.

     The Company is also filing with the Securities and Exchange Commission an
amendment to its Quarterly Report on Form 10-Q/A for the three months ended
March 31, 2004 to reflect changes required as a result of the restatement.


                                        2



<PAGE>


     In this Amendment No. 2, the terms "our", "we", and "the Company" refer to
Millennium Chemicals Inc. and its consolidated subsidiaries, except as the
context otherwise requires.

Disclosure Concerning Forward-Looking Statements

     The statements in this Amendment No. 2 that are not historical facts are,
or may be deemed to be, "forward-looking statements" ("Cautionary Statements")
as defined in the Private Securities Litigation Reform Act of 1995. Some of
these statements can be identified by the use of forward-looking terminology
such as "prospects," "outlook," "believes," "estimates," "intends," "may,"
"will," "should," "anticipates," "expects" or "plans," or the negative or other
variation of these or similar words, or by discussion of trends and conditions,
strategy or risks and uncertainties. In addition, from time to time, the Company
or its representatives have made or may make forward-looking statements in other
filings that the Company makes with the Securities and Exchange Commission, in
press releases or in oral statements made by or with the approval of one of its
authorized executive officers.

     These forward-looking statements reflect present expectations as at
March 12, 2004, the date the Company's Annual Report on Form 10-K for the year
ended December 31, 2003 was originally filed with the Securities and Exchange
Commission. Actual events or results may differ materially. Factors that could
cause such a difference include:

     o    the ability of the Company to complete its proposed business
          combination with Lyondell Chemical Company ("Lyondell"), as described
          in more detail in the "Recent Development" section of Part 1, Item 1,
          Business in Amendment No. 1 to the Annual Report on Form 10-K/A for
          the year ended December 31, 2003, filed with the Securities and
          Exchange Commission on April 27, 2004.

     o    the cyclicality and volatility of the chemical industries in which the
          Company and Equistar Chemicals, LP ("Equistar") operate, particularly
          fluctuations in the demand for ethylene, its derivatives and acetyls
          and the sensitivity of these industries to capacity additions;

     o    general economic conditions in the geographic regions where the
          Company and Equistar generate sales, and the impact of government
          regulation and other external factors, in particular, the events in
          the Middle East;

     o    the ability of Equistar to distribute cash to its partners and
          uncertainties arising from the Company's shared control of Equistar
          and the Company's contractual commitments regarding possible future
          capital contributions to Equistar;

     o    changes in the cost of energy and raw materials, particularly natural
          gas and ethylene, and the ability of the Company and Equistar to pass
          on cost increases to their customers;

     o    the ability of raw material suppliers to fulfill their commitments;

     o    the ability of the Company and Equistar to achieve their productivity
          improvement, cost reduction and working capital targets, and the
          occurrence of operating problems at manufacturing facilities of the
          Company or Equistar;

     o    risks of doing business outside the United States, including currency
          fluctuations;

     o    the cost of compliance with the extensive environmental regulations
          affecting the chemical industry and exposure to liabilities for
          environmental remediation and other environmental matters relating to
          the Company's and Equistar's current and former operations;

     o    pricing and other competitive pressures;

     o    legal proceedings relating to present and former operations (including
          proceedings based on alleged exposure to lead-based paints and lead
          pigments, asbestos and other materials), ongoing or future tax audits
          and other claims; and

     o    the Company's substantial indebtedness and its impact on the Company's
          cash flow, business operations and ability to obtain additional
          financing.

     A further description of these risks, uncertainties and other matters can
be found in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2003, as initially filed with the Securities and
Exchange Commission on March 12, 2004.

     Some of these Cautionary Statements are discussed in more detail in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Amendment No. 2. Readers are cautioned not to place undue
reliance on forward-looking or Cautionary Statements, which reflect present
expectations as at March 12, 2004, the date the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 was originally filed with the
Securities and Exchange Commission.


                                        3



<PAGE>


The Company undertakes no obligation to update any forward-looking or Cautionary
Statement. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by the Cautionary Statements in this
Amendment No. 2. Readers are advised to consult any further disclosures the
Company may make on related subjects in subsequent 10-Q, 8-K, and 10-K reports
to the Securities and Exchange Commission.

                           Non-GAAP Financial Measures

     Financial measures based on accounting principles generally accepted in the
United States of America ("GAAP") are commonly referred to as GAAP financial
measures. A non-GAAP financial measure is generally defined by the Securities
and Exchange Commission as one that purports to measure historical or future
financial performance, financial position, or cash flows, but excludes or
includes amounts that would not be so adjusted in the most comparable GAAP
measure. From time to time the Company discloses non-GAAP financial measures,
primarily EBITDA. EBITDA represents income from operations before interest,
taxes, depreciation and amortization, other income items, equity earnings, and
the cumulative effect of accounting changes. EBITDA is a key measure used by the
banking and investing communities in their evaluation of economic performance.
Accordingly, management believes that disclosure of EBITDA provides useful
information to investors because it is frequently cited by financial analysts in
evaluating companies' performance. EBITDA identified above is not a measure of
operating performance computed in accordance with GAAP and should not be
considered as a substitute for GAAP measures. Additionally, these measures may
not be comparable to similarly named measures used by other companies.

     The Company also periodically reports adjusted net or operating income
(loss) or adjusted EBITDA, excluding designated items. Management believes that
excluding these items generally helps investors to compare operating performance
between two periods. Adjusted data are not reported without an explanation of
the items that are excluded.


                                        4



<PAGE>


                                     PART II

Item 6.Selected Financial Data

     The selected financial data presented below for each of the five years
ended December 31, 2003 have been restated to correct errors in the Company's
computation of deferred income taxes relating to its investment in Equistar.
The effect of this restatement on the Company's selected financial data is
presented in the table that follows the selected financial data in this Item 6
and is more fully described in Note 19 to the Consolidated Financial Statements
included in this Amendment No. 2.

     The selected financial data included below were derived from the
Consolidated Financial Statements of the Company, and should be read in
conjunction with such financial statements, including the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included in Part II, Items 8 and 7, respectively, of this
Amendment No. 2.

Selected Financial Data

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                           ---------------------------------------
                                                                               2003          2002          2001
                                                                           -----------   -----------   -----------
                                                                           (Restated)*   (Restated)*   (Restated)*
                                                                                    (Millions, except per
                                                                                         share data)
<S>                                                                         <C>           <C>          <C>
Income Statement Data
   Net sales ...........................................................    $1,687        $1,554       $1,590
   Operating (loss) income .............................................       (51)(1)        80 (5)       14(8)
   (Loss) earnings on Equistar investment ..............................      (100)(2)       (73)         (83)(9)
   (Loss) income from continuing operations before cumulative
      effect of accounting change ......................................      (183)(3)       (28)(6)      (54)(10)
   Cumulative effect of accounting change ..............................        (1)(4)      (305)(7)       --
   Net (loss) income from continuing operations ........................      (184)(3)      (333)(6)      (54)(10)
   Basic (loss) earnings per share from continuing operations before
      cumulative effect of accounting change ...........................     (2.86)(3)     (0.44)(6)    (0.85)(10)
   Basic (loss) earnings per share from continuing operations ..........     (2.88)(3)     (5.24)(6)    (0.85)(10)
   Dividends declared per share ........................................      0.27          0.54         0.54
Balance Sheet Data (at period end)
   Total assets ........................................................    $2,398        $2,396       $2,965
   Total liabilities ...................................................     2,429         2,397        2,439
   Minority interest ...................................................        27            19           21
   Shareholders' (deficit) equity ......................................       (58)          (20)         505
Other Data (with respect to continuing operations)
   Depreciation and amortization .......................................    $  113        $  102       $  110
   Capital expenditures ................................................        48            71           97

<CAPTION>
                                                                            Year Ended December 31,
                                                                           -------------------------
                                                                               2000          1999
                                                                           -----------   -----------
                                                                           (Restated)*   (Restated)*
                                                                             (Millions, except per
                                                                                  share data)
<S>                                                                         <C>          <C>
Income Statement Data
   Net sales ...........................................................    $1,793       $1,589
   Operating (loss) income .............................................       201(11)      139(13)
   (Loss) earnings on Equistar investment ..............................        45(9)        (7)(9)
   (Loss) income from continuing operations before cumulative
      effect of accounting change ......................................       111(12)     (545)(14)
   Cumulative effect of accounting change ..............................        --           --
   Net (loss) income from continuing operations ........................       111(12)     (545)(14)
   Basic (loss) earnings per share from continuing operations before
      cumulative effect of accounting change ...........................      1.73(12)    (7.88)(14)
   Basic (loss) earnings per share from continuing operations ..........      1.73(12)    (7.88)(14)
   Dividends declared per share ........................................      0.54         0.54
Balance Sheet Data (at period end)
   Total assets ........................................................    $3,259       $3,286
   Total liabilities ...................................................     2,616        2,606
   Minority interest ...................................................        22           16
   Shareholders' (deficit) equity ......................................       621          664
Other Data (with respect to continuing operations)
   Depreciation and amortization .......................................    $  113       $  105
   Capital expenditures ................................................       110          109
</TABLE>

----------
*    The Company restated its financial statements as disclosed in Note 19 to
     the Consolidated Financial Statements included in this Amendment No. 2. The
     table that follows in this Item 6 presents a summary of the effect of the
     restatement.

     (1)  Includes $103 million of asset impairment charges associated primarily
          with the writedown of property, plant and equipment at the Company's
          Le Havre, France TiO[u]2 manufacturing plant and $18 million of
          reorganization and office closure costs associated with the Company's
          cost reduction program.

     (2)  Includes the Company's share of Equistar's financing costs of $11
          million, loss on sale of assets of $4 million and severance costs of
          $2 million.


                                        5



<PAGE>


     (3)  Includes after-tax asset impairment charges of $101 million or $1.58
          per share associated primarily with the writedown of property, plant
          and equipment at the Company's Le Havre, France TiO[u]2 manufacturing
          plant; a tax charge of $22 million or $0.34 per share to provide a
          full valuation allowance for newly generated deferred tax assets of
          the Company's French subsidiaries, unrelated to the impairment charges
          reported in 2003; a net tax benefit of $18 million or $0.28 per share
          unrelated to transactions in 2003; after-tax reorganization and office
          closure charges of $12 million or $0.19 per share; and an after-tax
          benefit of $2 million or $0.03 per share from the collection of a note
          receivable previously written off. In addition, this amount includes
          the Company's after-tax share of Equistar's financing costs of $7
          million or $0.11 per share, loss on sale of Equistar's assets of $3
          million or $0.04 per share and Equistar's severance costs of $1
          million or $0.02 per share.

     (4)  Reflects the cumulative effect of a change in accounting for asset
          retirement obligations in accordance with Statement of Financial
          Accounting Standards ("SFAS") No. 143. See "Cumulative Effect of
          Accounting Changes" in Item 7 included in this Amendment No. 2.

     (5)  Includes a benefit of $6 million from a reduction of reserves due to
          favorable resolution of environmental claims related to predecessor
          businesses reserved for in prior years.

     (6)  Includes an after-tax benefit of $4 million or $0.06 per share from a
          reduction of reserves due to favorable resolution of environmental
          claims related to predecessor businesses reserved for in prior years,
          a tax benefit of $22 million or $0.35 per share primarily related to a
          federal tax refund claim, and a tax charge of $10 million or $0.16 per
          share to establish a valuation allowance against deferred tax assets
          for the Company's French subsidiaries.

     (7)  Reflects the cumulative effect of a change in accounting for goodwill
          of the Company and Equistar in accordance with SFAS No. 142. See
          "Cumulative Effect of Accounting Changes" in Item 7 included in this
          Amendment No. 2.

     (8)  Includes $36 million in reorganization and plant closure charges, $15
          million to increase reserves for the estimated costs to resolve legal
          and environmental claims related to predecessor businesses and $13
          million of the Company's goodwill amortization.

     (9)  Includes $10 million of Equistar's goodwill amortization.

     (10) Includes $24 million after-tax or $0.38 per share in reorganization
          and plant closure charges, an additional $4 million or $0.07 per share
          representing the Company's after-tax share of costs related to the
          shutdown of Equistar's Port Arthur, Texas plant, $9 million after-tax
          or $0.14 per share to increase reserves for the estimated costs to
          resolve legal and environmental claims related to predecessor
          businesses, $13 million or $0.20 per share of the Company's goodwill
          amortization, $10 million or $0.16 per share of Equistar's goodwill
          amortization and a tax benefit of $42 million or $0.66 per share from
          a reduction in the Company's income tax accruals due to favorable
          developments related to matters reserved for in prior years.

     (11) Includes $6 million to increase reserves for the estimated costs to
          resolve legal and environmental claims related to predecessor
          businesses and $13 million of the Company's goodwill amortization.

     (12) Includes $4 million after-tax or $0.06 per share to increase reserves
          for the estimated costs to resolve legal and environmental claims
          related to predecessor businesses, $13 million or $0.20 per share of
          the Company's goodwill amortization and $10 million or $0.16 per share
          of Equistar's goodwill amortization.

     (13) Includes $5 million to increase reserves for the estimated costs to
          resolve legal and environmental claims related to predecessor
          businesses and $12 million of the Company's goodwill amortization.

     (14) Includes a charge for loss in value of the Equistar interest of $639
          million to reduce the carrying value of the Equistar interest to
          estimated fair value, $3 million after-tax or $0.04 per share to
          increase reserves for the estimated costs to resolve legal and
          environmental claims related to predecessor businesses, and $12
          million or $0.17 per share of the Company's goodwill amortization and
          $10 million or $0.14 per share of Equistar's goodwill amortization.


                                        6



<PAGE>


     The table that follows presents a summary of the effect of the restatement
described above on the Company's selected financial data for the years ended
December 31, 2003, 2002, 2001, 2000, and 1999. See Note 19 to the Consolidated
Financial Statements included in this Amendment No. 2 for a complete description
of the restatement.

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                            ----------------------------------------------------------------
                                                  2003 (1)               2002 (1)              2001 (1)
                                            --------------------   -------------------   -------------------
                                                As         As         As         As         As         As
                                             Reported   Restated   Reported   Restated   Reported   Restated
                                             --------   --------   --------   --------   --------   --------
                                                                        (Millions)
<S>                                           <C>        <C>        <C>        <C>         <C>        <C>
Balance sheet data (at period end)
   Total liabilities.....................    $ 2,444     $2,429     $2,412     $2,397      $2,454     $2,439
   Shareholders' (deficit) equity........       (73)       (58)       (35)       (20)        490        505

<CAPTION>
                                                     Year Ended December 31,
                                            -----------------------------------------
                                                  2000 (1)              1999 (1)(2)
                                            -------------------   -------------------
                                               As         As         As         As
                                            Reported   Restated   Reported   Restated
                                            --------   --------   --------   --------
                                                            (Millions)
<S>                                           <C>        <C>      <C>        <C>
Balance sheet data (at period end)
   Total liabilities.....................    $2,631     $2,616    $2,621     $2,606
   Shareholders' (deficit) equity........       606        621       649        664
</TABLE>

----------
(1)  The restatement for deferred taxes related to the Company's investment in
     Equistar (see Note 19 to the Consolidated Financial Statements included in
     this Amendment No. 2) had no impact on Income Statement Data for the years
     2000 through 2003. This restatement decreased income tax expense and net
     loss from continuing operations by $4 million in 1999 (See Income Statement
     Data below) and decreased Total liabilities and increased Shareholders'
     equity at December 31, 1998 by $11 million.

(2)  A summary of the effect of the restatement adjustment on Income Statement
     Data for the year ended December 31, 1999 follows:

<Table>
<Caption>

                                                                                          Year Ended December 31, 1999
                                                                                        ---------------------------------
                                                                                        (Millions, except per share data)
                                                                                        ---------------------------------
                                                                                                As             As
                                                                                             Reported       Restated
                                                                                             --------       --------
<S>                                                                                          <C>            <C>
Income Statement Data
  Loss from continuing operations before cumulative effect of accounting change.......        $(549)         $(545)
  Net loss from continuing operations.................................................         (549)          (545)
  Basic loss per share from continuing operations before cumulative effect of
  accounting change..................................................................         (7.93)         (7.88)
  Basic loss per share from continuing operations....................................         (7.93)         (7.88)

</Table>








                                        7



<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

                                  Introduction

     The Company's principal operations are grouped into three business
segments: Titanium Dioxide and Related Products, Acetyls, and Specialty
Chemicals. Operating income and expense not identified with the three separate
business segments, including certain of the Company's S,D&A costs not allocated
to its three business segments, employee-related costs from predecessor
businesses and certain other expenses, including costs associated with the
Company's cost reduction program announced in July 2003 and the Company's
reorganization activities in 2001 (see Note 3 to the Consolidated Financial
Statements included in this Amendment No. 2), are grouped under the heading
Other. The Company also holds a 29.5% interest in Equistar, which is accounted
for using the equity method. (See Notes 1 and 4 to the Consolidated Financial
Statements included in this Amendment No. 2.) A discussion of Equistar's
financial results for the relevant period is included below, as the Company's
interest in Equistar represents a significant component of the Company's assets
and Equistar's results can have a significant effect on the Company's
consolidated results of operations.

     The following information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto. In connection with the
forward-looking statements that appear in the following information, please
carefully review the Cautionary Statements in "Disclosure Concerning
Forward-Looking Statements" included in this Amendment No. 2.

Restatement of Financial Statements

     The Company restated its financial statements for the years 1998 through
2002 and for the first quarter of 2003 to correct errors in its accounting for
deferred taxes relating to its Equistar investment, the calculation of its
pension benefit obligations, its accounting for a multi-year precious metals
agreement, and the timing of its recognition of income and expense associated
with previously established reserves for legal, environmental and other
contingencies for certain of the Company's predecessor businesses.

     In addition, during the course of the Company's review of its deferred tax
assets related to its investment in Equistar, the Company reexamined the
deferred tax asset associated with its French subsidiaries and concluded that,
due to the unlikelihood of realizing the value of that asset, it should be
eliminated as of December 31, 2002. Finally, as a consequence of the Company's
review of its accounting with respect to its investment in Equistar, the Company
elected to further amend its Consolidated Statements of Operations for the years
1998 through 2002 to reclassify to Selling, development and administrative
expense various costs allocated to its investment in Equistar and previously
included in (Loss) earnings on Equistar investment in those Consolidated
Statements of Operations.

     On November 12, 2003, the Company filed with the Securities and Exchange
Commission Amendment No. 1 to its Annual Report on Form 10-K for the year ended
December 31, 2002, and on November 14, 2003, the Company filed Amendment No. 1
to its Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2003, to reflect changes therein required as a consequence of the restatements
and the reclassification described above. A detailed discussion of the
restatements of the Company's financial statements, including a summary of the
aggregate effect of the changes implemented by the restatements, as well as the
reclassification of costs associated with the Company's investment in Equistar,
can be found in Note 2 to the Consolidated Financial Statements included in
Amendment No. 1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, and Note 2 to the Consolidated Financial Statements included
in Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2003.

     In addition to the restatements and the reclassification described above,
the Company restated its financial statements for the years 2001 through 2003
to correct errors in the computation of deferred income taxes relating
to its Equistar investment. The prior restatement overstated the Company's
liability for deferred income taxes relating to its Equistar investment. This
restatement decreased the Company's liability for deferred income taxes and
Shareholders' deficit at December 31, 2003 and 2002 by $15 million. This
restatement similarly decreased liabilities for deferred income taxes and
increased Shareholders' equity at December 31, 2001 and 2000 by $15 million.
The restatement did not affect the Company's cash flow or operating income in
any year. See Note 19 to the Consolidated Financial Statements for additional
information.


                                        8



<PAGE>


     On August 9, 2004, the Company filed with the Securities and Exchange
Commission this Amendment No. 2 to its Annual Report on Form 10-K/A for the year
ended December 31, 2003 and also filed Amendment No. 1 to its Quarterly Report
on Form 10-Q/A for the quarter ended March 31, 2004 to reflect changes required
therein as a consequence of such restatement. A detailed discussion of such
restatement, including a summary of the effect of the changes implemented by
such restatement, can be found in Note 19 to the Consolidated Financial
Statements included in this Amendment No. 2 and in Note 17 to the Consolidated
Financial Statements (Unaudited) included in Amendment No. 1 to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2004.

Major Factors Affecting 2003 Results

     o    The Company's results in 2003 include non-cash, pre-tax asset
          impairment charges of $103 million ($101 million after tax or $1.58
          per share) associated primarily with the writedown of property, plant
          and equipment at its Le Havre, France TiO[u]2 manufacturing plant.

     o    During 2003, the Company recorded pre-tax reorganization and office
          closure charges of $18 million ($12 million after tax or $0.19 per
          share) associated with its cost reduction program.

     o    2003 results include a net tax benefit of $18 million or $0.28 per
          share unrelated to 2003 transactions and a tax charge of $22 million
          or $0.34 per share to provide a full valuation allowance for newly
          generated deferred tax assets of the Company's French subsidiaries
          unrelated to the impairment charges reported in 2003.

     o    TiO[u]2 and Acetyls average selling prices, after reaching a low in
          the first quarter of 2002, rose steadily from the second quarter of
          2002 to the second quarter of 2003 as certain of the worldwide price
          increases announced during 2002 and the first quarter of 2003 by the
          Company and most other major producers for TiO[u]2 and for Acetyls'
          principal products were gradually realized. Although average selling
          prices for both TiO[u]2 and Acetyls decreased slightly from the second
          quarter of 2003 to the end of the year, average selling prices for
          TiO[u]2 for the full year 2003 were higher than the prior year and
          Acetyls average selling prices for the full year 2003 were
          significantly higher than 2002 average prices.

     o    Demand for TiO[u]2 decreased from the prior year primarily due to the
          lack of a coatings season in most of North America due to poor weather
          conditions, as well as weak global economic conditions throughout most
          of 2003.

     o    Sales prices measured in US dollars further increased due to the
          strengthening of the euro, the British pound and the Australian dollar
          versus the US dollar. The weakening US dollar increased foreign
          currency based manufacturing costs, when measured in US dollars, which
          substantially offset revenue increases from foreign currency strength.

     o    TiO[u]2 manufacturing costs increased in 2003 compared to 2002
          primarily due to the unfavorable effect of translating manufacturing
          costs incurred in stronger foreign currencies into US dollars, higher
          maintenance and fixed costs, and higher costs for utilities, including
          higher natural gas costs. The increase in average selling prices was
          more than offset by the increase in manufacturing costs during 2003,
          which contributed to lower margins for the TiO[u]2 business segment.

     o    Acetyls revenues were higher in 2003 compared to 2002 due to
          significantly higher average selling prices as the result of price
          increases and the favorable effect of translating foreign currency
          denominated sales into US dollars. The price increases were
          implemented in response to significantly higher feedstock and energy
          costs. In addition, Acetyls sales volume was slightly higher in 2003
          compared to 2002 primarily due to higher acetic acid sales volume.

     o    Acetyls production costs per ton increased significantly in 2003
          compared to 2002 primarily due to higher feedstock and energy costs,
          particularly natural gas and ethylene. However, the increase in
          production costs were more than offset by higher average selling
          prices, contributing to higher margins in the Acetyls business
          segment.

     o    Continued soft demand and strong competition from low-cost
          manufacturers characterized the business environment for Specialty
          Chemicals in 2003. Manufacturing and other costs of sales were higher
          in 2003


                                        9



<PAGE>


          compared to 2002 primarily due to an increase in the cost of crude
          sulfate turpentine ("CST") and the use of a higher-cost alternative
          raw material due to the short supply of CST, and higher natural gas
          costs.

     o    Interest costs were higher in 2003 compared to 2002 as the result of
          higher average debt levels and the higher cost of debt. In April 2003,
          the Company issued $100 million additional principal amount of 9.25%
          Senior Notes and in November 2003 $150 million of 4% Convertible
          Senior Debentures. Additionally, in November 2003, the Company
          terminated its European receivables securitization program.

     o    At Equistar, operating losses in 2003 were greater than 2002.
          Equistar's results in 2003 include lower sales volume and
          significantly higher raw material and energy costs, which were only
          partially offset by higher average selling prices. In response to the
          higher raw material and energy costs in 2003, Equistar implemented
          significant sales price increases in 2003 for substantially all of its
          petrochemicals and polymers products. Raw material and energy cost
          increases of nearly $1 billion were recovered through sales price
          increases in 2003. However, the magnitude of these price increases had
          a negative effect on demand and contributed to lower sales volume.

Outlook for 2004

     Operating income in the first quarter of 2004 for the TiO[u]2 business
segment is expected to be slightly higher than the fourth quarter of 2003
excluding asset impairment charges (fourth quarter 2003 operating loss was $102
million; however, excluding $103 million of asset impairment charges operating
income would have been $1 million), but substantially lower than the first
quarter of 2003. Sales volume in the first quarter of 2004 is expected to be
seasonally higher than the fourth quarter of 2003, but manufacturing costs are
expected to remain high in part due to anticipated continued weakness in the US
dollar compared to foreign currencies.

     First quarter 2004 operating income for the Acetyls business segment is
expected to be lower than the fourth quarter of 2003 due to anticipated higher
feedstock costs, particularly ethylene and natural gas costs. Sales volume is
expected to be similar to the fourth quarter of 2003.

     Operating income for the Specialty Chemicals business segment in the first
quarter of 2004 is expected to improve from the fourth quarter of 2003,
primarily due to expected higher sales volume, improved operating efficiency and
favorable product mix.

     The completion of scheduled maintenance turnarounds at three of Equistar's
largest ethylene plants has better positioned Equistar to take advantage of any
recovery in 2004. A fourth ethylene plant will begin a scheduled maintenance
turnaround in the first quarter of 2004. Thus far in 2004, Equistar has seen a
continuation of the improvement in product sales volume experienced in the
second half of 2003. However, Equistar's product margins are heavily dependent
on hydrocarbons pricing, primarily crude oil and natural gas. Thus far in 2004,
hydrocarbon prices have remained high and volatile. Equistar has responded by
implementing product price increases and announcing additional product price
increases across the majority of its product lines. Since Equistar's products
have broad utilization across the economy, external factors such as the pace of
global economic growth, in addition to raw materials pricing, will be important
factors to Equistar's financial performance during 2004.

     The Company's priorities in 2004 will continue to be increasing customer
focus, reducing costs and improving financial flexibility. Based on negotiations
with customers during the last few months, the Company's market share in the
TiO[u]2 business segment continues to improve. Indications thus far in 2004 of
increased demand as well as continuing improvement in the economy are expected
to support the TiO[u]2 price increases announced in the fall of 2003. The
successful implementation of these announced price increases as well as those
announced in the first quarter of 2004 for certain of the Company's TiO[u]2 and
Acetyls products is dependent on continuing economic recovery and strong
customer demand. Successful implementation of announced price increases will be
a key business driver for improving and sustaining margins in the TiO[u]2 and
Acetyls business segments in 2004. The Company will continue to evaluate
opportunities to decrease production costs through both structural and control
measures. All costs and capital expenditures will continue to be managed
tightly. Feedstock costs, particularly ethylene and natural gas costs, will be
critical to profitability in the Acetyls business segment. The Company will
continue to seek options to reduce debt in 2004 and progress with its plans to
dispose of non-core assets that have limited strategic value. The Company's
Specialty Chemicals business segment will implement measures to reduce the
number of its product offerings and total costs, while the Company entertains
offers to purchase this business, as it is not a key strategic long-term asset
for the Company.


                                       10



<PAGE>


     With the Company's lowered cost base and expected continued economic
recovery coupled with stronger customer demand for its major products during the
first quarter, overall prospects for the Company's business segments are
expected to be favorable for 2004 compared to 2003. A slower economic global
recovery and volatility in the energy markets could adversely affect these
prospects as well as the prospects of Equistar.

Critical Accounting Estimates

     The preparation of the Company's financial statements requires management
to apply generally accepted accounting principles to the Company's specific
circumstances and make estimates and assumptions that affect the reported amount
of assets and liabilities at the date of the financial statements, the
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.

     The Company considers the following accounting estimates to be critical to
the preparation of the Company's financial statements:

     Environmental Liabilities and Legal Matters -- The Company periodically
reviews matters associated with potential environmental obligations and legal
matters brought against the Company, its subsidiaries and predecessor companies.
In order to make estimates of liabilities, the Company's evaluation of and
judgments about environmental obligations and legal matters are based upon the
individual facts and circumstances relevant to the particular matters and
include advice from legal counsel, if applicable. The Company believes that the
reasonably probable and estimable range of potential liability for environmental
and other legal contingencies, collectively, but which primarily relates to
environmental remediation activities, is between $53 million and $78 million and
has accrued $61 million as of December 31, 2003, including $22 million for the
Kalamazoo River matter discussed below. Expenses or benefits associated with
these contingencies including changes in estimated costs to resolve these
contingencies are included in the Company's S,D&A costs. In 2003, net benefits
resulting from changes in the estimated liabilities for these contingencies were
not significant. Included in 2002 is a benefit of $6 million from a reduction of
reserves due to a favorable resolution of certain environmental claims related
to predecessor businesses reserved for in prior years. Additionally, 2002
includes $3 million of expenses associated with environmental and other legal
contingencies related to the Company's current businesses. In 2001, $15 million
of the Company's total $16 million of expenses for environmental and other legal
contingencies resulted from increases in reserves for the estimated costs to
resolve legal and environmental claims related to predecessor businesses. The
Company expects that cash expenditures related to these potential liabilities
will be made over a number of years and will not be concentrated in any single
year.

     Certain Company subsidiaries have been named as defendants, PRPs, or both,
in a number of environmental proceedings associated with waste disposal sites or
facilities currently owned, operated or used by the Company's current or former
subsidiaries or predecessors. The Company's estimated individual exposure for
potential cleanup costs, damages for personal injury or property damage related
to these proceedings has been estimated to range between $0.01 million for
several small sites and $22 million for the Kalamazoo River Superfund Site in
Michigan. In October 2000, the Kalamazoo River Study Group, of which one of the
Company's subsidiaries is a member, evaluated a number of remedial options for
the Kalamazoo River Superfund Site and recommended a remedy at a total
collective cost of $73 million. The collective exposure for the Kalamazoo River
Superfund Site could range from $0 to $2.5 billion, if one of the previously
identified remedial options is selected by the EPA; however, the Company
strongly believes that the likelihood of the cost being either $0 or $2.5
billion is remote. Another as yet unidentified remedial option may also be
selected by the EPA. Based upon an interim allocation, the Company is paying 35%
of costs related to studying and evaluating the environmental conditions of the
river. Guidance as to how the EPA will likely proceed with any further
evaluation and remediation at the Kalamazoo site is not expected until late 2004
at the earliest. At the point in time when the EPA announces how it intends to
proceed with any such evaluation and remediation, the Company's estimate of its
liability at the Kalamazoo site will be re-evaluated. See "Environmental
Matters" in Item 1 and "Legal Proceedings" in Item 3 included in Amendment No. 1
to the Company's Annual Report on Form 10-K/A for the year ended December 31,
2003.

     Income Taxes -- The Company periodically assesses the likelihood of
realization of deferred tax assets and with respect to net operating loss
carryforwards, prior to expiration, by considering the availability of taxable
income in prior carryback periods, the scheduled reversal of deferred tax
liabilities, certain distinct tax planning strategies, and projected future
taxable income. If it is considered to be more likely than not that the deferred
tax assets will not be realized, a valuation allowance is established against
some or all of the deferred tax assets. The


                                       11



<PAGE>


Company's deferred tax assets, net of valuation allowances, were $342 million at
December 31, 2003. See "Income Taxes" below for additional information on the
Company's deferred tax assets.

     The Company periodically assesses tax exposures and establishes or adjusts
estimated reserves for probable assessments by the Internal Revenue Service (the
"IRS") or other taxing authorities. Such reserves represent an estimated
provision for taxes ultimately expected to be paid. The Company believes it has
adequately provided for any probable assessments and does not anticipate any
material earnings impact from their ultimate settlement or resolution. However,
if the IRS's position on certain issues is upheld after all of the Company's
administrative and legal options are exhausted, a material impact on the
Company's consolidated financial position, results of operations or cash flows
could result.

     The Company has recorded significant tax benefits in the past three years
associated with its assessment and resolution of tax exposures. See "Income
Taxes" below for additional information related to these benefits.

     Equity Interest in Equistar -- The Company has evaluated the carrying value
of its investment in Equistar at December 31, 2003 using fair value estimates
prepared by the Company and third parties. Those valuations included discounted
cash flow analysis of both internal management and external party cash flow
projections, as well as replacement cost analysis. Additionally, the Company
analyzed Lyondell's 2002 purchase of Occidental's 29.5% interest in Equistar and
determined, after considering tax effects, that the fair value of such
transaction related to Occidental's partnership investment exceeds the Company's
carrying value for its Equistar investment. The carrying value of the Company's
investment in Equistar at December 31, 2003 was $469 million. If future
valuation estimates for the Company's interest in Equistar are lower than the
Company's carrying value for its interest in Equistar, an adjustment to write
down the investment would be required.

     Goodwill -- The Company evaluates the carrying value of goodwill annually
or sooner if events or changes in circumstances indicate that the carrying
amount may exceed fair value. Recoverability is determined by comparing the
estimated fair value of the reporting unit to which the goodwill applies to the
carrying value, including goodwill, of that reporting unit. Fair value estimates
are prepared by the Company and third parties. Those valuation estimates include
discounted cash flow analysis, replacement cost analysis, precedent transaction
analysis and various other valuation methodologies. If the estimated fair value
of the reporting unit exceeds its carrying value, goodwill of the reporting unit
is not impaired. If the carrying value of the reporting unit's goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. The carrying value of goodwill at December 31, 2003
was $104 million, of which, $56 million and $48 million was associated with
the Company's TiO[u]2 and Acetyls business segments, respectively. The
recoverability of the Company's goodwill is dependent upon the future
valuations associated with its reporting units, which could change
significantly based upon business performance or other factors.

     Retirement-Related Benefits -- The Company evaluates the appropriateness of
retirement-related benefit plan assumptions annually. Some of the more
significant assumptions used to determine the Company's benefit obligations and
net periodic benefit costs are the expected rate of return on plan assets, the
discount rate, the rate of compensation increases, and healthcare cost trend
rates.

     To develop its expected return on plan assets, the Company uses long-term
historical actual return information, the mix of investments that comprise plan
assets, and future estimates of long-term investment returns by reference to
external sources rather than relying on current fluctuations in market
conditions. The discount rate assumptions reflect the rates available on
high-quality fixed-income debt instruments on December 31 of each year. The rate
of compensation increase is determined by the Company based upon its long-term
plans for such increases. The Company reviews external data and its own
historical trends for healthcare costs to determine the healthcare cost trend
rates.

     Due to the reduction of rates on high-quality fixed income debt
instruments, the Company reduced the discount rate at December 31, 2003. The
weighted average discount rate, the expected return on plan assets, and the rate
of compensation increase assumptions at December 31, 2003 and 2002 were 5.94%
and 6.35%; 8.33% and 8.34%; and 3.59% and 3.52%, respectively.

     A decrease in the discount rate by 1% would increase the Company's annual
net periodic pension cost by approximately $5 million due primarily to increased
loss amortization costs. A decrease in the expected return on plan assets by 1%
would increase the Company's annual net periodic pension cost by approximately
$8 million.

     Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. The assumed healthcare cost trend
rate used in measuring the healthcare portion of the postretirement benefit


                                       12



<PAGE>


obligation at December 31, 2003 was 8.5% for 2004, declining gradually to 5.5%
for 2010 and thereafter. A 1% increase or decrease in assumed healthcare cost
trend rates would affect service and interest components of postretirement
healthcare benefit costs by an insignificant amount in each of the years ended
December 31, 2003 and 2002. The effect on the accumulated postretirement benefit
obligation would be $4 million at each of December 31, 2003 and 2002. See
"Pension and Other Postretirement Benefits" below and Note 11 to the
Consolidated Financial Statements included in this Amendment No. 2 for
additional information related to the Company's retirement-related benefits.

Asset Impairment Charges

     In the fourth quarter of 2003, the Company recorded a non-cash, pre-tax
asset impairment charge of $103 million ($101 million after tax) associated
primarily with the writedown of property, plant and equipment at the Company's
Le Havre, France TiO[u]2 manufacturing plant. Management prepared and the
Company's Board of Directors approved its strategic operating plan for this
manufacturing plant in the fourth quarter of 2003. Financial projections
resulting from this strategic planning process produced cash flow estimates for
this plant that were less favorable than previous estimates. The Company
evaluated the carrying value of the Le Havre manufacturing plant assets by
analyzing the estimated future cash flows associated with these assets. Such
analysis demonstrated that the undiscounted estimated future cash flows were
insufficient to recover the carrying value of these assets. Accordingly, an
impairment charge was required to write down the basis in the property, plant
and equipment to its estimated fair value. The Company evaluated discounted cash
flow analysis and information from third parties to determine a fair value
estimate. At December 31, 2003, after the impairment charge, the carrying value
of the property, plant and equipment at the Le Havre manufacturing plant was
zero. Future capital expenditures at this plant are expected to be included in
period charges and classified as asset impairment charges when incurred.

     The operations of the Le Havre, France TiO[u]2 manufacturing plant were not
profitable in 2003. The Company does not expect these operations to return to
profitability in the future and is evaluating various alternatives for the
facility. The Company has decided to rationalize certain equipment at this plant
in the second quarter of 2004, which will result in the reduction of the plant's
rated capacity from 95,000 metric tons per annum to 65,000 metric tons per
annum. This rationalization will include the idling of certain equipment for
which the carrying value is zero, after the asset impairment charge reported in
2003.

Cost Reduction Program; Suspension of Dividend

     On July 21, 2003, the Company announced that it would implement a program
to reduce costs. This program included a reduction of approximately 5% in the
number of the Company's employees worldwide. The Company closed its executive
offices in Red Bank, New Jersey, effective September 1, 2003, and relocated its
headquarters to Hunt Valley, Maryland, where the Company has existing
administrative offices. In addition, the Company announced the suspension of
payment of dividends on its Common Stock. Given the volatile industry in which
it operates, the Company initiated these actions to reduce expenses and
strengthen its balance sheet.

     The Company expects to realize approximately $20 million of annual
operating expense savings from the cost reduction program announced on July 21,
2003. The Company has recorded charges for the year ended December 31, 2003 of
$18 million, of which $17 million is for severance-related costs and $1 million
is for contractual commitments for ongoing lease costs, net of expected sublease
income, associated with the closure of the Red Bank, New Jersey office for the
remaining term of the lease agreement. Substantially all of the remaining
charges for this program, estimated at $1 million to $3 million, are expected to
be recorded during the next several quarters. Severance-related cash payments of
$14 million for the implementation of this program were made during the year
ended December 31, 2003. Substantially all of the remainder of the cash payments
relating to this program, which are estimated to be approximately $11 million,
will be disbursed during the next several quarters.


                                       13



<PAGE>


Pension and Other Postretirement Benefits

     Certain of the Company's foreign and US pension plans had underfunded
Accumulated Benefit Obligations ("ABO") at December 31, 2003 and December 31,
2002. Due to recent improvement in the financial markets, the underfunded ABO
was reduced in 2003. The Company recorded an after-tax benefit in 2003 of $26
million in Shareholders' deficit to reflect the improvement in the underfunded
status of the ABO for these plans. At December 31, 2002, the Company recorded an
after-tax charge in Shareholders' deficit of $188 million to reflect the
required additional minimum pension liability resulting from the underfunded
status of the ABO at that time.

     Pension expense for 2003 was $7 million and pension income was $7 million
and $8 million for 2002 and 2001, respectively. The 2003 pension expense
includes a $3 million curtailment charge resulting from the Company's 2003 cost
reduction program. Due to a reduction in the discount rate assumption related to
the Company's pension plans and the amortized recognition of pension fund
investment losses in the financial markets in recent years prior to 2003,
pension expense for 2004 is estimated to be approximately $14 million, or $10
million more than pension expense in 2003, excluding the $3 million curtailment
charge.

     The Company expects to contribute approximately $12 million to its US and
foreign defined benefit pension plans and approximately $10 million to its Other
Postretirement Employee Benefits ("OPEB") plan in 2004. These estimates reflect
expected increases in pension plan trust funding to meet minimum requirements.
Additionally, the Company expects to contribute approximately $4 million to its
defined contribution pension plans in 2004.

     As a result of rising medical benefit costs and competitive business
conditions, the Company announced in early 2004 that effective April 1, 2004 it
will reduce the level of retiree medical benefits provided to essentially all of
its retirees by offering a monthly subsidy in 2004 to retirees that enroll in
designated preferred provider organization plans or Medicare supplement
insurance plans. This change will reduce the Company's accumulated
postretirement benefit obligation by approximately $45 million. Beginning in
2004, this reduction will be recognized ratably over approximately thirteen
years through OPEB net periodic benefit cost. Estimated OPEB net periodic
benefit cost for 2004, after giving affect to this change, will be income of
approximately $4 million compared to a benefit cost of $2 million in 2003. The
Company estimates that 2004 cash payments for retiree medical and insurance
benefits to be slightly less than 2003 as it transitions to the subsidy plan.
Cash payments in subsequent years are estimated to be significantly less than
2003.

Income Taxes

     The Company recorded tax benefits of $37 million, $22 million and $42
million in 2003, 2002 and 2001, respectively, unrelated to transactions for
those years. In 2003, the tax benefit primarily related to the reversal of tax
reserves recorded in prior years associated with the IRS audits that were
settled during 2003. In 2002, the tax benefit primarily related to an $18
million refund of tax and interest originating from refund claims filed with the
IRS in 2002, which carried back expenses incurred in 1993 and 1994 to earlier
tax years. In 2001, the tax benefit primarily related to the reversal of tax
accruals recorded in 1996. During 2001, through ongoing discussions and
negotiations with the IRS, it was determined that the Company's original 1996
position would not be challenged and the accruals recorded in 1996 were no
longer necessary. These benefits were offset to an extent by certain new tax
provisions the Company determined probable of assessment based on the evolution
of various domestic and foreign tax examinations and changes in relevant tax
regulations.

     The undistributed earnings of the Company's foreign subsidiaries are
generally considered to be indefinitely reinvested and, accordingly, no
provision for US Federal or state income taxes or foreign withholding taxes has
been provided. In 2003, deferred tax expense on certain unremitted earnings of
foreign subsidiaries of $19 million was recorded due to the Company's plan to
repatriate approximately $107 million from its Australian and European
businesses to the US by implementing certain intercompany financing strategies
in early 2004.

     As a result of the Company's assessment of its net deferred tax assets, a
valuation allowance of $69 million and $10 million was required for the net
deferred tax assets of its French subsidiaries at December 31, 2003 and 2002,
respectively. No income tax benefits associated with 2003 operating losses for
the Company's French subsidiaries were recognized. The Company currently expects
that if its French subsidiaries continue to report net operating losses in
future periods, income tax benefits associated with those losses would not be
recognized, and the Company's results in those periods would be adversely
affected. Additionally, due to the uncertainty of the realization of deferred
tax assets for state net operating loss carryforwards and Federal capital loss
carryforwards, a valuation allowance totaling $28 million and $25 million was
recorded at December 31, 2003 and 2002, respectively.


                                       14



<PAGE>


Historic Cyclicality of the Chemicals Industry

     The Company's income and cash flow levels reflect the cyclical nature of
the chemicals industries in which it operates. Most of these industries are
mature and sensitive to cyclical supply and demand balances. In particular, the
markets for ethylene and polyethylene, in which the Company participates through
its interest in Equistar, are highly cyclical, resulting in volatile profits and
cash flow over the business cycle. The global markets for TiO[u]2, VAM, acetic
acid, and fragrance and flavor chemicals are also cyclical, although to a lesser
degree. The balance of supply and demand in the markets in which the Company and
Equistar do business, as well as the level of inventories held by downstream
customers, has a direct effect on the sales volume and prices of the Company's
and Equistar's products. In contrast, the Company believes that, over a business
cycle, the markets for specialty chemicals are generally more stable in terms of
industry demand, selling prices and operating margins.

     Demand for TiO[u]2 is influenced by changes in the gross domestic product
of various regions of the world and to changes in its customers' marketplaces,
which are primarily the paint and coatings, plastics and paper industries. In
recent history, consolidations and negative business conditions within certain
of those industries have put pressure on TiO[u]2 prices as companies compete to
keep volume placed. Demand for ethylene and its derivatives and for acetyls has
fluctuated from year to year depending on various factors, including but not
limited to the economy, industrial production, weather and threat of war. These
markets are particularly sensitive to capacity additions. Producers have
historically experienced alternating periods of inadequate capacity, resulting
in increased selling prices and operating margins, followed by periods of large
capacity additions, resulting in declining capacity utilization rates, selling
prices and operating margins. This cyclical pattern is most visible in the
markets for ethylene and polyethylene, resulting in volatile profits and cash
flow over the business cycle.

     Profitability in the Acetyls business segment and in Equistar's businesses
is further influenced by fluctuations in the price of natural gas and feedstocks
for ethylene. It is not possible to predict accurately the effect that future
changes in natural gas and feedstock costs, market conditions and other factors
will have on the Company's or Equistar's profitability.

                       Results of Consolidated Operations

<TABLE>
<CAPTION>
                                                                               2003         2002         2001
                                                                              ------       ------       ------
                                                                               (Millions, except per share data)
<S>                                                                           <C>          <C>          <C>
Net sales .................................................................   $1,687       $1,554       $1,590
Operating (loss) income ...................................................      (51)(1)       80 (5)       14 (8)
Loss on Equistar investment ...............................................     (100)(2)      (73)         (83)(9)
Loss before cumulative effect of accounting change ........................     (183)(3)      (28)(6)      (54)(10)
Cumulative effect of accounting change ....................................       (1)(4)     (305)(7)       --
Net loss ..................................................................     (184)(3)     (333)(6)      (54)(10)
Basic and diluted loss per share before cumulative effect of accounting
   change .................................................................    (2.86)(3)    (0.44)(6)    (0.85)(10)
Basic and diluted loss per share ..........................................    (2.88)(3)    (5.24)       (0.85)
</TABLE>

----------
(1)  Includes $103 million of asset impairment charges associated primarily with
     the writedown of property, plant and equipment at the Company's Le Havre,
     France TiO[u]2 manufacturing plant and $18 million of reorganization and
     office closure costs associated with the Company's cost reduction program.

(2)  Includes the Company's share of Equistar's financing costs of $11 million,
     loss on sale of assets of $4 million and severance costs of $2 million.

(3)  Includes after-tax asset impairment charges of $101 million or $1.58 per
     share associated primarily with the writedown of property, plant and
     equipment at the Company's Le Havre, France TiO[u]2 manufacturing plant; a
     tax charge of $22 million or $0.34 per share to provide a full valuation
     allowance for newly generated deferred tax assets of the Company's French
     subsidiaries unrelated to the impairment charges reported in 2003; a net
     tax benefit of $18 million or $0.28 per share unrelated to transactions in
     2003; after-tax reorganization and office closure charges of $12 million or
     $0.19 per share; and an after-tax benefit of $2 million or $0.03 per share
     from the collection of a note receivable previously written off. In
     addition, this amount includes the Company's after-tax share of Equistar's
     financing costs of $7 million or $0.11 per share, loss on sale of
     Equistar's assets of $3 million or $0.04 per share and Equistar's severance
     costs of $1 million or $0.02 per share.


                                       15



<PAGE>


(4)  Reflects the cumulative effect of a change in accounting for asset
     retirement obligations in accordance with SFAS No. 143. See "Cumulative
     Effect of Accounting Changes" below.

(5)  Includes a benefit of $6 million from a reduction of reserves due to
     favorable resolution of environmental claims related to predecessor
     businesses reserved for in prior years.

(6)  Includes an after-tax benefit of $4 million or $0.06 per share from a
     reduction of reserves due to favorable resolution of environmental claims
     related to predecessor businesses reserved for in prior years, a tax
     benefit of $22 million or $0.35 per share primarily related to a federal
     tax refund claim, and a tax charge of $10 million or $0.16 per share to
     establish a valuation allowance against deferred tax assets for the
     Company's French subsidiaries.

(7)  Reflects the cumulative effect of change in accounting for goodwill of the
     Company and Equistar in accordance with SFAS No. 142. See "Cumulative
     Effect of Accounting Changes" below.

(8)  Includes $36 million in reorganization and plant closure charges, $15
     million to increase reserves for the estimated costs to resolve legal and
     environmental claims related to predecessor businesses and $13 million of
     the Company's goodwill amortization.

(9)  Includes $10 million of goodwill amortization and $6 million representing
     the Company's share of costs related to the shutdown of Equistar's Port
     Arthur, Texas plant.

(10) Includes $24 million after-tax or $0.38 per share in reorganization and
     plant closure charges; an additional $4 million or $0.07 per share
     representing the Company's after-tax share of costs related to the shutdown
     of Equistar's Port Arthur, Texas plant; $9 million after-tax or $0.14 per
     share to increase reserves for the estimated costs to resolve legal and
     environmental claims related to predecessor businesses; $13 million or
     $0.20 per share of the Company's goodwill amortization; $10 million or
     $0.16 per share of Equistar's goodwill amortization; and a tax benefit of
     $42 million or $0.66 per share from a reduction in the Company's income tax
     accruals due to favorable developments related to matters reserved for in
     prior years.

Cumulative Effect of Accounting Changes

Asset Retirement Obligations

     On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations" ("SFAS
No. 143"). SFAS No. 143 applies to legal obligations associated with the
retirement of long-lived assets. This standard requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred and the associated asset retirement costs be capitalized as
part of the carrying amount of the long-lived asset. Accretion expense and
depreciation expense related to the liability and capitalized asset retirement
costs, respectively, are recorded in subsequent periods. The Company's asset
retirement obligations arise from activities associated with the eventual
remediation of sites used for landfills and mining and include estimated
liabilities for closure, restoration, and post-closure care. None of the
Company's assets are legally restricted for purposes of settling these
obligations. As these liabilities are settled, a gain or loss is recognized for
any difference between the settlement amount and the liability recorded. The
Company reported an after-tax transition charge of $1 million in the first
quarter of 2003 as the cumulative effect of this accounting change. The impact
of adoption was to increase the Company's reported assets and liabilities by $2
million and $3 million, respectively. The ongoing annual expense resulting from
the initial adoption of SFAS No. 143 is expected to be approximately $1 million.
Activity associated with the asset retirement obligations other than the effect
of initial adoption of SFAS No. 143 was $1 million for the year ended December
31, 2003. Disclosure on a pro forma basis of net income and related per-share
amounts as if SFAS No. 143 had been applied during all periods presented is
omitted because the effect on pro forma net income is not significant. The
amount of the asset retirement obligation at December 31, 2003 was $13 million.
The pro forma amount of the asset retirement obligation at January 1, 2001,
December 31, 2001, and December 31, 2002, as if SFAS No. 143 had been applied at
the beginning of 2001, the earliest year presented, is $10 million, $11 million
and $12 million, respectively.

Goodwill

     On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Intangible Assets" ("SFAS No. 142"), which applies to all goodwill and
intangible assets acquired in a business combination. Under this new standard,
all goodwill, including goodwill acquired before initial application of the
standard, is not amortized but must be tested for impairment at least annually
at the reporting unit level, as defined in the standard. Accordingly, the
Company reported a charge for the cumulative effect of a change in accounting
principle of $275 million in the first quarter of 2002 to write off goodwill
related to its Acetyls business. Also in accordance with SFAS No. 142,


                                       16



<PAGE>


Equistar reported an impairment of goodwill in the first quarter of 2002. The
write-off at Equistar required an adjustment of $30 million to reduce the
carrying value of the Company's investment in Equistar to its approximate
proportional share of Equistar's Partners' capital. The Company reported this
adjustment as a charge for the cumulative effect of a change in accounting
principle.

     Goodwill amortization was suspended on January 1, 2002 in accordance with
SFAS No. 142. Results for the year 2001 include $13 million of expense in
operating income for amortization of the Company's goodwill and $10 million in
Loss on Equistar investment for the Company's share of Equistar's goodwill
amortization.

2003 Versus 2002

     The Company reported a loss before the cumulative effect of an accounting
change for asset retirement obligations of $183 million or $2.86 per share in
2003 compared to a loss before the cumulative effect of an accounting change for
goodwill of $28 million or $0.44 per share in 2002. The Company's pre-tax
results decreased $163 million in 2003 compared to 2002, including $131 million
lower operating income, a $27 million larger loss from the Company's investment
in Equistar and higher net interest expense of $6 million. Income taxes in 2003
and 2002 include net tax benefits unrelated to transactions for those years of
$18 million and $22 million, respectively. In addition, income taxes in 2003 and
2002 include tax charges of $22 million (unrelated to the impairment charges
reported in 2003) and $10 million, respectively, to provide full valuation
allowances for deferred tax assets of the Company's French subsidiaries. These
tax matters are more fully described in "Income Taxes" above.

     The Company's 2003 operating loss was $51 million compared to operating
income of $80 million for the prior year. The $131 million decrease in the
Company's operating income from 2002 to 2003 was due primarily to a decrease in
operating income of $114 million in the Titanium Dioxide and Related Products
business segment, which includes $103 million of asset impairment charges
associated primarily with the writedown of property, plant and equipment at the
Company's Le Havre, France TiO[u]2 manufacturing plant (see "Asset Impairment
Charges" above), and a decrease of $29 million in Other operating income and
expense not identified with the three separate business segments, which includes
$18 million of reorganization and office closure costs for the year ended
December 31, 2003 (see "Cost Reduction Program; Suspension of Dividend" above).
Additionally, operating income in the Specialty Chemicals segment decreased by
$4 million while operating income in the Acetyls business segment increased by
$16 million.

     Net sales of $1.687 billion for 2003 increased by $133 million, or 9%,
compared to the same period of 2002 primarily due to higher local currency sales
prices and foreign currency strength against the US dollar in the Titanium
Dioxide and Related Products and Acetyls business segments. TiO[u]2 and acetyls
average selling prices, after reaching a low in the first quarter of 2002, rose
steadily from the second quarter of 2002 to the second quarter of 2003 as
certain of the worldwide price increases announced during 2002 and the first
quarter of 2003 by the Company and most other major producers were gradually
realized. Sales volume for 2003 for the Acetyls business segment was higher than
in the prior year, but was lower for the Titanium Dioxide and Related Products
business segment. Specialty Chemicals revenue increased by $3 million, or 3%,
compared to the prior year due to volume increases that were partially offset by
lower average selling prices for flavor and fragrance products.

     Manufacturing costs were generally higher for most of the Company's
products in 2003 as compared to 2002 primarily due to the unfavorable effect of
translating local currency manufacturing costs into a weaker US dollar, and
higher utility and feedstock costs, particularly natural gas and ethylene.
Selling, development and administrative ("S,D&A") costs for the year ended
December 31, 2003 were $127 million, a decrease of $11 million, or 8%, from the
prior year. S, D &A costs decreased primarily due to a decrease in
employee-related costs and various other expenses as the result of the Company's
focus on cost reduction initiatives.

     The Company's loss from its Equistar investment was $100 million in 2003
and $73 million in 2002. The loss in 2003 includes the Company's share of
Equistar's financing costs of $11 million, loss on the sale of a polypropylene
production facility of $4 million, and severance costs of $2 million. Excluding
the effect of these items, the Company's loss from its Equistar investment was
$10 million larger in 2003 compared to 2002 primarily due to lower sales volume,
higher pension and medical benefit costs, and a higher provision for doubtful
accounts, partially offset by higher average product margins.

2002 Versus 2001

     The Company reported a loss before the cumulative effect of an accounting
change for goodwill of $28 million or $0.44 per share in 2002 compared to a loss
of $54 million or $0.85 per share in 2001. The Company's pre-tax results
increased $68 million in 2002 compared to 2001, including $66 million higher
operating income and


                                       17



<PAGE>


a $10 million lower loss from the Company's investment in Equistar, partially
offset by $4 million greater net interest expense and $4 million higher minority
interest and other expenses. Income taxes in 2002 include a tax benefit of $22
million or $0.35 per share, primarily related to a federal tax refund claim,
while income taxes in 2001 include a tax benefit of $42 million or $0.66 per
share as a result of a reduction in the Company's income tax accruals due to
favorable developments related to matters reserved for in prior years. These tax
benefits are more fully described in "Income Taxes" above.

     Operating income for 2002 of $80 million increased by $66 million from 2001
primarily due to charges recorded in 2001 for reorganization and plant closure
costs and to increase reserves for the estimated costs to resolve legal and
environmental claims related to predecessor businesses that did not recur in
2002 and the suspension of goodwill amortization in 2002. Operating income in
2001 includes $36 million of aggregate reorganization and plant closure costs
related to reorganization activities within the Company's Other segment, $15
million of charges to increase reserves for the estimated costs to resolve legal
and environmental claims related to predecessor businesses and $13 million of
goodwill amortization that was suspended on January 1, 2002 in accordance with
SFAS No. 142. During the second quarter of 2001, $31 million was recorded in
connection with the Company's announced decision to reduce its worldwide
workforce and indefinitely idle its sulfate-process TiO[u]2 plant in Hawkins
Point, Maryland. The $31 million charge included severance and other
employee-related costs of $19 million for the termination of approximately 400
employees involved in manufacturing, technical, sales and marketing, finance and
administrative support, a $10 million writedown of assets and $2 million in
other costs associated with the idling of the plant. During the first quarter of
2001, the Company announced the closure of its facilities in Cincinnati, Ohio,
and recorded reorganization and other charges of $5 million in the Other
segment. These charges included $3 million of severance and other termination
benefits related to the termination of about 35 employees involved in technical,
marketing and administrative activities, as well as $2 million related to the
writedown of assets, lease termination costs and other charges associated with
the Cincinnati facility. The office in Cincinnati was closed during the second
quarter of 2001. All payments for severance and related costs and for other
costs related to the reorganization and plant closure have been made as of
December 31, 2002.

     Operating income in 2002 compared to 2001 increased by $27 million in the
Acetyls business segment, including $11 million of goodwill amortization that
was suspended on January 1, 2002 in accordance with SFAS No. 142. Operating
income in 2002 compared to 2001 decreased by $9 million in the Titanium Dioxide
and Related Products business segment, including $2 million of goodwill
amortization in 2001 that was suspended on January 1, 2002 in accordance with
SFAS No. 142. Operating income in 2002 compared to 2001 decreased by $6 million
in the Specialty Chemicals business segment. Other operating loss not identified
with the three separate business segments for 2002 was $54 million lower
compared to 2001. Other operating loss in 2002 included a benefit of $6 million
from the reduction of reserves due to favorable resolution of environmental
claims related to predecessor businesses reserved for in prior years, and in
2001 included $36 million of reorganization and plant closure costs that did not
recur in 2002 and charges of $15 million to increase reserves for the estimated
costs to resolve legal and environmental claims related to predecessor
businesses.

     Net sales for 2002 of $1.554 billion decreased by $36 million or 2% from
2001 as higher sales volume in the Titanium Dioxide and Related Products and
Acetyls business segments was more than offset by lower selling prices. Although
average prices for many of the Company's products remained at lower levels
compared to the prior year, TiO[u]2 and acetyls prices, after reaching a low in
the first quarter of 2002, rose steadily through the end of the year as certain
of the Company's worldwide price increases for TiO[u]2 and for Acetyls'
principal products announced during 2002 were gradually realized. Specialty
Chemicals sales revenue for 2002 was lower than 2001 due to lower sales volume
as the business remained under significant competitive pressure.

     Manufacturing costs decreased in 2002 as compared with 2001 due to
productivity and reliability improvements, lower cost of natural gas and other
purchased materials, and the realization of benefits from the Company's
cost-saving initiatives, including the idling of its high-cost sulfate-process
TiO[u]2 plant in Hawkins Point, Maryland at the end of the third quarter of
2001. Both the Titanium Dioxide and Related Products and Acetyls business
segments benefited from lower unit production costs due to higher fixed cost
absorption from higher production rates as a result of increased customer
demand. Results for the Acetyls business segment also improved in comparison
to 2001 as unfavorable fixed-price natural gas purchase positions entered into
during the first quarter of 2001 expired at the end of the first quarter of
2002. These unfavorable contracts negatively impacted Acetyls operating loss
by $19 million in the last three quarters of 2001, while 2002 operating profit
was reduced by only $7 million. Specialty Chemicals manufacturing costs for
2002 were higher than 2001 due in part to planned and unplanned production
outages that increased unit production costs.


                                       18



<PAGE>


     After a reduction of $55 million or 26% in 2001, S,D&A costs were reduced
in 2002 by an additional $10 million or 6%. The $55 million reduction in S,D&A
costs in 2001 excludes $15 million and $6 million of charges in 2001 and 2000,
respectively, to increase reserves for the estimated costs to resolve legal and
environmental claims related to predecessor businesses. The $10 million
reduction in S,D&A costs in 2002 excludes $15 million of charges in 2001 to
increase reserves for the estimated costs to resolve legal and environmental
claims related to predecessor businesses and a benefit of $6 million in 2002
from the reduction of reserves due to favorable resolution of environmental
claims related to predecessor businesses reserved for in prior years. The
Company continued to focus on its cost reduction initiatives and received a full
year of benefit from its June 2001 reorganization and reduction in workforce.
The savings from these initiatives were partially offset by higher incentive
compensation costs in 2002.

     The Company's loss from its Equistar investment was $73 million in 2002 and
$83 million in 2001. The loss in 2001 includes $10 million representing the
Company's share of Equistar's goodwill amortization that was suspended on
January 1, 2002 in accordance with SFAS No. 142, and $6 million of costs related
to the shutdown of Equistar's Port Arthur, Texas plant. Excluding the effect of
these items, the Company's loss on its Equistar investment was $6 million higher
in 2002 compared to 2001. Higher polymers margins primarily due to lower raw
material costs were more than offset by lower margins in the Petrochemicals
segment primarily as a result of lower sales prices.

                                Segment Analysis

     A description of the products and markets for each of the business segments
is in Item 1 included in Amendment No. 1 to the Company's Annual Report on Form
10-K/A for the year ended December 31, 2003. Additional segment information is
included in Note 16 to the Consolidated Financial Statements in this Annual
Report.

Titanium Dioxide and Related Products

<TABLE>
<CAPTION>
                               2003     2002     2001
                             -------   ------   ------
                                    (Millions)
<S>                           <C>      <C>      <C>
Net sales.................    $1,172   $1,129   $1,145
Operating (loss) income...       (51)      63       72
</TABLE>

2003 Versus 2002

     The operating loss for 2003 of $51 million included asset impairment
charges of $103 million associated primarily with the Le Havre, France
manufacturing plant, as more fully described in "Asset Impairment Charges"
above. Excluding these asset impairment charges, operating income in 2003
decreased by $11 million primarily due to higher manufacturing and other costs
of sales ($107 million) and lower sales volume ($7 million), partially offset by
higher average selling prices ($93 million) and lower S,D&A costs ($10 million).

     Net sales for 2003 increased $43 million, or 4%, to $1.172 billion. The
average US dollar TiO[u]2 selling price for 2003 increased by 11% over 2002.
Average local currency prices increased by 5% while translation of foreign
currency-based prices to a weaker US dollar increased US dollar prices by 6%
compared to the prior year. During 2003, local currency prices increased in all
major geographic regions. TiO[u]2 sales volume decreased by 6% from 2002. Sales
volume decreased from the prior year in all major markets and geographical
regions, except for the Central and South American region. Contrary to
traditional TiO[u]2 demand trends, the second half of 2003 was stronger than
the first half of the year due primarily to the lack of a coatings season in
the first half of 2003 in most of North America due to poor weather conditions
in many areas, as well as weak global economic conditions.

     The overall operating rate for the TiO[u]2 plants for each of 2003 and
2002 was 89%. Production volumes for 2003 and 2002 were similar.


                                       19



<PAGE>


     Manufacturing and other costs of sales per metric ton increased 7% over the
prior year. Costs increased primarily due to the unfavorable effect of
translating foreign currency-based manufacturing costs into the weaker US
dollar, higher maintenance and fixed costs, and higher costs for utilities,
including higher natural gas costs.

     S,D&A costs for 2003 decreased by $10 million or 8% compared to the prior
year. The decrease is primarily due to lower employee-related costs, partially
offset by higher professional fees.

2002 Versus 2001

     Operating income for 2002 of $63 million decreased $9 million or 13% from
the prior year. Operating income in 2001 includes $2 million in goodwill
amortization that was suspended on January 1, 2002 in accordance with SFAS No.
142. Excluding the goodwill amortization from the 2001 results, operating income
in 2002 decreased $11 million from the prior year primarily due to lower selling
prices ($83 million) partially offset by the favorable effects of lower
manufacturing and other costs of sales ($41 million), lower S, D&A expenses ($19
million) and higher sales volume ($12 million).

     Net sales for 2002 decreased $16 million or 1% to $1.129 billion. Average
selling prices for 2002 were 7% lower than for 2001, decreasing sales revenue by
$83 million. After reaching their lowest level in more than five years in the
first quarter of 2002, TiO[u]2 prices rose steadily through the end of the year
as announced price increases were gradually realized. However, this increase in
prices was not sufficient to raise the average price for 2002 to the prior year
level. Average prices for 2002 were lower than 2001 in all three major TiO[u]2
markets and in all major geographic regions globally. This was partially offset
by a 6% increase in sales volume, which increased revenue by $67 million.
TiO[u]2 sales volume was higher than the prior year in all major geographic
regions globally except Central and South America. Sales volume was 8% higher
in the paint and coatings market and 15% higher in the plastics market. Sales
volume declined by 13% in the paper market, which continued to be depressed
in all major geographic regions except Europe, due to poor economic conditions
and the Company's election to reduce its participation in the fine paper markets
in light of unacceptably low margins.

     The overall operating rate for the Company's TiO[u]2 plants in 2002 was 89%
compared to 85% for the prior year. Production was increased due to increased
market demand in 2002. The lower operating rate in 2001 was primarily due to
curtailment of production at certain facilities in response to weak market
demand in 2001.

     Operating income was increased by $41 million as a result of lower
manufacturing and other cost of sales per metric ton in 2002 compared with the
prior year. Overall TiO[u]2 cost of sales per metric ton decreased 5% in 2002
primarily due to lower production costs resulting from higher fixed cost
absorption due to increased production, idling of the Hawkins Point plant,
reduced controllable and fixed costs due to productivity and reliability
improvements and cost-saving initiatives, lower utility costs and lower
distribution costs. This was slightly offset by the unfavorable effect of
translating local currency manufacturing costs into a weaker US dollar.

     S,D&A costs in 2002 decreased by $19 million or 15% compared to 2001. The
Company continued to focus on its cost reduction initiatives. The savings from
these initiatives were partially offset by higher incentive compensation costs
in 2002.

Acetyls

<TABLE>
<CAPTION>
                             2003   2002   2001
                             ----   ----   ----
                                 (Millions)
<S>                          <C>    <C>    <C>
Net sales.................   $421   $334   $355
Operating income (loss)...     27     11    (16)
</TABLE>

2003 Versus 2002

     Operating income in the Acetyls business segment for 2003 of $27 million
increased by $16 million from operating income of $11 million in 2002. Operating
income increased from the prior year primarily due to higher selling prices ($88
million), lower S,D&A expenses ($8 million) and higher sales volume ($2
million), partially offset by higher manufacturing and other costs of sales ($82
million).


                                       20



<PAGE>


     Sales revenue for 2003 of $421 million increased by $87 million or 26%
compared to 2002, primarily due to higher average selling prices. For the year
ended December 31, 2003, the aggregate US dollar price for VAM and acetic acid
was 23% higher than 2002. Certain worldwide price increases that were announced
during 2002 and the first quarter of 2003 for Acetyls' principal products were
realized. The increased value in US dollar terms of foreign currency denominated
sales due to the weaker US dollar also contributed to the increase in net sales.
The aggregate sales volume for VAM and acetic acid for the year ended December
31, 2003 increased 2% over the comparable period of 2002, primarily due to
higher acetic acid sales volume.

     For the year ended December 31, 2003, manufacturing and other costs of
sales increased by $82 million or 27% from the same period of 2002. The increase
was primarily due to higher feedstock and energy costs, particularly natural gas
and ethylene.

     S,D&A costs for 2003 were $8 million or 44% lower than 2002, primarily due
to lower legal expenses and cost savings related to the Company's cost reduction
initiatives.

2002 Versus 2001

     Operating income in the Acetyls business segment for 2002 of $11 million
increased by $27 million from an operating loss of $16 million in 2001.
Operating income in 2001 includes $11 million of goodwill amortization that was
suspended on January 1, 2002 in accordance with SFAS No. 142. Excluding the
goodwill amortization from the 2001 results, operating income in 2002 increased
$16 million from the prior year, primarily due to lower production costs ($65
million) and higher sales volume ($10 million), partially offset by lower
selling prices ($55 million) and higher S,D&A expenses ($4 million).

     Sales revenue for 2002 of $334 million decreased $21 million or 6% compared
to 2001, primarily due to lower selling prices ($55 million) across all product
lines, partially offset by higher sales volume ($34 million). Overall, sales
volume for 2002 increased 14% from 2001, driven primarily by strong acetic acid
demand due to competitor outages and growth in the purified terephthalic acid
business, for which acetic acid is a reaction medium. Average selling prices
declined by 14% in 2002 compared to 2001 due to high selling prices in the first
half of 2001, which were supported by high feedstock costs during that period.
During the second half of 2001, prices began to decline and continued to decline
until reaching a low early in the second quarter of 2002. Price increases
realized during the second, third and fourth quarters of 2002 were not
sufficient to return revenue to 2001 levels; however, profitability on sales in
2002 was much improved due to lower costs.

     The Acetyls business segment benefited from lower feedstock costs and lower
unit production costs as increased demand resulted in higher fixed cost
absorption from higher production volume in 2002. Additionally, unfavorable
fixed-price natural gas purchase positions entered into during the first quarter
of 2001, which negatively impacted Acetyls 2001 operating loss by $19 million in
the last three quarters of 2001, expired at the end of the first quarter of
2002, negatively impacting 2002 operating profit by $7 million, a net benefit in
the effect of these contracts on cost of $12 million.

     S,D&A costs for 2002 were $4 million or 29% higher than 2001, primarily
due to a loss in 2002 for the change in the value of gold and the Company's
obligation under its agreement with a third party, which provides the Company
with the right to use gold at its La Porte, Texas facility. See Note 8 to the
Consolidated Financial Statements included in this Amendment No. 2.

Specialty Chemicals

<TABLE>
<CAPTION>
                      2003   2002   2001
                      ----   ----   ----
                          (Millions)
<S>                    <C>    <C>    <C>
Net sales..........    $94    $91    $90
Operating income...      2      6     12
</TABLE>

2003 Versus 2002

     Operating income for 2003 of $2 million was $4 million or 67% lower than
2002. The $4 million decrease in operating income in 2003 compared to 2002 is
primarily due to lower average selling prices ($6 million) and higher
manufacturing and other costs of sales ($2 million), partially offset by higher
sales volume ($2 million) and a reduction in S,D&A ($2 million).


                                       21



<PAGE>


     Net sales for 2003 of $94 million increased by $3 million or 3% from the
prior year. Sales volume for 2003 was 11% higher than 2002 due to increases
across most product lines. Average selling prices for 2003 decreased by 6%. The
combination of competitive pricing and proportionally higher sales volume in
lower-priced product lines contributed to the decrease in average selling prices
in 2003 compared to 2002.

     Manufacturing and other costs of sales increased in 2003 compared to the
prior year, as the average cost of CST, the principal raw material for the
business, increased from the prior year. In addition, the purchase of gum
turpentine and its derivatives needed to supplement CST supply further increased
overall costs. S,D&A costs for 2003 were $2 million lower than S,D&A costs in
2002 primarily due to lower employee-related costs.

2002 Versus 2001

     Operating income for 2002 of $6 million was $6 million or 50% lower than
2001. Operating income in 2002 decreased by $6 million from the prior year,
primarily due to higher manufacturing and other cost of sales ($17 million) and
lower sales volume ($4 million), partially offset by higher average selling
prices ($15 million).

     Net sales for 2002 increased $1 million or 1% to $91 million. The
weighted-average selling price for all Specialty Chemicals products increased by
19% over the 2001 weighted average, resulting primarily from a greater
proportion of higher-priced products sold and the favorable effect of
strengthening currencies against the US dollar. Sales volume was down 15% from
2001, as the marketplace remains fiercely competitive mainly due to price
pressure from low cost manufacturers in Asia.

     The average cost of CST, the principal raw material for the business,
remained relatively level with the prior year. Production costs and other cost
of sales increased in 2002 compared to 2001 due to expenses incurred as a result
of planned and unplanned production outages and maintenance during the fourth
quarter of 2002 and lower fixed cost absorption resulting from decreased
production volume.

     S,D&A costs were approximately equal to the prior year.

Other

<TABLE>
<CAPTION>
                    2003   2002   2001
                    ----   ----   ----
                        (Millions)
<S>                 <C>     <C>   <C>
Operating loss...   $(29)   $--   $(54)
</TABLE>

2003 Versus 2002

     Operating loss not identified with the three separate business segments for
2003 increased by $29 million from the prior year. This increase is primarily
due to $18 million in reorganization and office closure charges associated with
the Company's cost reduction program in 2003 (see "Cost Reduction Program;
Suspension of Dividend" above), and a $6 million benefit in 2002 from a
reduction of reserves due to favorable resolution of environmental claims
related to predecessor businesses reserved for in prior years.

2002 Versus 2001

     Operating loss not identified with the three separate business segments for
2002 was $54 million less than 2001 primarily due to $36 million of
reorganization and plant closure costs included in 2001 that did not recur in
2002, a $15 million charge in 2001 to increase reserves for the estimated costs
to resolve legal and environmental claims related to predecessor businesses and
a benefit of $6 million from the reduction of reserves in 2002 due to favorable
resolution of environmental claims related to predecessor businesses reserved
for in prior years.


                                       22



<PAGE>


Equistar

<TABLE>
<CAPTION>
                                   Company's Share       Reported by Equistar
                                 -------------------   -----------------------
                                  2003   2002   2001    2003   2002(1)    2001
                                 -----   ----   ----   -----   -------   -----
                                                (Millions)
<S>                              <C>     <C>    <C>    <C>      <C>      <C>
Loss on Equistar investment...   $(100)  $(73)  $(83)  $(339)   $(246)   $(283)
</TABLE>

----------
(1)  Before cumulative effect of accounting change

2003 Versus 2002

     The Company recorded a loss from its investment in Equistar of $100 million
in 2003 compared to a loss of $73 million in 2002. Equistar reported a loss in
2003 of $339 million compared to a loss before the cumulative effect of an
accounting change for goodwill in 2002 of $246 million. Equistar's operating
loss in 2003 of $89 million was $45 million higher than the operating loss in
2002 of $44 million. The increase in Equistar's operating loss in 2003 compared
to 2002 includes $22 million lower operating income in the Petrochemicals
segment, a $4 million greater loss in the Polymers segment, and a $19 million
increase in expenses not allocated to Equistar's separate business segments,
which is primarily due to higher pension and medical benefit costs and a higher
provision for doubtful accounts. Other non-operating expenses and interest
expense, net of interest income, which are not included in Equistar's operating
income, were $45 million and $3 million higher in 2003 than 2002, respectively.
The $45 million increase in other expenses in 2003 is primarily due to $37
million of refinancing charges related to Equistar's financing activities in
2003. These financing activities included the issuance of $700 million of new
senior unsecured notes that deferred Equistar's debt maturities, the
restructuring of its credit facility, and the commencement of a new receivables
sales facility.

     Operating income in Equistar's Petrochemicals segment of $124 million
decreased $22 million, or 15%, from 2002 primarily due to the negative effect of
two scheduled maintenance turnarounds and 3% lower sales volume, partially
offset by approximately $33 million of higher costs in 2002 as the result of
certain above-market fixed price contracts for natural gas and natural gas
liquids. Revenues in the Petrochemicals segment were 22% higher in 2003 than
2002 due to higher sales prices, partly offset by lower sales volume. In 2003,
in response to significantly higher raw material and energy costs compared to
2002, Equistar implemented significant sales price increases for substantially
all of its petrochemical products. However, the magnitude of these price
increases had a negative effect on product demand, and contributed to lower
sales volume in 2003. Benchmark ethylene sales prices averaged 28% higher in
2003 compared to 2002 in response to significant increases in the cost of
ethylene production, while benchmark propylene sales prices averaged 19% higher.
However, cost of sales for the Petrochemicals segment in 2003 increased
approximately 23% compared to 2002 due to higher raw material costs, primarily
crude oil-based liquids and natural gas-based liquids, and energy. The benchmark
cost of ethylene production averaged 32% higher in 2003 compared to 2002, while
benchmark natural gas costs averaged 63% higher.

     The operating loss in Equistar's Polymers segment of $78 million increased
$4 million, or 5%, from the prior year, including a $12 million loss on the sale
of its Bayport polypropylene production facility and an $11 million write-off of
a research and development facility in 2003. Excluding the effect of these
losses, the operating loss in the Polymers segment was $19 million lower in 2003
compared to 2002 due to higher product margins partially offset by a 12%
decrease in sales volume. Average sales prices in 2003 increased 23% compared to
2002 in response to higher raw material costs, primarily ethylene. The higher
average sales prices more than offset the higher raw material costs and
contributed to the higher product margins. However, the magnitude of these sales
price increases had a negative effect on product demand resulting in the
decrease in sales volume. The sale of the Bayport polypropylene production
facility in 2003 also contributed to the lower sales volume.

2002 Versus 2001

     The Company recorded a loss from its investment in Equistar of $73 million
in 2002 compared to a loss of $83 million in 2001. Equistar reported a loss for
2002 of $246 million, before the cumulative effect of an accounting change,
compared to a loss of $283 million for 2001. Equistar's operating losses in 2002
of $44 million were $55 million lower than the $99 million of operating losses
in the prior year. Equistar's operating losses in the prior year include $33
million of goodwill amortization that was suspended on January 1, 2002 in
accordance with SFAS No. 142, and $22 million of plant closure costs related to
the shutdown of Equistar's Port Arthur, Texas plant. Operating income in the
Petrochemicals segment decreased by $129 million compared to the prior year,
while the Polymers segment reported operating losses of $112 million lower than
those incurred in 2001. Equistar's expenses


                                       23



<PAGE>


not allocated to its separate business segments decreased by $72 million
primarily due to the goodwill amortization and plant closure costs incurred in
2001. Equistar's interest costs increased by $13 million in 2002 compared to
2001.

     Operating income in the Petrochemicals segment of $146 million for 2002
decreased $129 million or 47% from the prior year as sales prices decreased more
than raw material costs, resulting in lower product margins in 2002 compared to
2001. The effect of the lower 2002 product margins was only partly offset by the
benefit of a 4% increase in sales volume, which was in line with industry demand
growth. Equistar's sales prices in 2002 averaged 11% lower than in 2001,
reflecting lower raw material costs and low demand growth coupled with excess
industry capacity. These lower sales prices were slightly offset by higher 2002
co-product propylene sales prices. Cost of sales decreased 6% compared to the
prior year, 2% less than the percent decrease in revenues. While the costs of
natural gas and natural gas liquid raw materials decreased from historically
high levels experienced in 2001, other raw material costs, such as heavy
liquids, did not decrease similarly.

     The operating loss in the Polymers segment of $74 million for 2002
decreased $112 million compared to the operating loss of $186 million in 2001.
The $112 million improvement was due to higher polymers product margins and, to
a lesser extent, higher sales volume. Margins improved in 2002 compared to 2001,
as decreases in sales prices were less than the decreases in polymers raw
material costs. Sales prices decreased by 9% from 2001, partially offset by a 4%
increase in sales volume. Lower sales prices in 2002 reflected generally lower
raw material costs compared to 2001. Sales volume increased due to stronger
demand in 2002 compared to 2001. Cost of sales decreased 10% compared to the
prior year, or 4% more than the percent decrease in revenues. The decrease
during 2002 reflected lower raw material costs, primarily ethylene, and lower
energy costs, partly offset by the 4% increase in sales volume. Benchmark
ethylene prices were 16% lower and were only partly offset by a 3% increase in
benchmark propylene prices in 2002 compared to 2001.

                                Interest Expense

<TABLE>
<CAPTION>
                           2003   2002   2001
                           ----   ----   ----
                               (Millions)
<S>                         <C>    <C>    <C>
Interest expense, net...    $92    $86    $82
</TABLE>

     During 2003, interest expense, net of interest income, increased $6 million
to $92 million from $86 million in the prior year. The $6 million increase in
interest expense was due to higher average debt levels throughout the year
compared to the prior year and the higher cost of debt due to the Company's
issuance of additional 9.25% Senior Notes, as more fully described in "Liquidity
and Capital Resources" below. Interest expense, net was $86 million in 2002
versus $82 million in 2001, primarily due to higher debt levels throughout the
year and the Company's issuance of additional 9.25% Senior Notes in 2002.

                         Liquidity and Capital Resources

     The Company has historically financed its operations primarily through cash
generated from its operations and cash distributions from Equistar, as well as
debt financings. In 2003, the Company financed its foreign operations through
cash generated from those foreign operations and its domestic operations through
cash generated from domestic operations and cash from various sources of
external financing. Cash generated from operations is to a large extent
dependent on economic, financial, competitive and other factors affecting the
Company's businesses. The amount of cash distributions received from Equistar is
affected by Equistar's results of operations and current and expected future
cash flow requirements. The Company has not received any cash distributions from
Equistar since 2000 and it is unlikely the Company will receive any cash
distributions from Equistar in 2004.

     Cash used in operating activities for the year ended December 31, 2003 was
$90 million compared to $84 million of cash provided by operating activities in
the year ended December 31, 2002. The $174 million decrease was primarily due to
unfavorable movements in trade working capital ($143 million), lower operating
income before non-cash asset impairment charges and depreciation and
amortization ($17 million), and various other net unfavorable changes ($14
million), including a $19 million payment to the Internal Revenue Service
relating to a preliminary settlement of federal tax for audit years 1989 through
1992. The unfavorable movement in trade working capital (defined as trade
receivables, inventories and trade accounts payable) in 2003 compared to 2002 is
primarily due to the termination of the Company's European receivables
securitization program (see "European Receivables Securitization Program"
below), timing of vendor payments, and slightly higher inventory balances.


                                       24



<PAGE>


     Cash used in investing activities for the year ended December 31, 2003 was
$48 million compared to $70 million used in 2002. Capital expenditures in 2003
were $48 million, down from $71 million in 2002.

     Cash provided by financing activities was $203 million for the year ended
December 31, 2003 compared to $2 million used in 2002. Financing activities in
2003 included $220 million of net debt proceeds, while 2002 included $33 million
of net debt proceeds. Dividends paid to shareholders totaled $17 million in 2003
and $35 million in 2002.

     The Company expects to realize approximately $20 million of annual
operating expense savings from the cost reduction program announced on July 21,
2003. The Company has recorded charges for the year ended December 31, 2003 of
$18 million, of which $17 million is for severance-related costs and $1 million
is for contractual commitments for ongoing lease costs, net of expected sublease
income, associated with the closure of the Red Bank, New Jersey office for the
remaining term of the lease agreement. Substantially all of the remaining
charges for this program, estimated at $1 million to $3 million, are expected to
be recorded during the next several quarters. Severance-related cash payments of
$14 million for the implementation of this program were made during the year
ended December 31, 2003. Substantially all of the remainder of the cash payments
relating to this program, which are estimated to be approximately $11 million,
will be disbursed during the next several quarters.

     In addition, in July 2003, the Company announced the suspension of the
payment of dividends on its Common Stock, as more fully described in "Cost
Reduction Program; Suspension of Dividend" above. The decision to suspend
payment of dividends in mid-2003 decreased the Company's reported cash outflows
from financing activities by approximately $17 million in 2003 compared to 2002,
and will decrease cash outflows by an additional $17 million in 2004, resulting
in a total annual reduction of cash outflows of approximately $34 million.

     In 2002, the Company's cash flows provided by operating activities was $84
million compared to $112 million provided in 2001. The $28 million decrease was
primarily due to movements in trade receivables and trade accounts payable that
were favorable to a lesser extent during 2002 compared to the prior year ($128
million), and unfavorable movements in other current assets compared to
favorable movements in the prior year ($53 million), partially offset by higher
operating income before depreciation and amortization in 2002 compared to 2001
($58 million), movements in other long-term liabilities that were unfavorable to
a lesser extent during 2002 than 2001 ($36 million, including $12 million of
proceeds from the termination of interest rate swaps in 2002), and favorable
movements in inventories, accrued expenses and other liabilities and taxes
payable compared to unfavorable movements in the prior year ($57 million).
Various other changes resulted in a net favorable movement compared to the prior
year ($2 million). Capital expenditures for 2002 were $71 million, down from $97
million in 2001. In 2002, the Company received approximately $1 million in
proceeds from the sales of property, plant and equipment, a decrease of $18
million from the $19 million of proceeds received in 2001, which included
proceeds of $17 million from the sale of the Company's research center under a
sale-leaseback arrangement.

     Net debt (short-term and long-term debt less cash) at December 31, 2003
totaled $1.258 billion compared to $1.117 billion at the end of 2002. At
December 31, 2003, the Company had approximately $113 million of unused
availability under short-term uncommitted lines of credit and its five-year
credit agreement expiring June 18, 2006 (the "Credit Agreement"). The Company's
focus in 2004 is to sustain the benefits of cost reduction efforts achieved to
date, achieve further benefits from cost reduction actions announced in the
third quarter of 2003, and manage working capital and capital spending to levels
deemed reasonable given the current state of business performance. In the first
quarter of 2004, the Company repatriated approximately $107 million from its
Australian and European businesses to the US. This cash was used primarily to
reduce outstanding borrowings under the Company's Credit Agreement and for
general corporate purposes. The Company believes these efforts, along with the
borrowing availability under the Credit Agreement, and considering the
suspension of the payment of dividends on the Company's Common Stock announced
in the third quarter of 2003, will be sufficient to fund the Company's cash
requirements until 2006. At that time, the Company must repay or refinance the
7% Senior Notes and renegotiate or refinance the Credit Agreement.

     At February 29, 2004, the Company had $21 million outstanding undrawn
standby letters of credit and no outstanding borrowings under the revolving loan
portion of the Credit Agreement (the "Revolving Loans") and, accordingly, had
$129 million of unused availability under such facility. At that date, in
addition to letters of credit outstanding under the Credit Agreement, the
Company also had outstanding undrawn standby letters of credit and bank
guarantees under other arrangements of $7 million. As these letters of credit
and bank guarantees mature, the issuers could require the Company to renew them
under the Credit Agreement. If this were to occur, it would result in a
corresponding decrease in availability under the Credit Agreement. Additionally,
at February 29, 2004, the Company had unused availability under short-term
uncommitted lines of credit, other than the Credit Agreement, of


                                       25



<PAGE>


$34 million. For a discussion of the term loan repayment and the covenants under
the Credit Agreement, see "Financing and Capital Structure" below.

Capital Expenditures

<TABLE>
<CAPTION>
                                                            2003   2002   2001
                                                            ----   ----   ----
                                                                (Millions)
<S>                                                          <C>    <C>    <C>
Additions to property, plant and equipment...............    $48    $71    $97
</TABLE>

     Capital spending for 2003 was $48 million compared to depreciation and
amortization of $113 million. The 32% decrease in capital spending from 2002
reflects the Company's continued focus on optimization of its capital base.
Capital expenditures in 2003 were primarily associated with replacement capital
projects and certain environmental, cost reduction, and yield-improvement
projects.

     Planned capital spending in 2004 is projected to be approximately $60
million primarily for maintenance capital and cost reduction, yield-improvement
and environmental projects. The Company expects to finance its planned capital
spending using cash generated from operations and through availability under its
Credit Facility, if necessary.

     Capital spending for 2002 was $71 million compared to depreciation and
amortization of $102 million. The 27% decrease in capital spending from 2001
reflects the Company's continued focus on optimization of its capital base.
Major expenditures included installation of a dredge and certain related
processing equipment at the mine in Mataraca, Paraiba, Brazil, and environmental
improvement projects at the Company's TiO[u]2 manufacturing locations in France
and the United States. In addition, expenditures included cost reduction and
yield-improvement projects at various sites.

     Capital spending for 2001 was $97 million compared to depreciation and
amortization of $110 million. The 12% decrease in capital spending from 2000
reflected the Company's focus on optimization of its capital base. Major
expenditures included continuation of projects begun in 2000, including design
and installation of a dredge and certain related processing equipment in
Mataraca, Paraiba, Brazil, and the design and construction of new TiO[u]2
packaging equipment, as well as environmental improvement projects at the
Company's TiO[u]2 manufacturing locations in France. In addition, expenditures
included cost reduction and yield improvement projects at various sites.

Financing and Capital Structure

     On November 25, 2003, the Company received approximately $125 million in
gross proceeds and, on December 2, 2003, received an additional $25 million in
gross proceeds from the sale by Millennium Chemicals Inc. ("Millennium
Chemicals") of $150 million aggregate principal amount of 4.00% Convertible
Senior Debentures due 2023, unless earlier redeemed, converted or repurchased
(the "4.00% Convertible Senior Debentures"), which are guaranteed by Millennium
America Inc. ("Millennium America"), a wholly-owned indirect subsidiary of the
Company. The gross proceeds of the sale were used to repay all of the $47
million of outstanding borrowings at that time under the term loan portion of
the Credit Agreement (the "Term Loans") and $103 million of outstanding
borrowings under the Revolving Loans, which currently have a maximum
availability of $150 million. The Company used $4 million of cash to pay the
fees relating to the sale of the 4.00% Convertible Senior Debentures.

     On April 25, 2003, the Company received approximately $107 million in net
proceeds ($109 million in gross proceeds) from the issuance and sale by
Millennium America of $100 million additional principal amount at maturity of
its 9.25% Senior Notes. The net proceeds were used to repay all of the $85
million of outstanding borrowings at that time under the Revolving Loans and for
general corporate purposes. Under the terms of this issuance and sale,
Millennium America and Millennium Chemicals entered into an exchange and
registration rights agreement with the initial purchasers of the $100 million
additional principal amount of these 9.25% Senior Notes. Pursuant to this
agreement, each of Millennium America and Millennium Chemicals agreed to: (1)
file with the Securities and Exchange Commission on or before July 24, 2003 a
registration statement relating to a registered exchange offer for the notes,
and (2) use its reasonable efforts to cause this exchange offer registration
statement to be declared effective under the Securities Act on or before October
22, 2003. On June 13, 2003, Millennium America and Millennium Chemicals, as
guarantor, initially filed a registration statement with the Securities and
Exchange Commission, and on December 15, 2003, filed an amended registration
statement. However, as of December 31, 2003, the exchange offer registration
statement has not yet been declared effective. As a result, since


                                       26



<PAGE>


October 22, 2003, Millennium America has been obligated to pay additional
interest at the annualized rate of approximately 1.00% to each holder of the
$100 million additional amount of notes. This additional interest will be paid
until such time as the registration statement becomes effective.

     In June 2002, the Company received approximately $100 million in net
proceeds ($102.5 million in gross proceeds) from the completion of an offering
by Millennium America of $100 million additional principal amount at maturity of
the 9.25% Senior Notes. The gross proceeds of the offering were used to repay
all of the $35 million of outstanding borrowings at that time under the
Company's Revolving Loans and to repay $65 million outstanding under the Term
Loans. During 2001, the Company refinanced $425 million of borrowings and paid
refinancing expenses of $11 million with the combined proceeds of the Credit
Agreement, which provided the Revolving Loans and $125 million in Term Loans,
and the issuance of $275 million aggregate principal amount of 9.25% Senior
Notes by Millennium America. Millennium Chemicals and Millennium America
guarantee the obligations under the Credit Agreement.

     The Credit Agreement contains various restrictive covenants and requires
that the Company meet certain financial performance criteria. The financial
covenants in the Credit Agreement, prior to the amendment consummated in the
fourth quarter of 2003, which is described below, included a Leverage Ratio and
an Interest Coverage Ratio. The Leverage Ratio is the ratio of Total
Indebtedness to cumulative EBITDA for the prior four fiscal quarters, each as
defined in the Credit Agreement prior to the amendment in the fourth quarter of
2003. The Interest Coverage Ratio is the ratio of cumulative EBITDA for the
prior four fiscal quarters to Net Interest Expense, for the same period, each as
defined in the Credit Agreement prior to the amendment in the fourth quarter of
2003. To permit the Company to be in compliance, these covenants were amended in
the fourth quarter of 2001, in the second quarter of 2002, in the second quarter
of 2003, and in the fourth quarter of 2003. The amendment in the second quarter
of 2002 was conditioned upon the consummation of the June 2002 offering of $100
million additional principal amount of the 9.25% Senior Notes and using such
proceeds for the repayment of the Credit Agreement debt, as described above. The
amendment in the second quarter of 2003 was not conditioned on the sale of the
9.25% Senior Notes in April 2003. The amendment in the fourth quarter of 2003
was conditioned on the Company obtaining at least $110 million of long-term
financing in the capital markets, which the Company satisfied by the sale of
$150 million of the 4.00% Convertible Senior Debentures. The amendment in the
fourth quarter of 2003 amended, among other things, the maximum availability
under the Credit Agreement from $175 million to $150 million, the performance
criteria for the financial covenants, the definition of EBITDA, and replaced the
Leverage Ratio with a Senior Secured Leverage Ratio. Under the financial
covenants now in effect, the Company is required to maintain a Senior Secured
Leverage Ratio, defined as the ratio of Senior Secured Indebtedness, to
cumulative EBITDA for the prior four fiscal quarters, each as defined, of no
more than 1.25 to 1.00 for each of the quarters of 2004 and 1.00 to 1.00 for the
first quarter of 2005 and thereafter, and an Interest Coverage Ratio, defined as
the ratio of cumulative EBITDA for the prior four fiscal quarters to Net
Interest Expense, for the same period, each as defined, of no less than 1.35 to
1.00 for the first and second quarters of 2004; 1.40 to 1.00 for the third
quarter of 2004; 1.50 to 1.00 for the fourth quarter of 2004; and 1.75 to 1.00
for the first quarter of 2005 and thereafter. The covenants in the Credit
Agreement also limit, among other things, the ability of the Company and/or
certain subsidiaries of the Company to: (i) incur debt and issue preferred
stock; (ii) create liens; (iii) engage in sale/leaseback transactions; (iv)
declare or pay dividends on, or purchase, the Company's stock; (v) make
restricted payments; (vi) engage in transactions with affiliates; (vii) sell
assets; (viii) engage in mergers or acquisitions; (ix) engage in domestic
accounts receivable securitization transactions; and (x) enter into restrictive
agreements. In the event the Company sells certain assets as specified in the
Credit Agreement, and the Leverage Ratio is equal to or greater than 3.75 to
1.00, the outstanding Revolving Loans must be prepaid with a portion of the Net
Cash Proceeds, as defined, of such sale. In addition, the maximum availability
under the Credit Agreement will be decreased by 50% of the aggregate Net Cash
Proceeds received from such asset sales in excess of $100 million from November
18, 2003, the effective date of the fourth quarter 2003 amendment. Any sale
involving Equistar or certain inventory or accounts receivable will reduce the
maximum availability under the Credit Agreement by 100% of such Net Cash
Proceeds received. The obligations under the Credit Agreement are collateralized
by: (1) a pledge of 100% of the stock of the Company's existing and future
domestic subsidiaries and 65% of the stock of certain of the Company's existing
and future foreign subsidiaries, in both cases other than subsidiaries that hold
immaterial assets (as defined in the Credit Agreement); (2) all the equity
interests held by the Company's subsidiaries in Equistar and the La Porte
Methanol Company (which pledges are limited to the right to receive
distributions made by Equistar and the La Porte Methanol Company, respectively);
and (3) all present and future accounts receivable, intercompany indebtedness
and inventory of the Company's domestic subsidiaries, other than subsidiaries
that hold immaterial assets.


                                       27



<PAGE>


     The Company was in compliance with all covenants under the Credit Agreement
at December 31, 2003. Compliance with these covenants is monitored frequently in
order to assess the likelihood of continued compliance.

     The indenture governing the Company's $500 million aggregate principal
amount of 7.00% Senior Notes due November 15, 2006 and $250 million aggregate
principal amount of 7.625% Senior Debentures due November 15, 2026 (the "7.625%
Senior Debentures" and, together with the 7.00% Senior Notes and the 9.25%
Senior Notes the "Senior Notes") allows Millennium America and its Restricted
Subsidiaries, as defined, to grant security on loans of up to 15% of
Consolidated Net Tangible Assets ("CNTA"), as defined, of Millennium America and
its consolidated subsidiaries. Accordingly, based upon CNTA and secured
borrowing levels at December 31, 2003, any reduction in CNTA below approximately
$1.0 billion would decrease the Company's availability under the Revolving Loans
by 15% of any such reduction. CNTA was approximately $2.1 billion at December
31, 2003. The 7.00% Senior Notes and the 7.625% Senior Debentures can be
accelerated by the holders thereof if any other debt in excess of $20 million is
in default and is accelerated.

     The 9.25% Senior Notes were issued by Millennium America and are guaranteed
by Millennium Chemicals. The indenture under which the 9.25% Senior Notes were
issued contains certain covenants that limit, among other things, the ability of
Millennium Chemicals and/or certain of its subsidiaries to: (i) incur additional
debt; (ii) issue redeemable stock and preferred stock; (iii) create liens; (iv)
redeem debt that is junior in right of payment to the 9.25% Senior Notes; (v)
sell or otherwise dispose of assets, including capital stock of subsidiaries;
(vi) enter into arrangements that restrict dividends from subsidiaries; (vii)
enter into mergers or consolidations; (viii) enter into transactions with
affiliates; and (ix) enter into sale/leaseback transactions. In addition, this
indenture contains a covenant that would prohibit Millennium Chemicals and its
Restricted Subsidiaries from (i) paying dividends or making distributions on its
common stock; (ii) repurchasing its common stock; and (iii) making other types
of restricted payments, including certain types of investments, if such
restricted payments would exceed a "restricted payments basket." Although the
Company has no intention at the present time to pay dividends or make
distributions, repurchase its Common Stock, or make other restricted payments,
the Company would be prohibited by this covenant from making any such payments
at the present time. The indenture also requires the calculation of a
Consolidated Coverage Ratio, defined as the ratio of the aggregate amount of
EBITDA, as defined, for the four most recent fiscal quarters to Consolidated
Interest Expense, as defined, for the four most recent quarters. The Company
must maintain a Consolidated Coverage Ratio of 2.25 to 1.00. Currently, the
Company's Consolidated Coverage Ratio has fallen below this threshold and,
therefore, the Company is subject to certain restrictions that limit the
Company's ability to incur additional indebtedness, pay dividends, repurchase
capital stock, make certain other restricted payments, and enter into mergers or
consolidations. However, if the 9.25% Senior Notes were to receive investment
grade credit ratings from both S&P and Moody's and meet certain other
requirements as specified in the indenture, certain of these covenants would no
longer apply. The 9.25% Senior Notes can be accelerated by the holders thereof
if any other debt in excess of $30 million is in default and is accelerated.

     The 4.00% Convertible Senior Debentures were issued by Millennium Chemicals
and are guaranteed by Millennium America. Holders may convert their debentures
into shares of the Company's Common Stock at a conversion price, subject to
adjustment upon certain events, of $13.63 per share, which is equivalent to a
conversion rate of 73.3568 shares per $1,000 principal amount of debentures. At
the time the 4.00% Convertible Senior Debentures were issued, the common price
per share exceeded the trading value of the Company's Common Stock. The
conversion privilege may be exercised under the following circumstances:

     o    prior to November 15, 2018, during any fiscal quarter commencing after
          December 31, 2003, if the closing price of the Company's Common Stock
          on at least 20 of the 30 consecutive trading days ending on the first
          trading day of that quarter is greater than 125% of the then current
          conversion price;

     o    on or after November 15, 2018, at any time after the closing price of
          the Company's Common Stock on any date is greater than 125% of the
          then current conversion price;

     o    if the debentures are called for redemption;

     o    upon the occurrence of specified corporate transactions, including a
          consolidation, merger or binding share exchange pursuant to which the
          Company's Common Stock would be converted into cash or property other
          than securities;

     o    during the five business-day period after any period of ten
          consecutive trading days in which the trading price per $1,000
          principal amount of debentures on each day was less than 98% of the
          product of the last reported sales price of the Company's Common Stock
          and the then current conversion rate; and


                                       28



<PAGE>


     o    at any time when the long-term credit rating assigned to the
          debentures is either Caa1 or lower, in the case of Moody's, or B- or
          lower in the case of S&P, or either rating agency has discontinued,
          withdrawn or suspended its rating.

     The debentures are redeemable at the Company's option beginning November
15, 2010 at a redemption price equal to 100% of their principal amount, plus
accrued interest, if any. On November 15 in each of 2010, 2013 and 2018, holders
of debentures will have the right to require the Company to repurchase all or
some of the debentures they own at a purchase price equal to 100% of their
principal amount, plus accrued interest, if any. The Company may choose to pay
the purchase price in cash or shares of the Company's Common Stock or any
combination thereof. In the event of a conversion request upon a credit ratings
event as described above, after June 18, 2006, the Company has the right to
deliver, in lieu of shares of common stock, cash or a combination of cash and
shares of common stock. Holders of the debentures will also have the right to
require the Company to repurchase all or some of the debentures they own at a
cash purchase price equal to 100% of their principal amount, plus accrued
interest, if any, upon the occurrence of certain events constituting a
fundamental change. This indenture also limits the Company's ability to
consolidate with or merge with or into any other person, or sell, convey,
transfer or lease properties and assets substantially as an entirety to another
person, except under certain circumstances.

     At December 31, 2003, the Company was in compliance with all covenants in
the indentures governing the 9.25% Senior Notes, 7.00% Senior Notes, 7.625%
Senior Debentures and 4.00% Convertible Senior Debentures.

     The Company, as well as the Senior Notes and the 4.00% Convertible Senior
Debentures are currently rated BB- by S&P with a stable outlook. Moody's has
assigned the Company a senior implied rating of Ba3, and the Senior Notes and
the 4.00% Convertible Senior Debentures a rating of B1 with a negative outlook.
These ratings are non-investment grade ratings.

     On July 22, 2003, S&P lowered the Company's credit rating from BB+ to BB,
citing the Company's July 2003 announcement regarding weak sales volume and
competitive pricing pressures in the titanium dioxide business for the second
quarter of 2003, as well as lingering economic uncertainties and the potential
for additional raw material pressures in the petrochemicals industry as factors
that are likely to further delay the Company's efforts to restore its financial
profile. On September 22, 2003, S&P again lowered the Company's credit rating
from BB to BB- citing the Company's subpar financial profile and
weaker-than-expected prospects for reducing its substantial debt burden over the
next couple of years, and revised its outlook from negative to stable. On
November 19, 2003, S&P assigned its BB- rating to the 4.00% Convertible Senior
Debentures, and affirmed its BB- rating of the Company with a stable outlook.
Moody's announced on August 13, 2003, that it had lowered the Company's senior
implied rating to Ba2, and the Senior Notes' rating to Ba3, citing the Company's
high leverage, modest coverage of interest expense, weaker than anticipated
Ti(O2) demand and potential covenant compliance issues. On November 19, 2003,
Moody's again lowered the Company's senior implied rating from Ba2 to Ba3, and
the Senior Notes' rating from Ba3 to B1 and affirmed its ratings outlook of
negative, citing the challenging operating conditions within the Ti(O2)
business, a significant deterioration in 2003 cash flow performance, and Moody's
expectation that a protracted recovery in the TiO(2) business will limit the
Company's ability to de-lever for the medium-term. These actions by S&P and
Moody's could heighten concerns of the Company's creditors and suppliers which
could result in these creditors and suppliers placing limitations on credit
extended to the Company and demands from creditors for additional credit
restrictions or security.

     The Company uses gold as a component in a catalyst at its La Porte, Texas
facility. In April 1998, the Company entered into an agreement that provided the
Company with the right to use gold owned by a third party for a five-year term.
In April 2003, the Company renewed this agreement for a one-year term and
simultaneously entered into a forward purchase agreement in order to mitigate
the risk of change in the market price of gold. The renewed agreement required
the Company to either deliver the gold to the counterparty at the end of the
term or pay to the counterparty an amount equal to its then-current value. The
renewed agreement provided that if the Company was downgraded below BB by S&P or
Ba2 by Moody's, the third party could require the Company to purchase the gold
at its then-current value. After discussions with the counterparty to the
agreement as to whether the counterparty had the right to require the Company to
purchase the gold due to Moody's August 13, 2003 announcement referenced above,
the Company determined to terminate the renewed agreement and purchase the gold
for its then-current market value. On August 28, 2003, the Company paid the
counterparty $14 million, net of $1 million of proceeds from the termination of
its forward purchase contract. The Company's obligation under this agreement was
$14 million at December 31, 2002, and was included in Other short-term
borrowings. The change in value of the gold and the Company's obligation under
this agreement, which is included in Selling, development and administrative
expense, was a loss of $1 million and $3 million for each of the years ended
December 31, 2003 and 2002, respectively, and was not significant for the year
ended December 31, 2001. The change in value of the


                                       29



<PAGE>


forward purchase agreement was a gain of $1 million for the year ended December
31, 2003, which is included in S,D&A expense.

European Receivables Securitization Program

     From March 2002 until November 2003, the Company had been transferring its
interest in certain European trade receivables to an unaffiliated third party as
its basis for issuing commercial paper under a revolving securitization
arrangement (annually renewable for a maximum of five years on April 30 of each
year at the option of the third party) with maximum availability of 70 million
euro, which was treated, in part, as a sale under accounting principles
generally accepted in the United States of America. In November 2003, the
Company terminated this securitization arrangement and there are no balances
outstanding at December 31, 2003.

     Transferred trade receivables outstanding at December 31, 2002 that
qualified as a sale were $61 million and were not included in the Company's
Consolidated Balance Sheet at December 31, 2002. The Company carried its
retained interest in a portion of the transferred assets that did not qualify as
a sale, $9 million at December 31, 2002, in Trade receivables, net in its
Consolidated Balance Sheet at amounts that approximated net realizable value
based upon the Company's historical collection rate for these trade receivables.
For the years ended December 31, 2003 and 2002, cumulative gross proceeds from
this securitization arrangement were $281 million and $213 million,
respectively. Cash flows from the securitization arrangement were reflected as
operating activities in the Consolidated Statements of Cash Flows. For the years
ended December 31, 2003 and 2002, the aggregate loss on sale associated with
this arrangement was $2 million and $2 million, respectively. Administration and
servicing of the trade receivables under the arrangement remained with the
Company. Servicing liabilities associated with the transaction were not
significant at December 31, 2002.

Contractual Obligations

     In addition to the Company's long-term indebtedness, in the ordinary course
of business, the Company enters into contractual obligations to purchase raw
materials, utilities and services for fixed or minimum amounts and lease
arrangements for certain property, plant and equipment. Following is a schedule
that shows long-term debt, unconditional purchase obligations, lease commitments
and certain other contractual obligations as of December 31, 2003:

<TABLE>
<CAPTION>
                                           2004   2005   2006   2007   2008   Thereafter    Total
                                           ----   ----   ----   ----   ----   ----------   ------
                                                                 (Millions)
<S>                                        <C>    <C>    <C>    <C>    <C>      <C>        <C>
Long-term debt .........................   $  6   $  5   $557   $  2   $476     $  404     $1,450
Operating leases .......................     20     15     12     11     11         75        144
VAM toll ...............................     63     67     72     --     --         --        202
Unconditional purchase obligations .....    332    272    224    173     99        750      1,850
                                           ----   ----   ----   ----   ----     ------     ------
   Total contractual obligations (1) ...   $421   $359   $865   $186   $586     $1,229     $3,646
                                           ====   ====   ====   ====   ====     ======     ======
</TABLE>

----------
(1)  Contractual obligations exclude $272 million of deferred income taxes and
     $325 million of other non-current liabilities. Due to the nature of these
     estimated liabilities there are no contractual payments scheduled for
     ultimate settlement. Other non-current liabilities consist primarily of
     estimated liabilities for pension and other postretirement benefits,
     resolution of probable tax assessments, environmental and other legal
     contingencies, and asset retirement obligations. (See Notes 11, 7, 15 and
     1, respectively, to the Consolidated Financial Statements included in this
     Amendment No. 2).

                    Off-Balance Sheet Financing Arrangements

     The Company has no material off-balance sheet financing arrangements other
than the European receivables securitization program, which was terminated in
November 2003, as described in "European Receivables Securitization Program"
above, and various operating leases as described in "Contractual Obligations"
above.


                                       30



<PAGE>


                      Environmental and Litigation Matters

     Certain Company subsidiaries have been named as defendants, PRPs, or both,
in a number of environmental proceedings associated with waste disposal sites or
facilities currently owned, operated or used by the Company's current or former
subsidiaries or predecessors. The Company's estimated individual exposure for
potential cleanup costs, damages for personal injury or property damage related
to these proceedings has been estimated to be between $0.01 million for several
small sites and $22 million for the Kalamazoo River Superfund Site in Michigan.
In October 2000, the Kalamazoo River Study Group, of which one of the Company's
subsidiaries is a member, evaluated a number of remedial options for the
Kalamazoo River Superfund Site and recommended a remedy at a total collective
cost of $73 million. The collective exposure for the Kalamazoo River Superfund
Site could range from $0 to $2.5 billion if one of the previously identified
remedial options is selected by the EPA; however, the Company strongly believes
that the likelihood of the cost being either $0 or $2.5 billion is remote.
Another as yet unidentified remedial option may also be selected by the EPA.
Based upon an interim allocation, the Company is paying 35% of costs related to
studying and evaluating the environmental conditions of the river. Guidance as
to how the EPA will likely proceed with any further evaluation and remediation
at the Kalamazoo site is not expected until late 2004 at the earliest. At the
point in time when the EPA announces how it intends to proceed with any such
evaluation and remediation, the Company's estimate of its liability at the
Kalamazoo site will be re-evaluated. In addition, the Company and various of its
subsidiaries are defendants in a number of pending legal proceedings relating to
present and former operations. The Company believes that the reasonably probable
and estimable range of potential liability for such environmental and litigation
contingencies, collectively, is between $53 million and $78 million and has
accrued $61 million as of December 31, 2003. See "Environmental Matters" in Item
1 and "Legal Proceedings" in Item 3 included in Amendment No. 1 to the
Company's Annual Report on Form 10-K/A for the year ended December 31, 2003.

                                    Inflation

     The financial statements are presented on a historical cost basis. While
the United States' inflation rate has been modest for several years, the Company
operates in many international areas with both inflation and currency
instability. The ability to pass on inflation costs is an uncertainty due to
general economic conditions and competitive situations.

                            Foreign Currency Matters

     The functional currency of each of the Company's non-United States
operations (principally, the Company's Ti(O2) operations in the United Kingdom,
France, Brazil and Australia) is generally the local currency. The Company is
subject to the strengthening and weakening of various currencies against each
other and against the US dollar. Foreign currency exposure from transactions and
commitments denominated in currencies other than the functional currency are
managed by selectively entering derivative transactions pursuant to the
Company's hedging practices. Translation exposure associated with translating
the functional currency financial statements of the Company's foreign
subsidiaries into US dollars is generally not hedged. Upon translation to the US
dollar, operating results could be significantly affected by foreign currency
exchange rate fluctuations. Since the Company's mix of foreign denominated
revenues and costs compared to functional currency denominated revenues and
costs varies significantly from subsidiary to subsidiary, it is difficult to
predict the impact foreign currency exchange fluctuations will have on the
Company's results. Costs associated with the Company's non-United States
operations are predominately denominated in foreign currencies; however, a
portion of the revenue generated by these non-United States operations is
denominated in US dollars. Consolidated Shareholders' deficit decreased
approximately $128 million and $27 million in 2003 and 2002, respectively, and
consolidated shareholders' equity decreased $19 million during 2001 as a result
of translating subsidiary financial statements into US dollars. Future events,
which may significantly increase or decrease the risk of future movements in
foreign currencies in which the Company conducts business, cannot be predicted.

     The Company generates revenue from export sales and revenue from operations
conducted outside the United States that may be denominated in currencies other
than the relevant functional currency. Revenues earned outside the United States
accounted for 62%, 59% and 54% of total revenues in 2003, 2002 and 2001,
respectively. These revenues were denominated in US dollars as well as other
currencies.

     Net foreign currency transactions aggregated losses of $2 million and $7
million in 2003 and 2001, respectively, and gains of $3 million in 2002.


                                       31



<PAGE>


Derivative Instruments and Hedging Activities

     As more fully described in Note 9 to the Consolidated Financial Statements
included in this Amendment No. 2, the Company is exposed to market risk, such as
changes in currency exchange rates, interest rates and commodity pricing, and
manages these exposures by selectively entering into derivative transactions
pursuant to the Company's policies for hedging practices. The counterparties to
the derivative financial instruments entered by the Company are major
institutions deemed to be creditworthy by the Company and generally are
financial institutions that provide the Company with debt financing. The Company
does not hold or issue derivative financial instruments for speculative or
trading purposes.


                                       32



<PAGE>


Derivative contracts outstanding at December 31, 2003 were as follows:

                       Foreign Currency Forward Contracts

<TABLE>
<CAPTION>
                            Notional Amount       Unrealized      Weighted Average
                          (US$ Equivalent)(1)   Gain/(Loss)(2)    Settlement Price
                          -------------------   --------------   -----------------
                                 (Dollars, in millions)
<S>                               <C>                 <C>        <C>
Less than 1 year
----------------
Receive GBP/Pay US$....           $  5                $--          1.7656 US$/GBP
Receive GBP/Pay euro...            121                 (2)         0.6975 GBP/euro
Receive euro/Pay US$...              6                 --          1.1670 US$/euro
Receive AUS$/Pay US$...             38                  3          0.6958 US$/AUS$
Receive US$/Pay euro...             30                 (1)         1.1967 US$/euro
Receive US$/Pay GBP....              3                 --          1.6823 US$/GBP
Receive GBP/Pay JPY....              1                 --        186.1600 JPY/GBP
                                                      ---
                                                      $--
                                                      ===
</TABLE>

----------
(1)  US$ equivalent was determined based upon currency exchange rates at
     December 31, 2003.

(2)  As of December 31, 2003.

                        Commodity Derivative Instruments

<TABLE>
<CAPTION>
                                                                     Weighted Average
                                                     Unrealized     Settlement Price/
                                 Notional Amount   Gain/(Loss)(1)      Strike Price
                                ----------------   --------------   -----------------
                                      (Dollars, in millions)
<S>                                    <C>               <C>        <C>
Less than 1 year
----------------
Natural Gas Swap Contracts...          $1                $--        Pay $5.37/mmbtu,
                                                                    receive NYMEX
                                                                    settlement

Purchased Call Options.......           7                 --              $6.25

Written Put Options..........           1                 --               4.25

Written Call Options.........           1                 --               7.25
                                                         ---
                                                         $--
                                                         ===
</TABLE>

----------
(1)  As of December 31, 2003.

                               Interest Rate Swaps

<TABLE>
<CAPTION>
                                                      Unrealized          Weighted Average
                                  Notional Amount   Gain/(Loss)(1)          Pay/Receive
                                  ---------------   --------------   -------------------------
                                       (Dollars, in millions)
<S>                                     <C>               <C>        <C>
2-3 Years
----------
Interest Rate Swap Contracts...         $225              $3         Pay six months LIBOR plus
                                                                     3.22%, receive 7%
</TABLE>

----------
(1)  As of December 31, 2003.


                                       33



<PAGE>


       Non-Derivative Financial Instruments and Other Market-Related Risks

     See Note 10 to the Consolidated Financial Statements included in this
Amendment No. 2.

                         Recent Accounting Developments

     See the discussion under the caption "Recent Accounting Developments" in
Note 1 to the Consolidated Financial Statements included in this Amendment
No. 2.


                                       34



<PAGE>


Item 8. Financial Statements and Supplementary Data

             Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of
Millennium Chemicals Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows, and changes in shareholders'
equity (deficit) present fairly, in all material respects, the financial
position of Millennium Chemicals Inc. and its subsidiaries (the "Company") at
December 31, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 15(a)(1) on page 81 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

       As discussed in Note 1 to the Consolidated Financial Statements,
effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Accounting for Goodwill and Other Intangible Assets".

       As discussed in Note 19 to the Consolidated Financial Statements, the
Company has restated its financial statements for the years ended December 31,
2003, 2002 and 2001.


/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Florham Park, NJ
March 8, 2004, except for the impact of the restatement in Note 19, as to which
date is August 6, 2004



                                       35



<PAGE>


                            MILLENNIUM CHEMICALS INC.
                           CONSOLIDATED BALANCE SHEETS
                          (Millions, except share data)

<TABLE>
<CAPTION>
                                                                                        As of December 31,
                                                                                   ---------------------------
                                                                                       2003           2002
                                                                                   ------------   ------------
                                                                                   (Restated -    (Restated -
                                                                                   See Note 19)   See Note 19)
<S>                                                                                    <C>           <C>
                                     ASSETS
Current assets
   Cash and cash equivalents ...................................................       $  209        $  125
   Trade receivables, net ......................................................          277           210
   Inventories .................................................................          457           406
   Other current assets ........................................................           65            78
                                                                                       ------        ------
      Total current assets .....................................................        1,008           819
Property, plant and equipment, net .............................................          766           862
Investment in Equistar .........................................................          469           563
Other assets ...................................................................           51            46
Goodwill .......................................................................          104           106
                                                                                       ------        ------
      Total assets .............................................................       $2,398        $2,396
                                                                                       ======        ======

                      LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
   Notes payable ...............................................................       $   --        $    4
   Other short-term borrowings .................................................           --            14
   Current maturities of long-term debt ........................................            6            12
   Trade accounts payable ......................................................          236           274
   Income taxes payable ........................................................            5            44
   Accrued expenses and other liabilities ......................................          124           127
                                                                                       ------        ------
      Total current liabilities ................................................          371           475
Long-term debt .................................................................        1,461         1,212
Deferred income taxes ..........................................................          272           300
Other liabilities ..............................................................          325           410
                                                                                       ------        ------
      Total liabilities ........................................................        2,429         2,397
                                                                                       ------        ------
Commitments and contingencies (Note 15)
Minority interest ..............................................................           27            19
Shareholders' deficit
   Preferred stock (par value $.01 per share, authorized 25,000,000 shares,
      none issued and outstanding) .............................................           --            --
   Common stock (par value $.01 per share, authorized 225,000,000 shares;
      issued 77,896,586 shares in 2003 and 2002, respectively) .................            1             1
   Paid in capital .............................................................        1,292         1,297
   Accumulated deficit .........................................................         (962)         (761)
   Cumulative other comprehensive loss .........................................         (141)         (299)
   Treasury stock, at cost (13,905,687 and 14,766,279 shares in 2003
      and 2002, respectively) ..................................................         (260)         (275)
   Unearned restricted shares ..................................................           (1)           --
   Deferred compensation .......................................................           13            17
                                                                                       ------        ------
      Total shareholders' deficit ..............................................          (58)          (20)
                                                                                       ------        ------
         Total liabilities and shareholders' deficit ...........................       $2,398        $2,396
                                                                                       ======        ======
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       36



<PAGE>


                            MILLENNIUM CHEMICALS INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (Millions, except per share data)

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                          ------------------------
                                                           2003     2002     2001
                                                          ------   ------   ------
<S>                                                       <C>      <C>      <C>
Net sales .............................................   $1,687   $1,554   $1,590
Operating costs and expenses
   Cost of products sold ..............................    1,377    1,234    1,261
   Depreciation and amortization ......................      113      102      110
   Selling, development and administrative expense ....      127      138      169
   Reorganization, office and plant closure costs .....       18       --       36
   Asset impairment charges ...........................      103       --       --
                                                          ------   ------   ------
      Operating (loss) income .........................      (51)      80       14
Interest expense ......................................      (98)     (90)     (85)
Interest income .......................................        6        4        3
Loss on Equistar investment ...........................     (100)     (73)     (83)
Other (expense) income, net ...........................       --       (1)       1
                                                          ------   ------   ------
Loss before income taxes and minority interest ........     (243)     (80)    (150)
Benefit from income taxes .............................       65       58      100
                                                          ------   ------   ------
Loss before minority interest and cumulative effect
   of accounting change ...............................     (178)     (22)     (50)
Minority interest .....................................       (5)      (6)      (4)
                                                          ------   ------   ------
Loss before cumulative effect of accounting change ....     (183)     (28)     (54)
Cumulative effect of accounting change ................       (1)    (305)      --
                                                          ------   ------   ------
Net loss ..............................................   $ (184)  $ (333)  $  (54)
                                                          ======   ======   ======
Basic and diluted loss per share:
   Before cumulative effect of accounting change.......   $(2.86)  $(0.44)  $(0.85)
   From cumulative effect of accounting change ........    (0.02)   (4.80)      --
                                                          ------   ------   ------
   After cumulative effect of accounting change .......   $(2.88)  $(5.24)  $(0.85)
                                                          ======   ======   ======
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       37



<PAGE>


                            MILLENNIUM CHEMICALS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Millions)

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                                                 2003    2002    2001
                                                                -----   -----   -----
<S>                                                             <C>     <C>     <C>
Cash flows from operating activities:
   Net loss ................................................    $(184)  $(333)  $ (54)
   Adjustments to reconcile net loss to net cash (used in)
      provided by operating activities:
         Cumulative effect of accounting change ............        1     305      --
         Asset impairment charges ..........................      103      --      --
         Write-off of assets related to plant closure ......       --      --      10
         Depreciation and amortization .....................      113     102     110
         Deferred income tax benefit .......................      (40)    (35)    (68)
         Non-cash income tax benefit .......................      (37)    (22)    (42)
         Loss on Equistar investment .......................      100      73      83
         Minority interest .................................        5       6       4
         Other, net ........................................        9       5       1
         Changes in assets and liabilities:
            (Increase) decrease in trade receivables .......      (56)      7      83
            (Increase) decrease in inventories .............      (13)      4      (3)
            Decrease (increase) in other current assets ....       30     (23)     30
            Decrease (increase) in other assets ............        2     (16)    (19)
            (Decrease) increase in trade accounts payable ..      (51)     12      64
            (Decrease) increase in accrued expenses and
               other liabilities and income taxes payable ..      (29)     15     (35)
            Decrease in other liabilities ..................      (43)    (16)    (52)
                                                                -----   -----   -----
      Cash (used in) provided by operating activities ......      (90)     84     112
                                                                -----   -----   -----
Cash flows from investing activities:
   Capital expenditures ....................................      (48)    (71)    (97)
   Proceeds from sales of property, plant & equipment ......       --       1      19
                                                                -----   -----   -----
      Cash used in investing activities ....................      (48)    (70)    (78)
                                                                -----   -----   -----
Cash flows from financing activities:
   Dividends to shareholders ...............................      (17)    (35)    (35)
   Proceeds from long-term debt, net .......................      626     302     783
   Repayment of long-term debt .............................     (387)   (272)   (736)
   (Decrease) increase in notes payable and other short-term
      borrowings ...........................................      (19)      3     (34)
                                                                -----   -----   -----
      Cash provided by (used in) financing activities ......      203      (2)    (22)
                                                                -----   -----   -----
Effect of exchange rate changes on cash ....................       19      (1)     (5)
                                                                -----   -----   -----
Increase in cash and cash equivalents ......................       84      11       7
Cash and cash equivalents at beginning of year .............      125     114     107
                                                                -----   -----   -----
Cash and cash equivalents at end of year ...................    $ 209   $ 125   $ 114
                                                                =====   =====   =====
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       38



<PAGE>


                            MILLENNIUM CHEMICALS INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                                   (Millions)

<TABLE>
<CAPTION>
                                                  Common Stock
                                              --------------------

                                                                                                Paid
                                              Outstanding            Treasury     Deferred       In
                                                 Shares     Amount     Stock    Compensation   Capital
                                              -----------   ------   --------   ------------   -------
<S>                                                <C>        <C>     <C>           <C>         <C>
Balance at December 31, 2000
   (Restated - See Note 19) ...............        64         $ 1     $(282)        $15         $1,326
Comprehensive loss
   Net loss ...............................        --          --        --          --             --
   Other comprehensive loss
      Net losses on derivative
         financial instruments:
         Losses arising during the
            year, net of tax of $5 ........        --          --        --          --             --
         Less: reclassification
            adjustment, net of tax
            of $3 .........................        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
            Net losses ....................        --          --        --          --             --
      Minimum pension liability
         adjustment, net of tax of $3  ....        --          --        --          --             --
      Currency translation adjustment .....        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
Total comprehensive loss ..................        --          --        --          --             --
Amortization and adjustment of
   unearned restricted shares .............        --          --        --          --            (27)
Dividends related to forfeiture of
   Restricted shares ......................        --          --        --          --             --
Shares purchased by employee benefit
   plan trusts ............................        (1)         --        (1)          2             --
Dividend to shareholders ..................        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
Balance at December 31, 2001
   (Restated - See Note 19) ...............        63           1      (283)         17          1,299
Comprehensive loss
   Net loss ...............................        --          --        --          --             --
   Other comprehensive loss
      Net gains on derivative
         financial instruments:
         Gains arising during the
            year, net of tax of $2 ........        --          --        --          --             --
         Less: reclassification
            adjustment ....................        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
            Net gains .....................        --          --        --          --             --
      Minimum pension liability
         adjustment, net of tax of $98 ....        --          --        --          --             --
      Equity in other comprehensive
         loss of Equistar:
            Minimum pension liability,
               net of tax of $4 ...........        --          --        --          --             --
      Currency translation adjustment .....        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
Total comprehensive loss ..................        --          --        --          --             --
Shares issued to fund 401(k) plan .........        --          --         6          --             (2)
Shares purchased by employee benefit
   plan trusts ............................        --          --         2          (2)            --
Current year compensation deferred ........        --          --        --           2             --
Dividend to shareholders ..................        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
Balance at December 31, 2002
   (Restated - See Note 19) ...............        63           1      (275)         17          1,297
Comprehensive loss
   Net loss ...............................        --          --        --          --             --
   Other comprehensive income (loss)
      Net losses on derivative
         financial instruments:
         Losses arising during the
            year, net of tax of $2 ........        --          --        --          --             --
         Less: reclassification
            adjustment, net of
            tax of $2 .....................        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
            Net losses ....................        --          --        --          --             --
      Minimum pension liability
         adjustment, net of tax of $14 ....        --          --        --          --             --
      Equity in other comprehensive
         loss of Equistar:
            Minimum pension liability,
               net of tax of $2 ...........        --          --        --          --             --
            Net gains on derivative
               financial instruments ......        --          --        --          --             --
      Currency translation adjustment .....        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
Total comprehensive loss ..................        --          --        --          --             --
Shares issued to fund 401(k) plan .........         1          --         7          --             (4)
Shares purchased by employee benefit
   plan trusts ............................        --          --         8          (4)            (1)
Dividend to shareholders ..................        --          --        --          --             --
                                                  ---         ---     -----         ---         ------
Balance at December 31, 2003
   (Restated - See Note 19) ...............        64         $ 1     $(260)        $13         $1,292
                                                  ===         ===     =====         ===         ======


<CAPTION>
                                                                           Cumulative
                                                             Unearned        Other
                                              Accumulated   Restricted   Comprehensive
                                                Deficit       Shares         Loss        Total
                                              -----------   ----------   -------------   -----
<S>                                              <C>           <C>           <C>         <C>
Balance at December 31, 2000
   (Restated - See Note 19) ...............      $(307)        $(25)         $(107)      $ 621
Comprehensive loss
   Net loss ...............................        (54)          --             --         (54)
   Other comprehensive loss
      Net losses on derivative
         financial instruments:
         Losses arising during the
            year, net of tax of $5 ........         --           --            (12)        (12)
         Less: reclassification
            adjustment, net of tax
            of $3 .........................         --           --              6           6
                                                 -----         ----          -----       -----
            Net losses ....................         --           --             (6)         (6)
      Minimum pension liability
         adjustment, net of tax of $3  ....         --           --             (4)         (4)
      Currency translation adjustment .....         --           --            (19)        (19)
                                                 -----         ----          -----       -----
Total comprehensive loss ..................        (54)          --            (29)        (83)
Amortization and adjustment of
   unearned restricted shares .............         --           25             --          (2)
Dividends related to forfeiture of
   Restricted shares ......................          3           --             --           3
Shares purchased by employee benefit
   plan trusts ............................         --           --             --           1
Dividend to shareholders ..................        (35)          --             --         (35)
                                                 -----         ----          -----       -----
Balance at December 31, 2001
   (Restated - See Note 19) ...............       (393)          --           (136)        505
Comprehensive loss
   Net loss ...............................       (333)          --             --        (333)
   Other comprehensive loss
      Net gains on derivative
         financial instruments:
         Gains arising during the
            year, net of tax of $2 ........         --           --              6           6
         Less: reclassification
            adjustment ....................         --           --             (1)         (1)
                                                 -----         ----          -----       -----
            Net gains .....................         --           --              5           5
      Minimum pension liability
         adjustment, net of tax of $98 ....         --           --           (188)       (188)
      Equity in other comprehensive
         loss of Equistar:
            Minimum pension liability,
              net of tax of $4 ............         --           --             (7)         (7)
      Currency translation adjustment .....         --           --             27          27
                                                 -----         ----          -----       -----
Total comprehensive loss ..................       (333)          --           (163)       (496)
Shares issued to fund 401(k) plan .........         --           --             --           4
Shares purchased by employee benefit
   plan trusts ............................         --           --             --          --
Current year compensation deferred ........         --           --             --           2
Dividend to shareholders ..................        (35)          --             --         (35)
                                                 -----         ----          -----       -----
Balance at December 31, 2002
   (Restated - See Note 19) ...............       (761)          --           (299)        (20)
Comprehensive loss
   Net loss ...............................       (184)          --             --        (184)
   Other comprehensive income (loss)
      Net losses on derivative
         financial instruments:
         Losses arising during the
            year, net of tax of $2 ........         --           --             (4)         (4)
         Less: reclassification
            adjustment, net of
            tax of $2 .....................         --           --              4           4
                                                 -----         ----          -----       -----
            Net losses ....................         --           --             --          --
      Minimum pension liability
         adjustment, net of tax of $14 ....         --           --             26          26
      Equity in other comprehensive
         loss of Equistar:
            Minimum pension liability,
               net of tax of $2 ...........         --           --              3           3
            Net gains on derivative
               financial instruments ......         --           --              1           1
      Currency translation adjustment .....         --           --            128         128
                                                 -----         ----          -----       -----
Total comprehensive loss ..................       (184)          --            158         (26)
Shares issued to fund 401(k) plan .........         --           --             --           3
Shares purchased by employee benefit
   plan trusts ............................         --           (1)            --           2
Dividend to shareholders ..................        (17)          --             --         (17)
                                                 -----         ----          -----       -----
Balance at December 31, 2003
   (Restated - See Note 19) ...............      $(962)        $ (1)         $(141)      $ (58)
                                                 =====         ====          =====       =====
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       39



<PAGE>


                            MILLENNIUM CHEMICALS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies

     Principles of Consolidation: The consolidated financial statements include
the accounts of Millennium Chemicals Inc. and its majority-owned subsidiaries
(the "Company"). All significant intercompany accounts and transactions have
been eliminated. Minority interest represents the minority ownership of the
Company's Brazilian subsidiary and the La Porte Methanol Company. The Company's
29.5% investment in Equistar Chemicals, LP ("Equistar"), a joint venture between
the Company and Lyondell Chemical Company ("Lyondell"), is accounted for by the
equity method; accordingly, the Company's share of Equistar's pre-tax net income
or loss is included in net income or loss.

     Estimates and Assumptions: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements, the 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. Such estimates include the evaluation of and
judgments about environmental obligations, legal matters and tax claims brought
against the Company, pension and other postretirement benefits, the ability to
recover the full carrying value of accounts receivable and inventories owned by
the Company, and the carrying value of goodwill, the Company's deferred tax
assets and other long-term assets such as the Company's investment in Equistar.
Actual results could differ from those estimates.

     Reclassification: Certain prior year balances have been reclassified to
conform with the current year presentation.

     Revenue Recognition: Revenue is recognized upon transfer of title and risk
of loss to the customer, which is generally upon shipment of product to the
customer or upon usage of the product by the customer in the case of consignment
inventories.

     Costs incurred related to shipping and handling are included in cost of
products sold. Amounts billed to the customer for shipping and handling are
included in sales revenue.

     Cash Equivalents: Cash equivalents represent investments in short-term
deposits and commercial paper with banks that have original maturities of 90
days or less. In addition, Other assets include approximately $3 of restricted
cash at December 31, 2003 and 2002, which is on deposit to satisfy insurance
claims.

     Inventories: Product inventories are stated at the lower of cost or market
value. Raw materials and maintenance parts and supplies are carried at average
cost. The first-in first-out ("FIFO") method, or methods that approximate FIFO,
are used to determine cost for all product inventories of the Company.

     Property, Plant and Equipment: Property, plant and equipment is stated on
the basis of cost or cost adjusted for impairment writedown, where appropriate.
Depreciation is provided by the straight-line method over the estimated useful
lives of the assets, generally 20 to 40 years for buildings and 5 to 25 years
for machinery and equipment. Environmental costs are capitalized if the costs
increase the value of the property and/or mitigate or prevent contamination from
future operations. Major repairs and improvements incurred in connection with
substantial overhauls or maintenance turnarounds are capitalized and amortized
on a straight-line basis until the next planned turnaround (generally 18 months
to 3 years). Other less substantial maintenance and repair costs are expensed as
incurred. Unamortized capitalized turnaround costs were $22 and $19 at December
31, 2003 and 2002, respectively.

     Capitalized Software Costs: The Company capitalizes costs incurred in the
acquisition and modification of computer software used internally, including
consulting fees and costs of employees dedicated solely to a specific project.
Such costs are amortized over periods not exceeding 7 years and are subject to
impairment evaluation under Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). Unamortized capitalized software costs of $30 and $43 at December 31,
2003 and 2002, respectively, are included in Property, plant and equipment.


                                       40



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

     Goodwill: Goodwill represents the excess of the purchase price over the
fair value of the net assets of acquired companies. Through December 31, 2001,
goodwill was amortized using the straight-line method over 40 years in
accordance with accounting principles generally accepted in the United States of
America, and management evaluated goodwill for impairment based on the
anticipated future cash flows attributable to its operations in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). Such expected cash flows,
on an undiscounted basis, were compared to the carrying value of the tangible
and intangible assets and, if impairment was indicated, the carrying value of
goodwill was adjusted. In the opinion of management, no impairment of goodwill
existed at December 31, 2001 under SFAS No. 121.

     On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). Under this new standard, all goodwill,
including goodwill acquired before initial application of the standard, is not
amortized but must be tested for impairment at least annually at the reporting
unit level, as defined in the standard. Accordingly, the Company reported a
charge for the cumulative effect of this accounting change of $275 in the first
quarter of 2002 to write off certain of its goodwill related to its Acetyls
business based upon the Company's estimate of fair value for this business
considering expected future profitability and cash flows. Also in accordance
with SFAS No. 142, Equistar reported an impairment of its goodwill in the first
quarter of 2002. The write-off at Equistar required an adjustment of $30 to
reduce the carrying value of the Company's investment in Equistar to its
approximate proportional share of Equistar's Partners' capital. The Company
reported this adjustment as a charge for the cumulative effect of this
accounting change. In the opinion of management, no further adjustment to the
carrying value of goodwill of $106 was required at December 31, 2002 under SFAS
No. 142. Amortization expense was $13 for the year ended December 31, 2001 for
the Company's goodwill. Additionally, the Company's share of amortization
expense reported by Equistar for the year ended December 31, 2001 for its
goodwill, included in Loss on Equistar investment, was $10. Following is a
reconciliation of the reported net loss to net loss adjusted for goodwill
amortization and the cumulative effect of the goodwill accounting change, and
related per share amounts:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -----------------------
                                                       2003    2002   2001
                                                      -----   -----   ----
<S>                                                   <C>     <C>     <C>
Reported net loss.................................    $(184)  $(333)  $(54)
Goodwill amortization.............................       --      --     13
Equistar goodwill amortization included
   in Loss on Equistar investment.................       --      --     10
                                                      -----   -----   ----
Adjusted net loss.................................     (184)   (333)   (31)
Cumulative effect of goodwill accounting change...       --     305     --
                                                      -----   -----   ----
Adjusted net loss before cumulative effect of
   goodwill accounting change.....................    $(184)  $ (28)  $(31)
                                                      =====   =====   ====
</TABLE>


                                       41



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                     ---------------------------
Per share amounts:                                     2003      2002      2001
                                                     -------   -------   -------
                                                     Basic &   Basic &   Basic &
                                                     Diluted   Diluted   Diluted
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
Reported net loss.................................   $(2.88)   $(5.24)   $(0.85)
Goodwill amortization.............................       --        --      0.20
Equistar goodwill amortization included
   in Loss on Equistar investment.................       --        --      0.16
                                                     ------    ------    ------
Adjusted net loss.................................    (2.88)    (5.24)    (0.49)
Cumulative effect of goodwill accounting change...       --      4.80        --
                                                     ------    ------    ------
Adjusted net loss before cumulative effect of
   goodwill accounting change.....................   $(2.88)   $(0.44)   $(0.49)
                                                     ======    ======    ======
</TABLE>

     Long-Lived Assets Other than Goodwill: The Company evaluates long-lived
assets other than goodwill for impairment whenever facts and circumstances
indicate that the carrying amount may not be fully recoverable. To analyze
recoverability, undiscounted net future cash flows are projected over the
remaining life of the assets. If these projected cash flows are less than the
carrying amount, an impairment would be recognized, resulting in a writedown of
assets with a corresponding charge to earnings. The impairment loss is measured
based upon the difference between the carrying amount and the fair value of the
assets.

     Asset Retirement Obligations: On January 1, 2003, the Company adopted SFAS
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS
No. 143 applies to legal obligations associated with the retirement of
long-lived assets. This standard requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred and the associated asset retirement costs be capitalized as part of the
carrying amount of the long-lived asset. Accretion expense and depreciation
expense related to the liability and capitalized asset retirement costs,
respectively, are recorded in subsequent periods. The Company's asset retirement
obligations arise from activities associated with the eventual remediation of
sites used for landfills and mining and include estimated liabilities for
closure, restoration, and post-closure care. None of the Company's assets are
legally restricted for purposes of settling these obligations. As these
liabilities are settled, a gain or loss is recognized for any difference between
the settlement amount and the liability recorded. The Company reported an
after-tax transition charge of $1 in the first quarter of 2003 as the cumulative
effect of this accounting change. The impact of adoption was to increase the
Company's reported assets and liabilities by $2 and $3, respectively. The
ongoing annual expense resulting from the initial adoption of SFAS No. 143 is
expected to be approximately $1. Activity associated with the asset retirement
obligations other than the effect of initial adoption of SFAS No. 143 was $1 for
the year ended December 31, 2003. The amount of the asset retirement obligation
at December 31, 2003 was $13. Disclosure on a pro forma basis of net income and
related per-share amounts as if SFAS No. 143 had been applied during all periods
presented is omitted because the effect on pro forma net income is not
significant. The pro forma amount of the asset retirement obligation at January
1, 2001, December 31, 2001, and December 31, 2002, as if SFAS No. 143 had been
applied at the beginning of 2001, the earliest year presented, is $10, $11 and
$12, respectively.

     Environmental Liabilities and Legal Matters: The Company periodically
reviews matters associated with potential environmental obligations and legal
matters brought against the Company and evaluates, accounts, reports and
discloses these matters in accordance with SFAS No. 5, "Accounting for
Contingencies" ("SFAS No. 5"). In order to make estimates of liabilities, the
Company's evaluation of and judgments about environmental obligations and legal
matters are based upon the individual facts and circumstances relevant to the
individual matters and include advice from legal counsel, if applicable. The
Company establishes reserves by recording charges to its results of operations
for loss contingencies that are considered probable (the future event or events
are likely to occur) and for which the amount of loss can be reasonably
estimated. When a loss contingency is considered


                                       42



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

probable but the amount of loss can only be reasonably estimated within a range,
the Company records a reserve for the loss contingency at the low end of the
range but also applies judgment to specific matters as to whether any particular
amount within the range is a better estimate than any other amount. If an amount
within the range is considered to be a better estimate of the loss, the Company
records this amount as its reserve for the loss contingency. Reserves are
exclusive of claims against third parties, except where the amount of liability
or contribution by such other parties, including insurance companies, has been
agreed, and are not discounted. Loss contingencies that are not considered
probable or that cannot be reasonably estimated are disclosed in the Notes to
the Consolidated Financial Statements, either individually or in the aggregate,
if there is a reasonable possibility that a loss may be incurred and if the
amount of possible loss could have a significant impact on the Company's
consolidated financial position or results of operations. Loss contingencies
that are considered remote (the chance of the future event or events occurring
is slight) are not typically disclosed unless the Company believes the potential
loss to be extremely significant to its consolidated financial position and
results of operations.

     Foreign Currency: Assets and liabilities of the Company's foreign
subsidiaries are translated at the exchange rates in effect at the balance sheet
dates, while revenues, expenses and cash flows are translated at the exchange
rates in effect at the dates on which transactions are recognized, except where
not practicable, then average exchange rates for the reporting period are used.
Resulting translation adjustments are recorded as a component of Cumulative
other comprehensive loss in Shareholders' deficit. Gains and losses resulting
from changes in foreign currency on transactions denominated in currencies other
than the functional currency of the respective subsidiary are recognized in
earnings as they occur.

     Derivative Instruments and Hedging Activities: Derivatives are recognized
on the balance sheet at their fair value. If a derivative is designated as a
hedging instrument for accounting purposes, the Company designates the
derivative, on the date the derivative contract is entered into, as (1) a hedge
of the fair value of a recognized asset or liability or of an unrecognized firm
commitment ("fair value" hedge), (2) a hedge of a forecasted transaction ("cash
flow" hedge), (3) a foreign-currency fair value or cash flow hedge ("foreign
currency" hedge) or (4) a hedge of a net investment in a foreign operation. For
derivative instruments not designated as hedging instruments for accounting
purposes, changes in fair values are recognized in earnings in the period in
which they occur.

     Changes in the fair value of derivatives that are highly effective as, and
that are designated and qualify as, fair value hedges, along with the losses or
gains on the hedged assets or liabilities that are attributable to the hedged
risks (including losses or gains on firm commitments), are recorded in
current-period earnings. Changes in the fair value of derivatives that are
highly effective as, and that are designated and qualify as, cash flow hedges
are recorded in Other comprehensive income (loss) ("OCI"), until earnings are
affected by the variability of cash flows. Changes in the fair value of
derivatives that are highly effective as, and that are designated and qualify
as, foreign-currency hedges are recorded in either current-period earnings or
OCI, depending on whether the hedge transactions are fair value hedges or cash
flow hedges. If, however, a derivative is used as a hedge of a net investment in
a foreign operation, its changes in fair value, to the extent effective as a
hedge, are recorded as translation adjustments in OCI.

     The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as fair value, cash flow, or
foreign-currency hedges to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
When it is determined that a derivative is not highly effective as a hedge, or
that it has ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively.

     Income Taxes: The Company accounts for income taxes using the liability
method under SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). This
method generally provides that deferred tax assets and liabilities, computed
using enacted marginal tax rates of the respective tax jurisdictions, be
recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss carryforwards. The Company periodically assesses
the likelihood of realization of deferred tax assets and with respect to net
operating loss carryforwards, prior to expiration, by


                                       43



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

considering the availability of taxable income in prior carryback periods, the
scheduled reversal of deferred tax liabilities, certain distinct tax planning
strategies, and projected future taxable income. If it is considered to be more
likely than not that the deferred tax assets will not be realized, a valuation
allowance is established against some or all of the deferred tax assets.

     The Company periodically assesses tax exposures and establishes or adjusts
estimated reserves for probable assessments by the Internal Revenue Service
("IRS") or other taxing authorities. Such reserves represent an estimated
provision for taxes ultimately expected to be paid.

     Research and Development: The cost of research and development efforts is
expensed as incurred. Such costs aggregated $21, $20 and $20 for the years ended
December 31, 2003, 2002 and 2001, respectively.

     Retirement-Related Benefits: The Company determines its benefit obligations
and net periodic benefit costs for its defined benefit pension plans and its
other postretirement benefit plans using actuarial models required by SFAS No.
87, "Employers' Accounting for Pensions" ("SFAS No. 87") and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
No. 106"), respectively. These models use an approach that generally recognizes
individual events like plan amendments and changes in actuarial assumptions such
as discount rates, rate of compensation increases, inflation, medical costs and
mortality over the service lives of the employees in the plan. The
market-related value of plan assets, a calculated value that recognizes changes
in the fair value of plan assets over a five-year period, is utilized to
determine the Company's reported benefit liabilities and net periodic benefit
cost.

     The Company evaluates the appropriateness of retirement-related benefit
plan assumptions annually. Some of the more significant assumptions used to
determine the Company's benefit obligations and net periodic benefit costs are
the expected rate of return on plan assets, the discount rate, the rate of
compensation increases, and healthcare cost trend rates.

     To develop its expected return on plan assets, the Company uses long-term
historical actual return information, the mix of investments that comprise plan
assets, and future estimates of long-term investment returns by reference to
external sources rather than relying on current fluctuations in market
conditions. The discount rate assumptions reflect the rates available on
high-quality fixed-income debt instruments on December 31 of each year. The rate
of compensation increase is determined by the Company based upon its long-term
plans for such increases. The Company reviews external data and its own
historical trends for healthcare costs to determine the healthcare cost trend
rates.

     At December 31 of each year, if any of the Company's defined benefit
pension plans are underfunded and require adjustment to establish an additional
minimum liability in accordance with SFAS No. 87, an adjustment is first made to
establish an intangible asset to the extent of any unrecognized amount of prior
service cost for the given plan and then an equity adjustment is included in OCI
for the remaining amount of the required minimum liability. This additional
minimum liability is calculated and adjusted, as necessary, annually through the
Company's Consolidated Balance Sheet and has no immediate impact on the
Company's Consolidated Statement of Operations.

     Stock-Based Compensation: SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," encourages a fair-value
based method of accounting for employee stock options and similar equity
instruments, which generally would result in the recording of additional
compensation expense in the Company's financial statements. SFAS No. 123, as
amended, also allows the Company to continue to account for stock-based employee
compensation using the intrinsic value for equity instruments under Accounting
Principles Board Opinion No. 25 ("APB Opinion No. 25"). The Company has elected
to account for such instruments using APB Opinion No. 25 and related
interpretations, and thus has adopted the disclosure-only provisions of SFAS No.
123, as amended. Accordingly, no compensation cost has been recognized for the
stock option plans in the accompanying financial statements as all options
granted had an exercise price equal to the market value of the underlying Common
Stock on the date of grant.


                                       44



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

     The following table illustrates the effect on net loss and loss per share
before cumulative effect of accounting change if the Company had applied the
fair value recognition provisions of SFAS No. 123, as amended, to stock-based
employee compensation:

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                            ------------------------
                                                                             2003     2002     2001
                                                                            ------   ------   ------
<S>                                                                         <C>      <C>      <C>
Net loss before cumulative effect of accounting change ..................   $ (183)  $  (28)  $  (54)

Deduct: Total stock-based employee compensation expense determined under
   fair-value based method for all awards, net of related tax effects ...       (2)      (2)      (1)
                                                                            ------   ------   ------
Pro forma net loss before cumulative effect of accounting change ........   $ (185)  $  (30)  $  (55)
                                                                            ======   ======   ======
Loss per share before cumulative effect of accounting change:
   Basic and diluted - as reported ......................................   $(2.86)  $(0.44)  $(0.85)
                                                                            ======   ======   ======
   Basic and diluted - pro forma ........................................   $(2.89)  $(0.48)  $(0.87)
                                                                            ======   ======   ======
</TABLE>

     Earnings Per Share: Basic loss per share is computed based upon the
weighted average number of common shares outstanding during the period. Diluted
loss per share is computed based upon the weighted average number of common
shares and potential dilutive common shares outstanding during the period. The
computation of diluted loss per share for 2003 does not include 283,881
restricted and other shares, for 2002 the computation does not include 290,160
restricted and other shares and 4,727 options, and for 2001 the computation of
diluted loss per share does not include 318,606 restricted and other shares
issued under the Company's stock-based compensation plans as their effect would
be antidilutive due to reported net losses in each of these periods.

     Loss per share amounts were computed as follows:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                           ---------------------------------------
                                                                               2003          2002          2001
                                                                           -----------   -----------   -----------
<S>                                                                        <C>           <C>           <C>
Loss before cumulative effect of accounting change......................   $      (183)  $       (28)  $       (54)
Cumulative effect of accounting change..................................            (1)         (305)           --
                                                                           -----------   -----------   -----------
Net loss available for common shareholders - basic and diluted..........   $      (184)  $      (333)  $       (54)
                                                                           ===========   ===========   ===========

Weighted average shares outstanding - basic and diluted.................    64,018,512    63,587,561    63,564,497
                                                                           ===========   ===========   ===========
Basic and diluted loss per share:

   Before cumulative effect of accounting change........................   $     (2.86)  $     (0.44)  $     (0.85)
   From cumulative effect of accounting change..........................         (0.02)        (4.80)           --
                                                                           -----------   -----------   -----------
   After cumulative effect of accounting change.........................   $     (2.88)  $     (5.24)  $     (0.85)
                                                                           ===========   ===========   ===========
</TABLE>

     Concentration of Credit Risk: Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of temporary cash investments, foreign currency, interest rate and
natural gas derivative contracts and accounts receivable. The Company maintains
its investments and enters contracts with major institutions that it deems
credit worthy, generally financial institutions that provide the Company with
debt financing.


                                       45



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

     The Company sells a broad range of commodity, industrial, performance and
specialty chemicals to a diverse group of customers operating throughout the
world. Revenue generated from export sales (i.e., sales from within the United
States to foreign customers) as well as sales from those of the Company's
operations that are conducted outside the United States accounted for 62%, 59%
and 54% of total revenues in 2003, 2002 and 2001, respectively, which are made
to customers in over 90 countries. Accordingly, there is no significant
concentration of risk in any one particular country. In addition, 58%, 58% and
60% of the revenues of the Titanium Dioxide and Related Products business
segment in 2003, 2002 and 2001, respectively (which accounts for approximately
69%, 73% and 72% of consolidated revenues in 2003, 2002 and 2001, respectively)
were made to customers in the global paint and coatings industry. The leading
United States economic indicator for this industry is new and existing home
sales, which has remained relatively strong in recent years despite the weak
economic conditions in the United States. In addition, some seasonality in sales
exists because sales of paint and coatings are greatest in the spring and summer
months. Credit limits, ongoing credit evaluation, and account-monitoring
procedures are utilized to minimize credit risk. Collateral is generally not
required, but may be used under certain circumstances or in certain markets,
particularly in lesser-developed countries of the world. Credit losses to
customers operating in this industry have not been material.

     Recent Accounting Developments: In December 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 46 (Revised
December 2003), "Consolidation of Variable Interest Entities" ("FIN No. 46R"),
primarily to clarify the required accounting for interests in variable interest
entities. This standard replaces FIN No. 46, "Consolidation of Variable Interest
Entities," that was issued in January 2003 to address certain situations in
which a company should include in its financial statements the assets,
liabilities and activities of another entity. The Company's application of FIN
No. 46R had no material impact on its consolidated financial statements.

     Effective December 2003, the Company adopted SFAS No. 132 (Revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
No. 132R"), issued by the FASB in December 2003. SFAS No. 132R requires more
detailed disclosures about plan assets, benefit obligations, cash flows, benefit
costs and related information. Adoption of SFAS No. 132R does not change the
Company's accounting for pension and other postretirement benefits.

     In January 2004, the FASB issued FASB Staff Position ("FSP") No. FAS 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" ("FSP No. FAS 106-1"). FSP No.
FAS 106-1 permits a sponsor of a postretirement healthcare plan that provides a
prescription drug benefit to make a one-time election to defer recognition and
accounting for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Medicare Act of 2003"), which was signed into
law on December 8, 2003, under SFAS No. 106 and SFAS No. 109, as well as in
making disclosures related to its plans as required by SFAS No. 132R until the
FASB develops and issues authoritative guidance on accounting for the Federal
subsidies provided by the Medicare Act of 2003. The Medicare Act of 2003
introduces a prescription drug benefit under Medicare ("Medicare Part D") as
well as a Federal subsidy to sponsors of retiree healthcare benefit plans that
provide a medical benefit that is at least actuarially equivalent to Medicare
Part D. The Company elected to make the one-time deferral and, accordingly, the
measures of its accumulated postretirement benefit obligation and net periodic
postretirement benefit cost included in its financial statements and
accompanying notes thereto do not reflect the effects of the Medicare Act of
2003. Specific authoritative guidance, when issued by the FASB, could require a
change in currently reported information. The Company is currently evaluating
the possible economic effects of the Medicare Act of 2003, if any, on its
postretirement benefit plans.

         In September 2003, the Accounting Standards Executive Committee
("AcSEC") approved for final issuance Statement of Position ("SOP"), "Accounting
for Certain Costs and Activities Related to Property, Plant, and Equipment,"
subject to AcSEC's positive clearance and FASB's clearance. AcSEC expects to
issue the SOP in the first quarter of 2004. The proposed SOP addresses
accounting and disclosure issues related to property, plant and equipment;
component accounting for property, plant and equipment; and costs related to
maintenance activities. The effective date of the proposed SOP will be for
fiscal years beginning after December 15, 2004. Upon the


                                       46



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 1 -- Significant Accounting Policies - Continued

issuance of the final SOP, the Company will evaluate the SOP's impact on its
accounting for property, plant, and equipment and maintenance activities.

Note 2 -- Asset Impairment Charges

     In the fourth quarter of 2003, the Company recorded a non-cash, pre-tax
asset impairment charge of $103 ($101 after tax) associated primarily with the
writedown of property, plant and equipment at the Company's Le Havre, France
titanium dioxide ("TiO[u]2") manufacturing plant. Management prepared and the
Company's Board of Directors approved its strategic operating plan for this
manufacturing plant in the fourth quarter of 2003. Financial projections
resulting from this strategic planning process produced cash flow estimates for
this plant that were less favorable than previous estimates. The Company
evaluated the carrying value of the Le Havre manufacturing plant assets by
analyzing the estimated future cash flows associated with these assets. Such
analysis demonstrated that the undiscounted estimated future cash flows were
insufficient to recover the carrying value of these assets. Accordingly, an
impairment charge was required to write down the basis in the property, plant
and equipment to its estimated fair value. The Company evaluated discounted cash
flow analysis and information from third parties to determine a fair value
estimate. At December 31, 2003, after the impairment charge, the carrying value
of the property, plant and equipment at the Le Havre manufacturing plant was
zero. Future capital expenditures at this plant are expected to be included in
period charges and classified as asset impairment charges when incurred.

     The operations of the Le Havre manufacturing plant were not profitable in
2003. The Company does not expect these operations to return to profitability in
the future and is evaluating various alternatives for the facility. The Company
has decided to rationalize certain equipment at this plant in the second quarter
of 2004, which will result in the reduction of the plant's rated capacity from
95,000 metric tons per annum to 65,000 metric tons per annum. This
rationalization will include the idling of certain equipment for which the
carrying value is zero, after the asset impairment charge reported in 2003.

Note 3 -- Reorganization, Office and Plant Closure Charges

     In July 2003, the Company announced the implementation of a program to
reduce costs. This program included a reduction of approximately 5% in the
number of the Company's employees worldwide and, effective September 1, 2003,
the closure of the Company's executive offices in Red Bank, New Jersey and the
relocation of its headquarters to the Company's existing administrative offices
in Hunt Valley, Maryland. In addition, the Company announced the suspension of
payment of dividends on its Common Stock.

     The Company has recorded charges for the year ended December 31, 2003 of
$18, of which $17 is for severance-related costs and $1 is for contractual
commitments for ongoing lease costs, net of expected sublease income, associated
with the closure of the Red Bank, New Jersey office for the remaining term of
the lease agreement. Substantially all of the remaining charges for this
program, estimated at $1 to $3, are expected to be recorded during the next
several quarters. All costs associated with this program are accounted for in
accordance with SFAS No. 112, "Employer's Accounting for Postemployment
Benefits" ("SFAS No. 112") or SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", as appropriate. Severance-related cash
payments of $14 for the implementation of this program were made during the year
ended December 31, 2003. Substantially all of the remainder of the cash payments
relating to this program, which are estimated to be approximately $11, will be
disbursed during the next several quarters. Accrued liabilities associated with
this program and included in Accrued expenses and other liabilities were $6 at
December 31, 2003.

     In 2001, the Company recorded a provision for reorganization and plant
closure costs of $36, including $31 in connection with the Company's announced
decision to reduce its worldwide workforce and indefinitely idle its
sulfate-process titanium dioxide plant in Hawkins Point, Maryland, and $5 in
connection with the Company's announced decision to close its Acetyls facilities
in Cincinnati, Ohio. The $31 charge included $19 of severance and other
employee-related costs for the termination of approximately 400 employees
involved in manufacturing, technical, sales and marketing, finance and
administrative support, a $10 writedown of assets, and $2 in other costs
associated with idling the plant. The $5 charge for the closure of the
facilities in Cincinnati, Ohio, included $3 of severance and other termination
benefits related to the termination of about 35 employees involved in technical,


                                       47



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 3 -- Reorganization, Office and Plant Closure Charges - Continued

marketing and administrative activities, as well as $2 related to the writedown
of assets, lease termination costs and other charges. All payments for severance
and related costs and for other costs related to the reorganization and plant
closure charges in 2001 were made as of December 31, 2002.

Note 4 -- Investment in Equistar

     On December 1, 1997, the Company and Lyondell completed the formation of
Equistar, a joint venture partnership created to own and operate the
petrochemical and polymers businesses of the Company and Lyondell. The Company
contributed to Equistar substantially all of the net assets of its former
ethylene, polyethylene, ethanol and related products business. The Company
retained $250 from the proceeds of accounts receivable collections and
substantially all the accounts payable and accrued expenses of its contributed
businesses existing on December 1, 1997, and received proceeds of $750 from
borrowings under a new credit facility entered into by Equistar. The Company
used the $750 received from Equistar to repay debt. Equistar was owned 57% by
Lyondell and 43% by the Company until May 15, 1998, when the Company and
Lyondell expanded Equistar with the addition of the ethylene, propylene,
ethylene oxide and derivatives businesses of the chemical subsidiary of
Occidental Petroleum Corporation (together with its subsidiaries and affiliates,
collectively "Occidental"). Occidental contributed the net assets of those
businesses (including approximately $205 of related debt) to Equistar. In
exchange, Equistar borrowed an additional $500, $420 of which was distributed to
Occidental and $75 to the Company. Equistar was then owned 41% by Lyondell,
29.5% by Occidental and 29.5% by the Company. No gain or loss resulted from
these transactions. On August 22, 2002, Occidental sold its 29.5% equity
interest in Equistar to Lyondell. Equistar is now owned 70.5% by Lyondell and
29.5% by the Company.

     The Company has evaluated the carrying value of its investment in Equistar
at December 31, 2003 using fair value estimates prepared by the Company and
third parties. Those valuations included discounted cash flow analysis of both
internal management and external party cash flow projections, as well as
replacement cost analysis. Additionally, the Company analyzed Lyondell's 2002
purchase of Occidental's 29.5% interest in Equistar and determined, after
considering tax effects, that the fair value of such transaction related to
Occidental's partnership investment exceeds the Company's carrying value for its
Equistar investment. The carrying value of the Company's investment in Equistar
at December 31, 2003 and 2002 was $469 and $563, respectively.

     Equistar is managed by a Partnership Governance Committee consisting of
representatives of both partners. Approval of Equistar's strategic plans and
other major decisions requires the consent of the representatives of both
partners. All decisions of Equistar's Governance Committee that do not require
unanimity among the partners may be made by Lyondell's representatives alone.

     Because of the significance of the Company's interest in Equistar to the
Company's total results of operations, the separate financial statements of
Equistar are included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003, as amended by Amendment No. 1 on Form 10-K/A filed
with the Securities and Exchange Commission on April 27, 2004.

Note 5 -- European Receivables Securitization Program

     From March 2002 until November 2003, the Company had been transferring its
interest in certain European trade receivables to an unaffiliated third party as
its basis for issuing commercial paper under a revolving securitization
arrangement (annually renewable for a maximum of five years on April 30 of each
year at the option of the third party) with maximum availability of 70 million
euro, which was treated, in part, as a sale under accounting principles
generally accepted in the United States of America. In November 2003, the
Company terminated this securitization arrangement and there are no balances
outstanding at December 31, 2003.

     Transferred trade receivables outstanding at December 31, 2002 that
qualified as a sale were $61 and were not included in the Company's Consolidated
Balance Sheet at December 31, 2002. The Company carried its retained interest in
a portion of the transferred assets that did not qualify as a sale, $9 at
December 31, 2002, in Trade receivables, net in its Consolidated Balance Sheet
at amounts that approximated net realizable value based upon the Company's
historical collection rate for these trade receivables. For the years ended
December 31, 2003 and 2002, cumulative gross proceeds from this securitization
arrangement were $281 and $213, respectively. Cash flows from


                                       48



<PAGE>


                           MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 5 -- European Receivables Securitization Program - Continued

the securitization arrangement were reflected as operating activities in the
Consolidated Statements of Cash Flows. For the years ended December 31, 2003 and
2002, the aggregate loss on sale associated with this arrangement was $2 and $2,
respectively. Administration and servicing of the trade receivables under the
arrangement remained with the Company. Servicing liabilities associated with the
transaction were not significant at December 31, 2002.

Note 6 -- Supplemental Financial Information

<TABLE>
<CAPTION>
                                                       2003     2002
                                                      ------   ------
<S>                                                   <C>      <C>
Trade receivables
   Trade receivables...............................   $  286   $  217
   Allowance for doubtful accounts.................       (9)      (7)
                                                      ------   ------
                                                      $  277   $  210
                                                      ======   ======
Inventories
   Finished products...............................   $  258   $  210
   In-process products.............................       38       30
   Raw materials...................................       96      106
   Maintenance parts and supplies..................       65       60
                                                      ------   ------
                                                      $  457   $  406
                                                      ======   ======
Property, plant and equipment
   Land and buildings..............................   $  220   $  222
   Machinery and equipment.........................    1,413    1,401
   Construction-in-progress........................       77      111
                                                      ------   ------
                                                       1,710    1,734
   Accumulated depreciation and amortization.......     (944)    (872)
                                                      ------   ------
                                                      $  766   $  862
                                                      ======   ======

Goodwill
   Goodwill at beginning of year...................   $  106   $  381
   Cumulative effect of accounting change..........       --     (275)
   Other...........................................       (2)      --
                                                      ------   ------
   Goodwill at end of year.........................   $  104   $  106
                                                      ======   ======

Accrued expenses and other liabilities
   Customer rebates................................   $   31   $   37
   Other accrued expenses and other liabilities....       93       90
                                                      ------   ------
                                                      $  124   $  127
                                                      ======   ======
</TABLE>


                                       49



<PAGE>


                           MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 6 -- Supplemental Financial Information - Continued

<TABLE>
<CAPTION>
                                                        2003   2002   2001
                                                        ----   ----   ----
<S>                                                      <C>    <C>    <C>
   Amortization expense..............................    $--    $--    $13
                                                         ===    ===    ===
Rental expense on operating leases is as follows:
      Rental expense.................................    $22    $22    $19
                                                         ===    ===    ===
 Cash paid (received) for interest and taxes:
   Interest, net.....................................    $95    $86    $81
   Taxes, net........................................     38     (1)     1
</TABLE>

Note 7 -- Income Taxes

<TABLE>
<CAPTION>
                                                         2003    2002    2001
                                                        -----   -----   -----
<S>                                                     <C>     <C>     <C>
Pretax (loss) income is generated from:
   United States.....................................   $(206)  $(161)  $(221)
   Foreign...........................................     (37)     81      71
                                                        -----   -----   -----
                                                        $(243)  $ (80)  $(150)
                                                        =====   =====   =====
Income tax (benefit) provision is comprised of:
Current
   Federal...........................................   $  --   $ (19)  $ (12)
   State and local...................................      --       2       1
   Foreign...........................................      12      16      21
                                                        -----   -----   -----
       Total current provision (benefit).............      12      (1)     10
                                                        -----   -----   -----
Deferred
   Federal...........................................     (63)    (35)    (58)
   State and local...................................      (2)     --      --
   Foreign...........................................       6      --     (10)
   Unremitted earnings of foreign subsidiaries.......      19      --      --
                                                        -----   -----   -----
      Total deferred benefit.........................     (40)    (35)    (68)
                                                        -----   -----   -----
Tax benefit from previous years......................     (37)    (22)    (42)
                                                        -----   -----   -----
   Total income tax benefit..........................   $ (65)  $ (58)  $(100)
                                                        =====   =====   =====
</TABLE>

     The Company's effective income tax rate differs from the amount computed by
applying the statutory federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                                 2003     2002     2001
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Statutory federal income tax rate............................   (35.0)%  (35.0)%  (35.0)%
State and local income taxes, net of Federal benefit.........    (0.8)     1.9     (0.3)
Provision for nondeductible expenses, primarily goodwill.....     0.4       --      7.5
Foreign rate differential....................................    (9.5)   (20.1)   (12.0)
Tax benefit from previous years..............................   (15.2)   (27.5)   (31.3)
Provision for unremitted earnings of foreign subsidiaries....     7.8       --       --
Establish valuation allowance for French subsidiaries........    23.0     12.5       --
Other........................................................     2.6     (4.3)     4.4
                                                                -----    -----    -----
Effective income tax rate....................................   (26.7)%  (72.5)%  (66.7)%
                                                                =====    =====    =====
</TABLE>


                                       50



<PAGE>


                           MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 7 -- Income Taxes - Continued

     The Company recorded tax benefits of $37, $22, and $42 in 2003, 2002 and
2001, respectively, unrelated to transactions for those years. In 2003, the tax
benefit primarily related to the reversal of tax reserves recorded in prior
years associated with IRS audits that were settled during 2003. In 2002, the tax
benefit primarily related to an $18 refund of tax and interest originating from
refund claims filed with the IRS in 2002 which carried back expenses incurred in
1993 and 1994 to earlier tax years. In 2001, the tax benefit primarily related
to the reversal of tax accruals recorded in 1996. During 2001, through ongoing
discussions and negotiations with the IRS, it was determined that the Company's
original 1996 position would not be challenged and the accruals recorded in 1996
were no longer necessary. These benefits recorded in 2003, 2002, and 2001 were
offset to an extent by certain new tax provisions the Company determined
probable of assessment based on the evolution of various domestic and foreign
tax examinations and changes in relevant tax regulations.

     Deferred tax expense on certain unremitted earnings of foreign subsidiaries
of $19 was recorded in 2003 due to the Company's plan to repatriate $107 from
its Australian and European businesses to the US by implementing certain
intercompany financing strategies in early 2004.

     Significant components of deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                                            2003           2002
                                                                        ------------   ------------
                                                                         (Restated -    (Restated -
                                                                        See Note 19)   See Note 19)
<S>                                                                         <C>            <C>
Deferred tax assets
   Environmental and legal obligations...............................       $ 20           $ 27
   Other postretirement benefits and pension.........................         67             82
   Net operating loss carryforwards..................................        246            196
   Capital loss carryforwards........................................          3              3
   AMT credits.......................................................         97             97
   Other accruals....................................................          8             14
                                                                            ----           ----
                                                                             441            419
   Valuation allowance...............................................        (97)           (35)
                                                                            ----           ----
      Total deferred tax assets......................................        344            384
                                                                            ----           ----
Deferred tax liabilities
   Excess of book over tax basis in property, plant and equipment....         68            106
   Excess of book over tax basis in investment in Equistar...........        397            441
   Reserve for unremitted earnings of foreign subsidiaries...........         19             --
   Reserve for income taxes..........................................         94             94
   Other.............................................................         38             43
                                                                            ----           ----
      Total deferred tax liabilities.................................        616            684
                                                                            ----           ----
         Net deferred tax liabilities................................       $272           $300
                                                                            ====           ====
</TABLE>

     As a result of the Company's assessment of its net deferred tax assets, a
valuation allowance of $69 and $10 was required for the net deferred tax assets
of its French subsidiaries at December 31, 2003 and 2002, respectively. No
income tax benefits associated with 2003 operating losses for the Company's
French subsidiaries were recognized. The Company currently expects that if its
French subsidiaries continue to report net operating losses in future periods,
income tax benefits associated with those losses would not be recognized, and
the Company's results in those periods would be adversely affected.
Additionally, due to the uncertainty of the realization of deferred tax assets
for state net operating loss carryforwards and Federal capital loss
carryforwards, a valuation allowance totaling $28 and $25 was recorded at
December 31, 2003 and 2002, respectively.


                                       51



<PAGE>


                           MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 7 -- Income Taxes - Continued

     At December 31, 2003 and 2002, certain subsidiaries of the Company had
available US net operating loss carryforwards aggregating $379 and $288,
respectively, and foreign net operating loss carryforwards aggregating $290 and
$244, respectively, including $226 and $203, respectively, that were generated
in the United Kingdom ("UK") and $64 and $41, respectively, that were generated
in France. The net operating loss carryforwards generated in the UK and France
do not expire; however, those generated in the UK are subject to certain
limitations on their use. The US net operating loss carryforwards expire
beginning on December 31, 2021 and continuing through December 31, 2023. The
capital loss carryforwards expire on December 31, 2006. The AMT credits of $97
have no expiration and can be carried forward indefinitely.

     The undistributed earnings of the Company's foreign subsidiaries, except
for those described above that are impacted by the implementation of recent
intercompany financing strategies, are considered to be indefinitely reinvested.
Accordingly, no provision for US Federal and state income taxes or foreign
withholding taxes has been provided on approximately $143 of such undistributed
earnings. Determination of the potential amount of unrecognized deferred US
income tax liability and foreign withholding taxes is not practicable because of
the complexities associated with its hypothetical calculation.

     The Company and certain of its subsidiaries have entered into tax-sharing
and indemnification agreements with Hanson or its subsidiaries in which the
Company and/or its subsidiaries generally agreed to indemnify Hanson or its
subsidiaries for income tax liabilities attributable to periods when certain
operations of Hanson were included in the consolidated United States tax returns
of the Company's subsidiaries. The terms of these indemnification agreements do
not limit the maximum potential future payments to the indemnified parties. The
maximum amount of future indemnification payments is dependent upon the results
of future audits by various tax authorities and is not practicable to estimate.

     Certain of the income tax returns of the Company's domestic and foreign
subsidiaries are currently under examination by the IRS, Inland Revenue and
various foreign and state tax authorities. In many cases, these audits result in
the examining tax authority issuing proposed assessments. In the United States,
IRS audits for tax years prior to 1993 have been settled. During 2002, the
Company negotiated a settlement with the IRS with respect to the audit issues
relating to the Company's Federal income tax returns for the years 1989 through
1992. In July 2003, the Company paid $19 to the IRS with respect to a settlement
relating to the tax years 1989 through 1992. In connection with the 1993 through
1996 examination, the IRS has issued proposed assessments that challenge certain
of the Company's tax positions. The Company believes that its tax positions
comply with applicable tax law and it intends to defend its position through the
IRS's appeals process. The Company believes it has adequately provided for any
probable outcome related to these matters, and does not anticipate any material
earnings impact from their ultimate settlement or resolution. However, if the
IRS's position on certain issues is upheld after all of the Company's
administrative and legal options are exhausted, a material impact on the
Company's consolidated financial position, results of operations or cash flows
could result. The IRS examination for the years 1997 through 2001 commenced in
2003. The IRS has yet to issue any material proposed assessments related to this
audit cycle.

     Reserves for the resolution of probable tax assessments that are expected
to result in the reduction of tax attributes recognized in deferred tax assets,
rather than a cash payment to the taxing authorities, are included as a
component of deferred tax liabilities. Other reserves for the resolution of
probable tax assessments where cash payment is expected, but not within the next
year, are included in Other liabilities.


                                       52



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 8 -- Long-Term Debt and Credit Arrangements

<TABLE>
<CAPTION>
                                                   2003     2002
                                                  ------   ------
<S>                                               <C>      <C>
Revolving Loans due 2006 bearing interest at
   the option of the Company at the higher of
   the Federal funds rate plus .50% and the
   bank's prime lending rate plus 1.25%;
   or at LIBOR or NIBOR plus 2.25%, plus, in
   each case, a facility fee of .50%, to be
   paid quarterly..............................   $   52   $   10
Term Loans due 2006 bearing interest at the
   option of the Company at the higher of the
   Federal funds rate plus .50% and the bank's
   prime lending rate plus 2.0%; or at LIBOR
   or NIBOR plus 3.0%, to be paid quarterly....       --       49
7.00% Senior Notes due 2006....................      500      500
7.625% Senior Debentures due 2026..............      249      249
9.25% Senior Notes due 2008....................      485      377
4.00% Convertible Senior Debentures due 2023...      150       --
Debt payable through 2011 at interest rates
   ranging from 0% to 9.5%.....................       21       26
Other..........................................       10       13
Less current maturities of long-term debt......       (6)     (12)
                                                  ------   ------
                                                  $1,461   $1,212
                                                  ======   ======
</TABLE>

     On November 25, 2003, the Company received approximately $125 in gross
proceeds and, on December 2, 2003, received an additional $25 in gross proceeds
from the sale by Millennium Chemicals Inc. ("Millennium Chemicals") of $150
aggregate principal amount of 4.00% Convertible Senior Debentures due 2023,
unless earlier redeemed, converted or repurchased (the "4.00% Convertible Senior
Debentures"), which are guaranteed by Millennium America Inc. ("Millennium
America"), a wholly-owned indirect subsidiary of Millennium Chemicals. The gross
proceeds of the sale were used to repay all of the $47 of outstanding borrowings
at that time under the term loan portion (the "Term Loan") of the Company's
five-year credit agreement expiring June 18, 2006 (the "Credit Agreement") and
$103 of outstanding borrowings under the revolving loan portion (the "Revolving
Loans") of its Credit Agreement, which currently has a maximum availability of
$150. The Company used $4 of cash to pay the fees relating to the sale of the
4.00% Convertible Senior Debentures.

     On April 25, 2003, the Company received approximately $107 in net proceeds
($109 in gross proceeds) from the issuance and sale by Millennium America of
$100 additional principal amount at maturity of its 9.25% Senior Notes due June
15, 2008 (the "9.25% Senior Notes"), which are guaranteed by Millennium
Chemicals. The net proceeds were used to repay all of the $85 of outstanding
borrowings at that time under the Revolving Loans and for general corporate
purposes. Millennium Chemicals and Millennium America guarantee the obligations
under the Credit Agreement. Under the terms of this issuance and sale,
Millennium America and Millennium Chemicals entered into an exchange and
registration rights agreement with the initial purchasers of the $100 additional
principal amount of these 9.25% Senior Notes. Pursuant to this agreement, each
of Millennium America and Millennium Chemicals agreed to: (1) file with the
Securities and Exchange Commission on or before July 24, 2003 a registration
statement relating to a registered exchange offer for the notes, and (2) use its
reasonable efforts to cause this exchange offer registration statement to be
declared effective under the Securities Act on or before October 22, 2003. On
June 13, 2003, Millennium America and Millennium Chemicals, as guarantor,
initially filed a registration statement with the Securities and Exchange
Commission, and on December 15, 2003, filed an amended registration statement.
However, as of December 31, 2003, the exchange offer registration statement has
not yet been declared effective. As a result, since October 22, 2003, Millennium
America has been obligated to pay additional interest at the annualized rate of
approximately 1.00% to each holder of the $100 additional amount of notes. This
additional interest will be paid until such time as the registration statement
becomes effective.

     In June 2002, the Company received approximately $100 in net proceeds
($102.5 in gross proceeds) from the completion of an offering by Millennium
America of $100 additional principal amount at maturity of the 9.25% Senior
Notes. The gross proceeds of the offering were used to repay all of the $35 of
outstanding borrowings at that time under the Company's Revolving Loans and to
repay $65 outstanding under the Term Loans. During 2001, the


                                       53



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 8 -- Long-Term Debt and Credit Arrangements - Continued

Company refinanced $425 of borrowings and paid refinancing expenses of $11 with
the combined proceeds of the Credit Agreement, which provided the Revolving
Loans and $125 in Term Loans, and the issuance of $275 aggregate principal
amount of 9.25% Senior Notes by Millennium America. Millennium Chemicals and
Millennium America guarantee the obligations under the Credit Agreement.

     The Revolving Loans are available in US dollars, British pounds and euros.
The Revolving Loans may be borrowed, repaid and reborrowed from time to time.
The Revolving Loans include a $50 letter of credit subfacility and a swingline
facility in the amount of $25. As of December 31, 2003, $19 was outstanding
under the letter of credit subfacility, and no amount under the swingline
facility. The Term Loans were entirely prepaid on November 25, 2003, which
effectively retired the Term Loan portion of the credit facility, as any such
amounts prepaid may not be reborrowed. The interest rates on the Revolving Loans
and the Term Loans are floating rates based upon margins over LIBOR, NIBOR, or
the Administrative Agent's prime lending rate, as the case may be. Such margins,
as well as the facility fee, are based on the Company's Leverage Ratio, as
defined. The margins set forth in the table above are the margins at the end of
the fourth quarter and through the date hereof. The weighted-average interest
rate for borrowings under the Company's Revolving Loans, excluding facility
fees, was 3.3%, 3.9% and 5.4% for 2003, 2002 and 2001, respectively. The
weighted average interest rate for borrowings under the Term Loans was 4.2%
while borrowings were outstanding in 2003, 4.9% for 2002 and 6.4% for 2001.

     The Credit Agreement contains various restrictive covenants and requires
that the Company meet certain financial performance criteria. The financial
covenants in the Credit Agreement, prior to the amendment consummated in the
fourth quarter of 2003, which is described below, included a Leverage Ratio and
an Interest Coverage Ratio. The Leverage Ratio is the ratio of Total
Indebtedness to cumulative EBITDA for the prior four fiscal quarters, each as
defined in the Credit Agreement prior to the amendment in the fourth quarter of
2003. The Interest Coverage Ratio is the ratio of cumulative EBITDA for the
prior four fiscal quarters to Net Interest Expense, for the same period, each as
defined in the Credit Agreement prior to the amendment in the fourth quarter of
2003. To permit the Company to be in compliance, these covenants were amended in
the fourth quarter of 2001, in the second quarter of 2002, in the second quarter
of 2003, and in the fourth quarter of 2003. The amendment in the second quarter
of 2002 was conditioned upon the consummation of the June 2002 offering of $100
additional principal amount of the 9.25% Senior Notes and using such proceeds
for the repayment of the Credit Agreement debt, as described above. The
amendment in the second quarter of 2003 was not conditioned on the sale of the
9.25% Senior Notes in April 2003. The amendment in the fourth quarter of 2003
was conditioned on the Company obtaining at least $110 of long-term financing in
the capital markets, which the Company satisfied by the sale of $150 of the
4.00% Convertible Senior Debentures. The amendment in the fourth quarter of 2003
amended, among other things, the maximum availability under the Credit Agreement
from $175 to $150, the performance criteria for the financial covenants, the
definition of EBITDA, and replaced the Leverage Ratio with a Senior Secured
Leverage Ratio. Under the financial covenants now in effect, the Company is
required to maintain a Senior Secured Leverage Ratio, defined as the ratio of
Senior Secured Indebtedness, as defined, to cumulative EBITDA for the prior four
fiscal quarters, each as defined, of no more than 1.25 to 1.00 for each of the
quarters of 2004 and 1.00 to 1.00 for the first quarter of 2005 and thereafter,
and an Interest Coverage Ratio, defined as the ratio of cumulative EBITDA for
the prior four fiscal quarters to Net Interest Expense, for the same period,
each as defined, of no less than 1.35 to 1.00 for the first and second quarters
of 2004; 1.40 to 1.00 for the third quarter of 2004; 1.50 to 1.00 for the fourth
quarter of 2004; and 1.75 to 1.00 for the first quarter of 2005 and thereafter.
The covenants in the Credit Agreement also limit, among other things, the
ability of the Company and/or certain subsidiaries of the Company to: (i) incur
debt and issue preferred stock; (ii) create liens; (iii) engage in
sale/leaseback transactions; (iv) declare or pay dividends on, or purchase, the
Company's stock; (v) make restricted payments; (vi) engage in transactions with
affiliates; (vii) sell assets; (viii) engage in mergers or acquisitions; (ix)
engage in domestic accounts receivable securitization transactions; and (x)
enter into restrictive agreements. In the event the Company sells certain assets
as specified in the Credit Agreement, and the Leverage Ratio is equal to or
greater than 3.75 to 1.00, the outstanding Revolving Loans must be prepaid with
a portion of the Net Cash Proceeds, as defined, of such sale. In addition, the
maximum availability under the Credit Agreement will be decreased by 50% of the
aggregate Net Cash Proceeds received from such asset sales in excess of $100
from November 18, 2003, the effective date of the fourth quarter 2003 amendment.
Any sale involving Equistar or certain inventory or accounts receivable will
reduce the maximum


                                       54



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 8 -- Long-Term Debt and Credit Arrangements - Continued

availability under the Credit Agreement by 100% of such Net Cash Proceeds
received. The obligations under the Credit Agreement are collateralized by: (1)
a pledge of 100% of the stock of the Company's existing and future domestic
subsidiaries and 65% of the stock of certain of the Company's existing and
future foreign subsidiaries, in both cases other than subsidiaries that hold
immaterial assets (as defined in the Credit Agreement); (2) all the equity
interests held by the Company's subsidiaries in Equistar and the La Porte
Methanol Company (which pledges are limited to the right to receive
distributions made by Equistar and the La Porte Methanol Company, respectively);
and (3) all present and future accounts receivable, intercompany indebtedness
and inventory of the Company's domestic subsidiaries, other than subsidiaries
that hold immaterial assets.

     The Company was in compliance with all covenants under the Credit Agreement
at December 31, 2003. Compliance with these covenants is monitored frequently in
order to assess the likelihood of continued compliance.

     The Company had $71 outstanding ($52 of outstanding borrowings and
outstanding undrawn standby letters of credit of $19) under the Revolving Loans
and, accordingly, had $79 of unused availability under such facility at December
31, 2003. In addition to letters of credit outstanding under the Credit
Agreement, the Company had outstanding undrawn standby letters of credit and
bank guarantees under other arrangements of $11 at December 31, 2003. The
Company had unused availability under short-term uncommitted lines of credit,
other than the Credit Agreement, of $34 at December 31, 2003.

     Millennium America also has outstanding $500 aggregate principal amount of
7.00% Senior Notes due November 15, 2006 (the "7.00% Senior Notes") and $250
aggregate principal amount of 7.625% Senior Debentures due November 15, 2026
(the "7.625% Senior Debentures" and, together with the 7.00% Senior Notes and
the 9.25% Senior Notes, the "Senior Notes") that are fully and unconditionally
guaranteed by Millennium Chemicals. The indenture under which the 7.00% Senior
Notes and 7.625% Senior Debentures were issued contains certain covenants that
limit, among other things: (i) the ability of Millennium America and its
Restricted Subsidiaries (as defined) to grant liens or enter into sale/leaseback
transactions; (ii) the ability of the Restricted Subsidiaries to incur
additional indebtedness; and (iii) the ability of Millennium America and
Millennium Chemicals to merge, consolidate or transfer substantially all of
their respective assets. This indenture allows Millennium America and its
Restricted Subsidiaries, as defined, to grant security on loans of up to 15% of
Consolidated Net Tangible Assets ("CNTA"), as defined, of Millennium America and
its consolidated subsidiaries. Accordingly, based upon CNTA and secured
borrowing levels at December 31, 2003, any reduction in CNTA below approximately
$1,000 would decrease the Company's availability under the Revolving Loans by
15% of any such reduction. CNTA was approximately $2,100 at December 31, 2003.
The 7.00% Senior Notes and the 7.625% Senior Debentures can be accelerated by
the holders thereof if any other debt in excess of $20 is in default and is
accelerated.

     The 9.25% Senior Notes were issued by Millennium America and are guaranteed
by Millennium Chemicals. The indenture under which the 9.25% Senior Notes were
issued contains certain covenants that limit, among other things, the ability of
the Company and/or certain subsidiaries of the Company to: (i) incur additional
debt; (ii) issue redeemable stock and preferred stock; (iii) create liens; (iv)
redeem debt that is junior in right of payment to the 9.25% Senior Notes; (v)
sell or otherwise dispose of assets, including capital stock of subsidiaries;
(vi) enter into arrangements that restrict dividends from subsidiaries; (vii)
enter into mergers or consolidations; (viii) enter into transactions with
affiliates; and (ix) enter into sale/leaseback transactions. In addition, this
indenture contains a covenant that would prohibit the Company from (i) paying
dividends or making distributions on its common stock; (ii) repurchasing its
common stock; and (iii) making other types of restricted payments, including
certain types of investments, if such restricted payments would exceed a
"restricted payments basket." Although the Company has no intention at the
present time to pay dividends or make distributions, repurchase its Common
Stock, or make other restricted payments, the Company would be prohibited by
this covenant from making any such payments at the present time. The indenture
also requires the calculation of a Consolidated Coverage Ratio, defined as the
ratio of the aggregate amount of EBITDA, as defined, for the four most recent
fiscal quarters to Consolidated Interest Expense, as defined, for the four most
recent quarters. The Company must maintain a Consolidated Coverage Ratio of 2.25
to 1.00. Currently, the Company's Consolidated Coverage Ratio has fallen below
this threshold and, therefore, the Company is subject to certain restrictions
that limit the Company's ability to incur additional indebtedness, pay
dividends, repurchase capital stock, make certain other restricted payments,
and enter into


                                       55



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 8 -- Long-Term Debt and Credit Arrangements - Continued

mergers or consolidations. However, if the 9.25% Senior Notes were to receive
investment grade credit ratings from both S&P and Moody's and meet certain other
requirements as specified in the indenture, certain of these covenants would no
longer apply. The 9.25% Senior Notes can be accelerated by the holders thereof
if any other debt in excess of $30 is in default and is accelerated.

     The 4.00% Convertible Senior Debentures were issued by Millennium Chemicals
Inc. and are guaranteed by Millennium America. Holders may convert their
debentures into shares of the Company's Common Stock at a conversion price,
subject to adjustment upon certain events, of $13.63 per share, which is
equivalent to a conversion rate of 73.3568 shares per one thousand dollar
principal amount of debentures. At the time the 4.00% Convertible Senior
Debentures were issued, the common price per share exceeded the trading value of
the Company's Common Stock. The conversion privilege may be exercised under the
following circumstances:

     o    prior to November 15, 2018, during any fiscal quarter commencing after
          December 31, 2003, if the closing price of the Company's Common Stock
          on at least 20 of the 30 consecutive trading days ending on the first
          trading day of that quarter is greater than 125% of the then current
          conversion price;

     o    on or after November 15, 2018, at any time after the closing price of
          the Company's Common Stock on any date is greater than 125% of the
          then current conversion price;

     o    if the debentures are called for redemption;

     o    upon the occurrence of specified corporate transactions, including a
          consolidation, merger or binding share exchange pursuant to which the
          Company's Common Stock would be converted into cash or property other
          than securities;

     o    during the five business-day period after any period of ten
          consecutive trading days in which the trading price per one thousand
          dollar principal amount of debentures on each day was less than 98% of
          the product of the last reported sales price of the Company's Common
          Stock and the then current conversion rate; and

     o    at any time when the long-term credit rating assigned to the
          debentures is either Caa1 or lower, in the case of Moody's, or B- or
          lower in the case of S&P, or either rating agency has discontinued,
          withdrawn or suspended its rating.

     The debentures are redeemable at the Company's option beginning November
15, 2010 at a redemption price equal to 100% of their principal amount, plus
accrued interest, if any. On November 15 in each of 2010, 2013 and 2018, holders
of debentures will have the right to require the Company to repurchase all or
some of the debentures they own at a purchase price equal to 100% of their
principal amount, plus accrued interest, if any. The Company may choose to pay
the purchase price in cash or shares of the Company's Common Stock or any
combination thereof. In the event of a conversion request upon a credit ratings
event as described above, after June 18, 2006, the Company has the right to
deliver, in lieu of shares of Common Stock, cash or a combination of cash and
shares of Common Stock. Holders of the debentures will also have the right to
require the Company to repurchase all or some of the debentures they own at a
cash purchase price equal to 100% of their principal amount, plus accrued
interest, if any, upon the occurrence of certain events constituting a
fundamental change. This indenture also limits the Company's ability to
consolidate with or merge with or into any other person, or sell, convey,
transfer or lease properties and assets substantially as an entirety to another
person, except under certain circumstances.

     At December 31, 2003, the Company was in compliance with all covenants in
the indentures governing the 9.25% Senior Notes, 7.00% Senior Notes, 7.625%
Senior Debentures and 4.00% Convertible Senior Debentures.

     The Company, as well as the Senior Notes and the 4.00% Convertible Senior
Debentures are currently rated BB- by S&P with a stable outlook. Moody's has
assigned the Company a senior implied rating of Ba3, and the Senior Notes and
the 4.00% Convertible Senior Debentures a rating of B1 with a negative outlook.
These ratings are non-investment grade ratings.


                                       56



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 8 -- Long-Term Debt and Credit Arrangements - Continued

     On July 22, 2003, S&P lowered the Company's credit rating from BB+ to BB,
citing the Company's July 2003 announcement regarding weak sales volume and
competitive pricing pressures in the titanium dioxide business for the second
quarter of 2003, as well as lingering economic uncertainties and the potential
for additional raw material pressures in the petrochemicals industry as factors
that are likely to further delay the Company's efforts to restore its financial
profile. On September 22, 2003, S&P again lowered the Company's credit rating
from BB to BB- citing the Company's subpar financial profile and
weaker-than-expected prospects for reducing its substantial debt burden over the
next couple of years, and revised its outlook from negative to stable. On
November 19, 2003, S&P assigned its BB- rating to the 4.00% Convertible Senior
Debentures, and affirmed its BB- rating of the Company with a stable outlook.
Moody's announced on August 13, 2003, that it had lowered the Company's senior
implied rating to Ba2, and the Senior Notes' rating to Ba3, citing the Company's
high leverage, modest coverage of interest expense, weaker than anticipated
TiO[u]2 demand and potential covenant compliance issues. On November 19, 2003,
Moody's again lowered the Company's senior implied rating from Ba2 to Ba3, and
the Senior Notes' rating from Ba3 to B1 and affirmed its ratings outlook of
negative, citing the challenging operating conditions within the TiO[u]2
business, a significant deterioration in 2003 cash flow performance, and Moody's
expectation that a protracted recovery in the TiO[u]2 business will limit the
Company's ability to de-lever for the medium-term. These actions by S&P and
Moody's could heighten concerns of the Company's creditors and suppliers which
could result in these creditors and suppliers placing limitations on credit
extended to the Company and demands from creditors for additional credit
restrictions or security.

     The Company uses gold as a component in a catalyst at its La Porte, Texas
facility. In April 1998, the Company entered into an agreement that provided the
Company with the right to use gold owned by a third party for a five-year term.
In April 2003, the Company renewed this agreement for a one-year term and
simultaneously entered into a forward purchase agreement in order to mitigate
the risk of change in the market price of gold. The renewed agreement required
the Company to either deliver the gold to the counterparty at the end of the
term or pay to the counterparty an amount equal to its then-current value. The
renewed agreement provided that if the Company was downgraded below BB by S&P or
Ba2 by Moody's, the third party could require the Company to purchase the gold
at its then-current value. After discussions with the counterparty to the
agreement as to whether the counterparty had the right to require the Company to
purchase the gold due to Moody's August 13, 2003 announcement referenced above,
the Company determined to terminate the renewed agreement and purchase the gold
for its then-current market value. On August 28, 2003, the Company paid the
counterparty $14, net of $1 of proceeds from the termination of its forward
purchase contract. The Company's obligation under this agreement was $14 at
December 31, 2002, and was included in Other short-term borrowings. The change
in value of the gold and the Company's obligation under this agreement, which is
included in Selling, development and administrative expense, was a loss of $1
and $3 for each of the years ended December 31, 2003 and 2002, respectively, and
was not significant for the year ended December 31, 2001. The change in value of
the forward purchase agreement was a gain of $1 for the year ended December 31,
2003, which is included in Selling, development and administrative expense.

     The Company had outstanding Notes payable of $4 as of December 31, 2002,
bearing interest at an average rate of approximately 19.1%, with a maturity of
30 days or less. No such Notes payable were outstanding at December 31, 2003.

     The  maturities of Long-term debt during the next five years and thereafter
are as follows:

<TABLE>
<S>                                        <C>
2004....................................   $    6
2005....................................        5
2006....................................      557
2007....................................        2
2008....................................      476
Thereafter..............................      404
Non-cash components of long-term debt...       17
                                           ------
                                           $1,467
                                           ======
</TABLE>


                                       57



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 9 -- Derivative Instruments and Hedging Activities

     The Company is exposed to market risk, such as changes in currency exchange
rates, interest rates and commodity pricing. To manage the volatility relating
to these exposures, the Company selectively enters into derivative transactions
pursuant to the Company's policies for hedging practices. Designation is
performed on a specific exposure basis to support hedge accounting. The changes
in fair value of these hedging instruments are offset in part or in whole by
corresponding changes in the fair value or cash flows of the underlying
exposures being hedged. The Company does not hold or issue derivative financial
instruments for speculative or trading purposes.

     Foreign Currency Exposure Management: The Company manufactures and sells
its products in a number of countries throughout the world and, as a result, is
exposed to movements in foreign currency exchange rates. The primary purpose of
the Company's foreign currency hedging activities is to manage the volatility
associated with foreign currency purchases and foreign currency sales. The
Company utilizes forward exchange contracts with various terms. As of December
31, 2003 these contracts had expiration dates no later than September 2004.

     The Company utilizes forward exchange contracts with contract terms
normally lasting less than three months to protect against the adverse effect
that exchange rate fluctuations may have on foreign currency denominated trade
receivables and trade payables. These derivatives have not been designated as
hedges for accounting purposes. The gains and losses on both the derivatives and
the foreign currency denominated trade receivables and payables are recorded in
current earnings. Net amounts included in earnings, which offset similar amounts
from foreign currency denominated trade receivables and payables, were gains of
$10 and $2 in 2003 and 2002, respectively, and were not significant in 2001.

     In addition, the Company utilizes forward exchange contracts that qualify
as cash flow hedges. These are intended to offset the effect of exchange rate
fluctuations on forecasted sales and inventory purchases. Gains and losses on
these instruments are deferred in OCI until the underlying transaction is
recognized in earnings. The earnings impact is reported either in Net sales or
Cost of products sold to match the underlying transaction being hedged. Net
losses of $5 and $4 during 2003 and 2001, respectively, and net gains of $4
during 2002 on forward exchange contracts designated as cash flow hedges were
reclassified to earnings to match the gain or loss on the underlying transaction
being hedged. Hedge ineffectiveness had no significant impact on earnings for
2003, 2002 or 2001. No forward exchange contract cash flow hedges were
discontinued during 2003, 2002 or 2001. The Company currently estimates that net
losses of approximately $1 ($1 after-tax) on foreign currency cash flow hedges
included in OCI at December 31, 2003 will be reclassified to earnings during the
next twelve months.

     Commodity Price Risk Management: Raw materials used by the Company are
subject to price volatility caused by demand and supply conditions and other
unpredictable factors. The Company selectively uses commodity swap arrangements
and commodity options with various terms to manage the volatility related to
anticipated purchases of natural gas and certain commodities, a portion of which
exposes the Company to natural gas price risk. As of December 31, 2003, these
instruments had expiration dates no later than March 2004. Certain of these
instruments are designated as cash flow hedges. The mark-to-market gains or
losses on qualifying hedges are included in OCI to the extent effective, and
reclassified into Cost of products sold in the period during which the hedged
transaction affects earnings. The mark-to-market gains or losses on ineffective
portions of hedges are recognized immediately in Cost of products sold. During
2003, 2002 and 2001, net losses on commodity swaps designated as cash flow
hedges of $1, $6 and $5, respectively, were reclassified to Cost of products
sold to match the gain or loss on the underlying transaction being hedged. Hedge
ineffectiveness had no significant impact on earnings for 2003, 2002 or 2001.
Net losses on commodity swap cash flow hedges that were discontinued during
2003, 2002 and 2001 were not significant, and no commodity swap cash flow hedges
were discontinued during 2002 or 2001. The Company currently estimates that net
gains on commodity swaps included in OCI at December 31, 2003 that will be
reclassified to earnings during the next twelve months will not be significant.

     In addition, the Company uses commodity swap and option arrangements to
manage price volatility related to anticipated purchases of certain commodities,
a portion of which exposes the Company to natural gas price risk. These
derivatives have not been designated as hedges for accounting purposes. The
gains and losses on these instruments are recorded in current earnings. Net
losses of $2 were included in earnings in 2003, and net gains of $1 were
included in earnings in 2002. The Company held no such derivatives during 2001.


                                       58



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 9 -- Derivative Instruments and Hedging Activities - Continued

     In April 2003, the Company entered into a forward purchase agreement in
order to mitigate the risk of change in the market price of gold. This forward
purchase contract was terminated in August 2003 when the Company discontinued
its arrangement for the right to use gold owned by a third party, as more fully
described in Note 8. This derivative was not designated as a hedge for
accounting purposes. The gain on this instrument, which is included in Selling,
development and administrative expense and offsets a similar amount of loss on
the Company's obligation under the gold agreement while the agreement was in
effect, was $1 for the year ended December 31, 2003.

     Interest Rate Risk Management: The Company selectively uses derivative
instruments to manage its ratio of debt bearing fixed interest rates to debt
bearing variable interest rates. At December 31, 2003, the Company had
outstanding interest rate swap agreements with a notional amount of $225, which
are designated as fair value hedges of underlying fixed-rate obligations. The
fair value of these interest rate swap agreements was approximately $3 at
December 31, 2003 resulting in an increase in the carrying value of long-term
debt and the recognition of a corresponding swap asset. The gains and losses on
both the interest rate swaps and the hedged portion of the underlying debt are
recorded in Interest expense. Hedge ineffectiveness had no significant impact on
earnings for 2003, 2002 or 2001. In July 2002, the Company terminated all of the
interest rate swap agreements that were in effect at that time. Proceeds
received upon termination were approximately $12. Gains deferred on these
interest rate swaps of approximately $10 result in an increase in the carrying
value of long-term debt and will be recognized as a reduction in Interest
expense ratably over approximately four years, the remaining term of the
underlying fixed-rate obligations previously hedged. The amount of these
deferred gains recognized as a reduction of Interest expense during the years
ended December 31, 2003 and 2002 was approximately $2 and $1, respectively.

     During the year 2001, the Company entered into interest-rate swap
agreements to convert $200 of its fixed-rate debt into variable-rate debt. These
derivatives did not qualify for hedge accounting because the maturity of the
swaps was less than the maturity of the hedged debt. Accordingly, changes in the
fair value of such agreements were recognized as a reduction or increase in
Interest expense. The swap agreements were terminated in 2001 and realized gains
of $5 were recorded as a reduction of Interest expense for 2001.

Note 10 -- Fair Value of Non-Derivative Financial Instruments

     The fair value of all short-term financial instruments (i.e., trade
receivables, notes payable, etc.) and restricted cash approximates their
carrying value due to their short maturity or ready availability. The fair value
of the Company's other financial instruments is based upon estimates received
from independent financial advisors as follows:

<TABLE>
<CAPTION>
                                                    2003               2002
                                              ----------------   ----------------
                                              Carrying    Fair   Carrying    Fair
                                                Value    Value     Value    Value
                                              --------   -----   --------   -----
<S>                                             <C>       <C>      <C>       <C>
Amount outstanding under Revolving Loans...     $ 52      $ 52     $ 10      $ 10
Term Loans.................................       --        --       49        49
7.00% Senior Notes.........................      500       513      500       480
7.625% Senior Debentures...................      249       233      249       208
9.25% Senior Notes.........................      485       518      377       392
4.00% Convertible Senior Debentures........      150       189       --        --
Other short-term borrowings................       --        --       14        14
</TABLE>

     In addition, the Company has various contractual obligations to purchase
raw materials, utilities and services used in the production and distribution of
its products, including but not limited to: titanium ores for TiO[u]2, crude
sulfate turpentine for fragrance chemicals, syngas for methanol, carbon monoxide
for acetic acid and ethylene for VAM. Such commitments are generally at market
prices, formula prices based primarily on costs of raw materials, or at fixed
prices but subject to escalation for inflation. Accordingly, the fair value of
such obligations approximates their contractual value.


                                       59



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 11 -- Pension and Other Postretirement Benefits

     Domestic Benefit Plans: The Company has non-contributory defined benefit
pension plans that provide postretirement benefits for substantially all of its
United States employees. The benefits for the pension plans are based primarily
on years of credited service and average compensation as defined under the
respective plan provisions. The Company's funding policy is to contribute
amounts to the pension plans sufficient to meet the minimum funding requirements
set forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate from time to
time. In addition, the Company currently provides Other Postretirement Employee
Benefits ("OPEB") for healthcare and life insurance to most employees and their
dependents.

     The pension plans' assets are held in a master asset trust and are managed
by independent portfolio managers. Such assets include the Company's Common
Stock, which comprised less than 1% of master trust assets at December 31, 2003
and 2002. The investment objective for the portfolio assets of the Company's
domestic pension plans is to provide maximum total return with a strong emphasis
on preservation of capital in real terms. This investment strategy allows the
assets to participate in rising markets with defensive action in declining
markets. The portfolio is expected to be generally less volatile than the market
average.

     The portfolio investments are marketable securities that provide sufficient
liquidity to pay benefits as required.

     The weighted-average asset allocation by category for US pension plans at
December 31 and the Company's current target for asset allocation is as follows:

<TABLE>
<CAPTION>
                                 Target    2003   2002
                               ---------   ----   ----
<S>                            <C>          <C>    <C>
Asset Categories
   Domestic equities........   35% - 60%     55%    53%
   International equities...   15% - 25%     17     13(1)
   Fixed income.............   20% - 40%     27     33
   Cash equivalents.........    1% -  5%      1      1
                                            ---    ---
   Total....................                100%   100%
                                            ===    ===
</TABLE>

----------
(1)  The asset allocation percentage for 2002 was below the target due to
     unfavorable investment performance in this asset category.

     In addition, no more than 20% of the total portfolio may be invested in one
industry and no more than 5% of the total portfolio may be invested in the
securities of one company.

     The Company also sponsors defined contribution plans for its salaried and
certain union employees. Contributions relating to defined contribution plans
are made based upon the respective plan provisions.

     Foreign Benefit Arrangements: Certain of the Company's foreign subsidiaries
have defined benefit plans. The assets of these plans are held separately from
the Company in independent funds.

     The Company expects to contribute approximately $12 to its US and foreign
defined benefit pension plans and approximately $10 to its OPEB plan in 2004.
These estimates reflect expected increases in pension plan trust funding to meet
minimum requirements. Additionally, the Company expects to contribute
approximately $4 to its defined contribution pension plans in 2004.


                                       60



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 11 -- Pension and Other Postretirement Benefits - Continued

         The measurement date for all of the Company's benefit obligations and
plan assets is December 31. The following table provides a reconciliation of the
changes in the benefit obligations and the fair value of the plan assets over
the two-year period ending December 31, 2003, and a statement of the funded
status as of December 31 for both years:

<TABLE>
<CAPTION>
                                                                                  Other
                                                                             Postretirement
                                                          Pension Benefits      Benefits
                                                          ----------------   --------------
                                                            2003    2002       2003    2002
                                                           -----   -----      -----   -----
<S>                                                        <C>     <C>        <C>     <C>
Accumulated benefit obligation at end of year..........    $ 815   $ 765      $  --   $  --
                                                           =====   =====      =====   =====
Reconciliation of projected benefit obligation
   Projected benefit obligation at beginning of year...    $ 851   $ 758      $  76   $  80
   Service cost, including interest....................       13      12         --      --
   Interest on PBO.....................................       52      52          6       6
   Benefit payments....................................      (80)    (78)       (12)    (12)
   Curtailments........................................       (1)     --         --      --
   Net experience loss.................................       36      74          7      15
   Amendments..........................................       --      11          3     (13)
   Translation and other adjustments...................       22      22         --      --
                                                           -----   -----      -----   -----
      Projected benefit obligation at end of year......    $ 893   $ 851      $  80   $  76
                                                           -----   -----      -----   -----
Reconciliation of fair value of plan assets
   Fair value of plan assets at beginning of year......    $ 629   $ 778      $  --   $  --
   Return on plan assets...............................      143     (91)        --      --
   Employer contributions..............................       12       9         12      12
   Benefit payments....................................      (80)    (78)       (12)    (12)
   Translation and other adjustments...................       17      11         --      --
                                                           -----   -----      -----   -----
      Fair value of plan assets at end of year.........    $ 721   $ 629      $  --   $  --
                                                           -----   -----      -----   -----
Funded status
   Funded status at December 31........................    $(172)  $(222)     $ (80)  $ (76)
   Unrecognized net asset..............................       (3)     (3)        --      --
   Unrecognized prior service cost.....................       12      19        (23)    (23)
   Unrecognized loss (gain)............................      348     384         (3)    (17)
                                                           -----   -----      -----   -----
   Net prepaid (accrued) benefit cost..................      185     178       (106)   (116)
   Additional minimum liabilities......................     (269)   (309)        --      --
   Intangible asset....................................       12      16         --      --
                                                           -----   -----      -----   -----
   Net accrued benefit cost............................    $ (72)  $(115)     $(106)  $(116)
                                                           =====   =====      =====   =====
</TABLE>

     As of December 31, the net accrued benefit cost for pension benefits is
comprised of the following:

<TABLE>
<CAPTION>
                                                                   2003    2002
                                                                  -----   -----
<S>                                                               <C>     <C>
     Prepaid benefit cost .....................................   $  29   $  20
     Intangible asset .........................................      12      16
     Accrued benefit cost .....................................    (113)   (151)
                                                                  -----   -----
     Net accrued benefit cost .................................   $ (72)  $(115)
                                                                  =====   =====
</TABLE>


                                       61



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 11 -- Pension and Other Postretirement Benefits - Continued

     The net accrued benefit cost of $72 and $115 at December 31, 2003 and 2002,
respectively, was included in Other liabilities in the Consolidated Balance
Sheet. A benefit to equity of $26 ($40 pre-tax) and a charge to equity of $188
($286 pre-tax) were required at December 31, 2003 and 2002, respectively, to
reflect the appropriate additional minimum liabilities associated with certain
of the Company's defined benefit pension plans and were included in Cumulative
other comprehensive loss at each of December 31, 2003 and 2002.

     Pension plans with projected benefit obligations in excess of the fair
value of assets are summarized as follows at December 31:

<TABLE>
<CAPTION>
                                       2003   2002
                                       ----   ----
<S>                                    <C>    <C>
Projected benefit obligation .......   $879   $838
Fair value of assets ...............    690    604
</TABLE>

     Pension plans with accumulated benefit obligations in excess of the fair
value of assets are summarized as follows at December 31:

<TABLE>
<CAPTION>
                                       2003   2002
                                       ----   ----
<S>                                    <C>    <C>
Accumulated benefit obligation .....   $767   $751
Fair value of assets ...............    656    604
</TABLE>

     The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:

<TABLE>
<CAPTION>
                                                                      Other Postretirement
                                                   Pension Benefits        Benefits
                                                   ----------------   --------------------
                                                     2003    2002          2003    2002
                                                    -----   -----         -----   -----
<S>                                                  <C>     <C>           <C>     <C>
Weighed average assumptions at December 31:
   Discount rate ...............................     5.94%   6.35%         6.00%   6.50%
   Expected return on plan assets ..............     8.33%   8.34%           --      --
   Rate of compensation increase ...............     3.59%   3.52%           --      --
</TABLE>

     The following table provides the components of net periodic benefit cost:

<TABLE>
<CAPTION>
                                                                                      Other
                                                                                 Postretirement
                                                         Pension Benefits          Benefits
                                                      ---------------------   ----------------------
                                                       2003    2002    2001      2003   2002   2001
                                                      -----   -----   -----     -----   ----   -----
<S>                                                    <C>     <C>     <C>       <C>    <C>     <C>
Net periodic benefit cost (income)
   Service cost, including interest ...............    $ 13    $ 12    $ 12      $--    $--     $--
   Interest on PBO ................................      52      52      53        6      6       6
   Return on plan assets ..........................     (68)    (75)    (76)      --     --      --
   Amortization of unrecognized net loss ..........       6       1      --       (1)    (2)     (2)
   Amortization of prior service cost .............       1       1       1       (2)    (2)     (1)
   Net effect of curtailments and settlements .....       3       2       2       (1)    --      (1)
                                                       ----    ----    ----      ---    ---     ---
   Net periodic benefit cost (income) .............       7      (7)     (8)       2      2       2
   Defined contribution plans .....................       4       4       4       --     --      --
                                                       ----    ----    ----      ---    ---     ---
   Net periodic benefit cost (income) .............    $ 11    $ (3)   $ (4)     $ 2    $ 2     $ 2
                                                       ====    ====    ====      ===    ===     ===
</TABLE>


                                       62



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 11 -- Pension and Other Postretirement Benefits - Continued

     The assumptions used in the measurement of the Company's net periodic
benefit cost are shown in the following table:

<TABLE>
<CAPTION>
                                                                                       Other
                                                                                  Postretirement
                                                         Pension Benefits            Benefits
                                                      ---------------------   ----------------------
                                                       2003    2002    2001      2003   2002   2001
                                                      -----   -----   -----     -----   ----   -----
<S>                                                    <C>     <C>     <C>       <C>    <C>     <C>
Weighted average assumptions as of
   December 31:
      Discount rate ...............................    6.35%   7.27%   7.38%     6.50%  7.50%   7.50%
      Expected return on plan assets ..............    8.34%   8.87%   8.86%       --     --      --
      Rate of compensation increase ...............    3.52%   4.23%   4.30%       --     --      --
</TABLE>

     Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. The assumed healthcare cost trend
rate used in measuring the healthcare portion of the postretirement benefit
obligation at December 31, 2003 was 8.5% for 2004, declining gradually to 5.5%
for 2010 and thereafter. A 1% increase or decrease in assumed healthcare cost
trend rates would affect service and interest components of postretirement
healthcare benefit costs by an insignificant amount in each of the years ended
December 31, 2003 and 2002. The effect on the accumulated postretirement benefit
obligation would be $4 at each of December 31, 2003 and 2002.

     As a result of rising medical benefit costs and competitive business
conditions, the Company announced in early 2004 that effective April 1, 2004 it
will reduce the level of retiree medical benefits provided to essentially all of
its retirees by offering a monthly subsidy in 2004 to retirees that enroll in
designated preferred provider organization plans or Medicare supplement
insurance plans. This change will reduce the Company's accumulated
postretirement benefit obligation by approximately $45. Beginning in 2004, this
reduction will be recognized ratably over approximately thirteen years through
OPEB net periodic benefit cost. Estimated OPEB net periodic benefit cost for
2004, after giving affect to this change, will be income of approximately $4
compared to a benefit cost of $2 in 2003. The Company estimates that 2004 cash
payments for retiree medical and insurance benefits to be slightly less than
2003 as it transitions to the subsidy plan. Cash payments in subsequent years
are estimated to be significantly less than 2003.

     As more fully described in the "Recent Accounting Developments" section of
Note 1, the Company elected to make the one-time deferral provided by FSP No.
FAS 106-1 to defer recognition and accounting for the effects of the Medicare
Act of 2003. Accordingly, the measures of the Company's accumulated
postretirement benefit obligation and net periodic postretirement benefit cost
included in its financial statements and accompanying notes thereto do not
reflect the effects of the Medicare Act of 2003. Specific authoritative
guidance, when issued by the FASB, could require a change in currently reported
information. The Company is currently evaluating the possible economic effects
of the Medicare Act of 2003, if any, on its postretirement benefit plans.

Note 12 -- Stock-Based Compensation Plans

     Omnibus Incentive Compensation Plan: The Company's 2001 Omnibus Incentive
Compensation Plan (the "Omnibus Incentive Plan") was designed to optimize the
profitability and growth of the Company through annual and long-term incentives
that are consistent with the Company's goals and to link the personal interests
of the participants to those of the Company's shareholders. The Omnibus
Incentive Plan was ratified by the Company's shareholders in 2001. Since January
1, 2001, awards under the Company's Long Term Incentive Plan and Executive Long
Term Incentive Plan described below have been granted under the Omnibus
Incentive Plan.

     The Omnibus Incentive Plan provides for the following types of awards: (i)
stock options, including incentive stock options and non-qualified stock
options; (ii) stock appreciation rights; (iii) restricted shares; (iv)
performance units; (v) performance shares; (vi) stock awards; and (vii)
cash-based awards. Awards can be granted to employees and non-employee
directors. At December 31, 2003, 1,020,100 of the maximum 3,200,000 shares of
the Company's


                                       63



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 12 -- Stock-Based Compensation Plans - Continued

Common Stock originally reserved for delivery to participants under the Omnibus
Incentive Plan were available to be granted as awards under the plan.

     Stock Options Awards Under the Omnibus Incentive Plan: The Compensation
Committee of the Board of Directors determines the vesting schedule and
expiration date of all options granted under the Omnibus Incentive Plan, except
that options expire no later than ten years from the date of grant. Stock
options are to be granted at exercise prices no less than the market price of
the Company's Common Stock on the date of grant. All stock option grants under
the Omnibus Incentive Plan fully vest in the event of a change-in-control (as
defined by the plan) of the Company.

     A limited number of executive officers and key employees of the Company
were awarded an aggregate of 445,800, 957,000, and 655,000 non-qualified stock
options in March 2003, January 2002, and May 2001, respectively. The stock
option awards vest in three equal annual installments commencing on the first
anniversary of the date of grant, and expire ten years from the date of grant.
No other stock option awards were granted under the Omnibus Incentive Plan as of
December 31, 2003 and 2002, respectively. No compensation expense was recognized
for such equity-related awards under this plan in 2003, 2002 or 2001.

     Restricted Stock and Performance Unit Awards Under the Omnibus Incentive
Plan: A limited number of officers and key employees of the Company were awarded
an aggregate of 122,100 shares of restricted stock and performance units in
November 2003. The restricted stock and performance unit awards vest in three
equal annual installments commencing on the first trading day of the New York
Stock Exchange in 2005. All grants under the Stock Incentive Plan fully vest in
the event of a change-in-control (as defined by the plan) of the Company.
Compensation expense was not significant in 2003.

     Long Term Incentive Plan: The Company has a Long Term Incentive Plan for
certain management employees. Commencing in 2001, these awards have been granted
under the Omnibus Incentive Plan by reference to the Long Term Incentive Plan.
The plan provides for awards of the Company's Common Stock to be granted if
certain of the Company's performance targets are achieved, which can then vest
at the end of the three-year vesting period. Unvested shares will be forfeited.
A trust was established to hold shares of the Company's Common Stock to fund
this obligation. At December 31, 2003, no shares remained in this trust.
Compensation expense was $1 and $1 in 2003 and 2002 and was not significant in
2001.

     Executive Long Term Incentive Plan: In 2000, the Company established an
Executive Long Term Incentive Plan for its senior executives. Commencing in
2001, these awards have been granted under the Omnibus Incentive Plan by
reference to the Executive Long Term Incentive Plan. One half of the award
granted to each executive provides for the Company's Common Stock to be granted
if certain of the Company's performance targets are achieved, which can then
vest at the end of the three-year vesting period. Unvested shares will be
forfeited. A trust was established to hold shares of the Company's Common Stock
to fund this obligation. At December 31, 2003, no shares remained in this trust.
The remaining half of the award is based on the total shareholder return on the
Company's Common Stock compared to total shareholder return on the common stock
of the Company's peer group (companies in the Standard & Poor's Chemical
Composite Index) over a three-year period, in each case including reinvested
dividends. This award will be paid in cash. Compensation expense was $2, $1, and
$3 in 2003, 2002, and 2001, respectively.

     Long Term Stock Incentive Plan: The Company's Long Term Stock Incentive
Plan ("Stock Incentive Plan") was designed to enhance the profitability and
value of the Company for the benefit of its shareholders and was ratified by the
Company's shareholders in 1997.

     The Stock Incentive Plan provides for the following types of awards to
employees: (i) stock options, including incentive stock options and
non-qualified stock options; (ii) stock appreciation rights; (iii) restricted
shares; (iv) performance units; and (v) performance shares. At December 31,
2003, 1,388,214 of the maximum 3,909,000 shares of the Company's Common Stock
originally reserved for delivery to participants under the Stock Incentive Plan
were available to be granted as awards under the plan.

     Restricted Share Awards Under the Stock Incentive Plan: The vesting
schedule for granted restricted share awards was as follows: (i) three equal
tranches aggregating 25% of the total award vesting in each of October 1999,


                                       64



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 12 -- Stock-Based Compensation Plans - Continued

2000 and 2001; and (ii) three equal tranches aggregating 75% of the total award
subject to the achievement of "value creation" performance criteria established
by the Compensation Committee for each of the three performance cycles
commencing January 1, 1997 and ending December 31, 1999, 2000 and 2001,
respectively. Half of the earned portion of a tranche relating to a particular
performance-based cycle of the award vested immediately and the remainder vests
in five equal annual installments commencing on the first anniversary of the end
of the cycle.

     Unearned and/or unvested restricted shares, based on the market value of
the shares at each balance sheet date, are included as a separate component of
Shareholders' deficit and amortized over the restricted period. Expense
recognized in 2003 and 2002 was not significant. Income of $2 was recognized for
the year ended December 31, 2001.

     Stock Option Awards Under the Long Term Stock Incentive Plan: Stock options
granted under the Long Term Stock Incentive Plan vest three years from the date
of grant and expire ten years from the date of grant. All stock options have
been granted at exercise prices equal to the market price of the Company's
Common Stock on the date of grant. All grants under the Stock Incentive Plan
fully vest in the event of a change-in-control (as defined by the plan) of the
Company.

     A summary of changes in all of the awards of restricted stock and stock
options for all employees, including executive officers and key employees, under
the Omnibus Incentive Plan and the Stock Incentive Plan, which are the only
plans under which such awards can be made, is as follows:

<TABLE>
<CAPTION>
                                                                   Weighted-                   Weighted-
                                                    Restricted      Average       Stock         Average
                                                      Shares      Grant Price    Options    Exercise Price
                                                    ----------    -----------   ---------   --------------
<S>                                                 <C>              <C>        <C>             <C>
Balance at December 31, 2000.....................   1,578,815        $23.73       610,000       $21.31
   Vested and issued.............................    (298,065)       $23.81            --           --
   Cancelled.....................................    (641,427)       $23.39       (57,000)      $21.33
   Granted.......................................          --            --       748,000       $16.83
                                                    ---------                   ---------
Balance at December 31, 2001.....................     639,323        $23.69     1,301,000       $18.73
   Vested and issued.............................     (63,447)       $24.22            --           --
   Cancelled.....................................    (509,502)       $23.94      (103,000)      $20.67
   Granted.......................................          --            --       999,000       $12.33
                                                    ---------                   ---------
Balance at December 31, 2002.....................      66,374        $21.19     2,197,000       $15.73
   Vested and issued.............................     (50,251)       $24.63            --           --
   Exercised.....................................          --            --        (8,000)      $11.68
   Cancelled.....................................          --            --       (44,000)      $18.31
   Granted.......................................     122,100(1)     $10.02       485,800       $11.65
                                                    ---------                   ---------
Balance at December 31, 2003.....................     138,223        $10.07     2,630,800       $14.94
                                                    =========                   =========
</TABLE>

----------
(1)  Includes 7,800 performance units


                                       65



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 12 -- Stock-Based Compensation Plans - Continued

     A summary of the Company's stock options as of December 31, 2003 is as
follows:

<TABLE>
<CAPTION>
                                   Options Outstanding                     Options Exercisable
                  ---------------------------------------------------   --------------------------
   Range of                     Weighted Average     Weighted Average             Weighted Average
Exercise Price      Shares    Remaining Life (Yrs)    Exercise Price    Shares     Exercise Price
---------------   ---------   --------------------   ----------------   -------   ----------------
<C>               <C>               <C>                    <C>          <C>            <C>
$11.20 - $16.00   1,512,800         8.43                   $12.21        41,000        $15.94
$16.01 - $20.00     955,000         6.63                   $17.46       233,000        $19.34
$20.01 - $24.00     102,000         5.21                   $22.29       102,000        $22.29
$24.01 - $28.00      31,000         5.42                   $27.38        31,000        $27.38
$28.01 - $34.88      30,000         4.42                   $34.88        30,000        $34.88
                  ---------                                             -------
$11.20 - $34.88   2,630,800         6.73                   $14.94       437,000        $21.34
                  =========                                             =======
</TABLE>

     The weighted average fair value of stock options at grant date was $4.15
per share, $4.04 per share and $3.16 per share for 2003, 2002 and 2001,
respectively, using a Black-Scholes model with the following assumptions:
expected dividend yield of 5% for 2003 and 4% for 2002 and 2001, respectively;
risk-free interest rate of 4% in 2003, 5% in 2002 and 2001, respectively; an
expected life of 10 years; and an expected volatility of 48%, 62%, and 39% for
2003, 2002 and 2001, respectively.

     Salary and Bonus Deferral Plan: The Company had a deferred compensation
plan under which officers and certain management employees had deferred a
portion of their compensation on a pre-tax basis in the form of the Company's
Common Stock. A rabbi trust (the "Trust") had been established to hold shares of
the Company's Common Stock purchased in open market transactions to fund this
obligation. Shares purchased by the Trust are reflected as Treasury stock, at
cost, and, along with the related obligation for this plan, are included in
Shareholders' deficit. At December 31, 2003, 420,212 shares have been purchased
at a total cost of $8 and are held in the Trust. At December 31, 2003, this plan
is no longer active but continues to hold shares in the Trust and to distribute
such shares based on elections made by participants.

Note 13 -- Cumulative Other Comprehensive Loss

     Cumulative other comprehensive loss consists of changes in foreign currency
translation adjustments, net unrealized losses on certain derivative
instruments, the minimum pension liability, and the Company's share of
Equistar's Cumulative other comprehensive loss. The following table sets forth
the components of Cumulative other comprehensive loss:

<TABLE>
<CAPTION>
                                          Foreign      Unrealized               Equity in Other     Cumulative
                                          Currency     Losses on     Minimum     Comprehensive        Other
                                        Translation    Derivative    Pension        Loss of       Comprehensive
                                        Adjustments   Instruments   Liability       Equistar          Loss
                                        -----------   -----------   ---------   ---------------   -------------
<S>                                        <C>            <C>         <C>             <C>             <C>
Balance, December 31, 2000...........      $(107)         $--         $  --           $--             $(107)
   2001 Change.......................        (19)          (6)           (4)           --               (29)
                                           -----          ---         -----           ---             -----
Balance, December 31, 2001...........       (126)          (6)           (4)           --              (136)
   2002 Change.......................         27            5          (188)           (7)             (163)
                                           -----          ---         -----           ---             -----
Balance, December 31, 2002...........        (99)          (1)         (192)           (7)             (299)
   2003 Change.......................        128           --            26             4               158
                                           -----          ---         -----           ---             -----
Balance, December 31, 2003...........      $  29          $(1)        $(166)          $(3)            $(141)
                                           =====          ===         =====           ===             =====
</TABLE>

Note 14 -- Related Party Transactions

     One of the Company's subsidiaries purchases ethylene from Equistar at
market-related prices pursuant to an agreement made in connection with the
formation of Equistar. Under the agreement, the subsidiary is required to
purchase 100% of its ethylene requirements for its La Porte, Texas facility up
to a maximum of 330 million pounds per year. The initial term of the contract
was through December 1, 2000 and automatically renews annually. Either


                                       66



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 14 -- Related Party Transactions - Continued

party may terminate on one year's notice, and neither party has provided such
notice. The subsidiary incurred charges of $46, $43 and $53 in 2003, 2002 and
2001, respectively, under this contract.

     One of the Company's subsidiaries sells VAM to Equistar at formula-based
prices pursuant to an agreement entered into in connection with the formation of
Equistar. Under this agreement, Equistar is required to purchase 100% of its VAM
feedstock requirements for its La Porte, Texas, and Clinton and Morris,
Illinois, plants, estimated to be 48 million to 55 million pounds per year, up
to a maximum of 60 million pounds per year (the "Annual Maximum") for the
production of ethylene vinyl acetate products at those locations. If Equistar
fails to purchase at least 42 million pounds of VAM in any calendar year, the
Annual Maximum quantity may be reduced by as much as the total purchase
deficiency for one or more successive years. In order to reduce the Annual
Maximum quantity, Equistar must be notified within at least 30 days prior to
restricting the VAM purchases provided that the notice is not later than 45 days
after the year of the purchase deficiency. The initial term of the contract was
through December 31, 2000 and renews annually. Either party may terminate on one
year's notice, and Equistar provided notice to the Company that it will
terminate this contract on December 31, 2004. During the years ended December
31, 2003, 2002 and 2001, sales to Equistar were $10, $10 and $14, respectively.

     One of the Company's subsidiaries and Equistar have entered into various
operating, manufacturing and technical service agreements. These agreements
provide the subsidiary with certain utilities, steam, administrative office
space, and health, safety and environmental services. The subsidiary incurred
charges of $8, $9 and $17 in 2003, 2002 and 2001, respectively, for such
services. In addition, the subsidiary charged Equistar $15, $15 and $18 in 2003,
2002 and 2001, respectively, for electricity and miscellaneous shared services.

Note 15 -- Commitments and Contingencies

     Legal and Environmental: The Company and various Company subsidiaries are
defendants in a number of pending legal proceedings relating to present and
former operations. These include several proceedings alleging injurious exposure
of plaintiffs to various chemicals and other materials on the premises of, or
manufactured by, the Company's current and former subsidiaries. Typically, such
proceedings involve claims made by many plaintiffs against many defendants in
the chemical industry. Millennium Petrochemicals is one of a number of
defendants in 95 active premises-based asbestos cases (i.e., where the alleged
exposure to asbestos-containing materials was to employees of third-party
contractors or subcontractors on the premises of certain facilities, and did not
relate to any products manufactured or sold by the Company or any of its
predecessors). Millennium Petrochemicals is responsible for these premises-based
cases as a result of its indemnification obligations under the Company's
agreements with Equistar; however, Equistar will be required to indemnify
Millennium Petrochemicals for any such claims filed on or after December 1, 2004
related to the assets or businesses contributed by Millennium Petrochemicals to
Equistar. Millennium Inorganic Chemicals is one of a number of defendants in 80
premises-based asbestos cases filed in late 2003 in Baltimore County, Maryland.
Approximately half of these claims are on the active docket and half are on an
inactive docket of claims for which no legal obligations attach and no defense
costs are being incurred. With respect to the active docket, at the current
rate, cases filed in 2003 are not likely to be scheduled to be tried for at
least 10 years. To date, no premises-based asbestos case has been tried in the
State of Maryland. Defunct indirect Company subsidiaries are among a number of
defendants in 65 premises-based asbestos cases in Texas.

     Together with other alleged past manufacturers of lead-based paint and lead
pigments for use in paint, the Company, a current subsidiary, as well as alleged
predecessor companies, have been named as defendants in various legal
proceedings alleging that they and other manufacturers are responsible for
personal injury, property damage, and remediation costs allegedly associated
with the use of these products. The plaintiffs in these legal proceedings
include municipalities, counties, school districts, individuals and the State of
Rhode Island, and seek recovery under a variety of theories, including
negligence, failure to warn, breach of warranty, conspiracy, market share
liability, fraud, misrepresentation and public nuisance. Legal proceedings
relating to lead pigment or paint are in various procedural stages or pre-trial,
post-trial and post-dismissal settings.

     The Company's defense costs to date for lead-based paint and lead pigment
litigation largely have been covered by insurance. The Company has not accrued
any liabilities for any lead-based paint and lead pigment


                                       67



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 15 -- Commitments and Contingencies - Continued

litigation. The Company has insurance policies that potentially provide
approximately $1,000 in indemnity coverage for lead-based paint and lead pigment
litigation. That estimate of indemnity coverage would depend upon the timing of
any request for indemnity and the solvency of the various insurance carriers
that are part of the coverage block at the time of such a request. As a result
of insurance coverage litigation initiated by the Company, an Ohio trial court
issued a decision in 2002 effectively requiring certain insurance carriers to
resume paying defense costs in the lead-based paint and lead pigment cases.
Indemnity coverage was not at issue in the Ohio court's decision. The insurance
carriers may appeal the Ohio decision regarding defense costs, and they have in
the past and may in the future attempt to deny indemnity coverage if there is
ever a settlement or an adverse judgment in any lead-based paint or lead pigment
case.

     In 1986, a predecessor of a company that is now a subsidiary of the Company
sold its recently acquired Glidden Paints business. As part of that sale, the
seller agreed to indemnify the purchaser against certain claims made during the
first eight years after the sale; the purchaser agreed to indemnify the seller
against such claims made after the eight-year period. With the exception of two
cases, all pending lead-based paint and lead pigment litigation involving the
Company and its subsidiaries, including the Rhode Island case, was filed after
the eight-year period. Accordingly, the Company believes that it is entitled to
full indemnification from the purchaser against lead-based paint and lead
pigment cases filed after the eight-year period. The purchaser disputes that it
has such an indemnification obligation, and claims that the seller must
indemnify it. Since the Company's defense costs to date largely have been
covered by insurance and there never has been a settlement paid by, nor any
judgment rendered against, the Company (or any other company sued in any
lead-based paint or lead pigment litigation), the parties' indemnification
claims have not been ruled on by a court.

     The Company's businesses are subject to extensive federal, state, local and
foreign laws, regulations, rules and ordinances concerning, among other things,
emissions to the air, discharges and releases to land and water, the generation,
handling, storage, transportation, treatment and disposal of wastes and other
materials and the remediation of environmental pollution caused by releases of
wastes and other materials (collectively, "Environmental Laws"). The operation
of any chemical manufacturing plant and the distribution of chemical products
entail risks under Environmental Laws, many of which provide for substantial
fines and criminal sanctions for violations. In particular, the production of
TiO[u]2, TiCl[u]4, VAM, acetic acid, methanol and certain other chemicals
involves the handling, manufacture or use of substances or compounds that may be
considered to be toxic or hazardous within the meaning of certain Environmental
Laws, and certain operations have the potential to cause environmental or other
damage. Significant expenditures including facility-related expenditures could
be required in connection with any investigation and remediation of threatened
or actual pollution, triggers under existing Environmental Laws tied to
production or new requirements under Environmental Laws.

     The Company cannot predict whether future developments or changes in laws
and regulations concerning environmental protection will affect its earnings or
cash flow in a materially adverse manner or whether its operating units,
Equistar or La Porte Methanol Company will be successful in meeting future
demands of regulatory agencies in a manner that will not materially adversely
affect the consolidated financial position, results of operations or cash flows
of the Company. For example, in December 2000, the Texas Commission on
Environmental Quality (the "TCEQ") submitted a plan to the United States
Environmental Protection Agency ("EPA") requiring the eight-county
Houston/Galveston, Texas area to come into compliance with the National Ambient
Air Quality Standard for ozone by 2007. These requirements, if implemented,
would mandate significant reductions of nitrogen oxide ("NOx") emissions. In
December 2002, the TCEQ adopted revised rules, which changed the required NOx
emission reduction levels from 90% to 80% while requiring new controls on
emissions of highly reactive volatile organic compounds ("HRVOCs"), such as
ethylene, propylene, butadiene and butanes. The TCEQ plans to make a final
review of these rules, with final rule revisions to be adopted by October 2004.
These new rules still require approval by the EPA. Based on the 80% NOx
reduction requirement, Equistar estimates that its aggregate related capital
expenditures could total between $165 and $200 before the 2007 deadline, and
could result in higher annual operating costs. This result could potentially
affect cash distributions from Equistar to the Company. Equistar's spending
through December 31, 2003 totaled $69. Equistar is still assessing the impact of
the new HRVOC control requirements. The timing and amount of these expenditures
are subject to regulatory and other uncertainties, as well


                                       68



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 15 -- Commitments and Contingencies - Continued

as obtaining the necessary permits and approvals. At this time, there can be no
guarantee as to the ultimate capital cost of implementing any final plan
developed to ensure ozone attainment by the 2007 deadline.

     Certain Company subsidiaries have been named as defendants, potentially
responsible parties (the "PRPs"), or both, in a number of environmental
proceedings associated with waste disposal sites or facilities currently owned,
operated or used by the Company's current or former subsidiaries or
predecessors. The Company's estimated individual exposure for potential cleanup
costs, damages for personal injury or property damage related to these
proceedings has been estimated to be between $0.01 for several small sites and
$22 for the Kalamazoo River Superfund Site in Michigan. A subsidiary of the
Company is named as one of four PRPs at the Kalamazoo River Superfund Site. The
site involves contamination of river sediments and floodplain soils with
polychlorinated biphenyls. In October 2000, the Kalamazoo River Study Group (the
"KRSG"), of which one of the Company's subsidiaries is a member, submitted to
the State of Michigan a Draft Remedial Investigation and Draft Feasibility Study
(the "Draft Study"), which evaluated a number of remedial options. The cost for
these remedial options ranged from $0 to $2,500; however, the Company strongly
believes that the likelihood of the cost being either $0 or $2,500 is remote. At
the end of 2001, the EPA took responsibility for the site at the request of the
State. Based upon an interim allocation, the Company is paying 35% of costs
related to studying and evaluating the environmental condition of the river.
Guidance as to how the EPA will likely proceed with any further evaluation and
remediation at the Kalamazoo site is not expected until late 2004 at the
earliest. At the point in time when the EPA announces how it intends to proceed,
the Company's estimate of its liability at the Kalamazoo site will be
re-evaluated. The Company's ultimate liability for the Kalamazoo site will
depend on many other factors that have not yet been determined, including the
ultimate remedy selected by the EPA, the number and financial viability of the
other members of the KRSG as well as of other PRPs outside the KRSG, and the
determination of the final allocation among the members of the KRSG and other
PRPs. Recently, the EPA identified 14 private entities and 7 municipalities and
sent them formal requests for information regarding their possible connection
with the Kalamazoo site.

     On January 16, 2002, Slidell Inc. ("Slidell") filed a lawsuit against
Millennium Inorganic Chemicals Inc., a wholly-owned operating subsidiary of the
Company, alleging breach of contract and other related causes of action arising
out of a contract between the two parties for the supply of packaging equipment.
In the suit, Slidell seeks unspecified monetary damages. The Company believes it
has substantial defenses to these allegations and has filed a counterclaim
against Slidell.

     The Company believes that the reasonably probable and estimable range of
potential liability for such environmental and litigation contingencies,
collectively, is between $53 and $78 and has accrued $61 as of December 31,
2003. Expenses or benefits associated with these contingencies including changes
in estimated costs to resolve these contingencies are included in the Company's
selling, development and administrative ("S, D&A") costs. In 2003, net benefits
resulting from changes in the estimated liabilities for these contingencies were
not significant. Included in 2002 is a benefit of $6 from a reduction of
reserves due to a favorable resolution of certain environmental claims related
to predecessor businesses reserved for in prior years. Additionally, 2002
includes $3 of expenses associated with environmental and other legal
contingencies related to the Company's current businesses. In 2001, $15 of the
Company's total $16 of expenses for environmental and other legal contingencies
resulted from increases in reserves for the estimated costs to resolve legal and
environmental claims related to predecessor businesses. The Company expects that
cash expenditures related to these potential liabilities will be made over a
number of years, and will not be concentrated in any single year. This accrual
also reflects the fact that certain Company subsidiaries have contractual
obligations to indemnify other parties against certain environmental and other
liabilities.

     Purchase Commitments: The Company has various agreements for the purchase
of ore used in the production of TiO[u]2 and certain other agreements to
purchase raw materials, utilities and services with various terms extending
through 2020. The fixed and determinable portion of obligations under purchase
commitments at December 31, 2003 (at current exchange rates, where applicable)
is as follows:


                                       69



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 15 -- Commitments and Contingencies - Continued

<TABLE>
<CAPTION>
                                          Ore    Other    Total
                                         ----   ------   ------
<C>                                      <C>    <C>      <C>
2004..................................   $183   $  149   $  332
2005..................................    155      117      272
2006..................................    117      107      224
2007..................................     65      108      173
2008..................................     --       99       99
Thereafter............................     --      750      750
                                         ----   ------   ------
   Total..............................   $520   $1,330   $1,850
                                         ====   ======   ======
</TABLE>

     One of the Company's subsidiaries has entered into an agreement with DuPont
to toll acetic acid through DuPont's VAM plant, thereby acquiring all of the VAM
production at such plant not utilized by DuPont. The tolling fee is based on the
market price of ethylene, plus a processing charge. The term of the contract is
from January 1, 2001 through December 31, 2006, and thereafter from
year-to-year. The total commitment over the remaining term of the contract is
expected to be $202.

     Future Minimum Rental Commitments: Future minimum rental commitments under
non-cancelable operating leases, as of December 31, 2003, are as follows:

<TABLE>
<S>                                      <C>
2004..................................   $ 20
2005..................................     15
2006..................................     12
2007..................................     11
2008..................................     11
Thereafter............................     75
                                         ----
   Total..............................   $144
                                         ====
</TABLE>

     Other Contingencies: The Company is organized under the laws of Delaware
and is subject to United States Federal income taxation of corporations.
However, in order to obtain clearance from the United Kingdom Inland Revenue as
to the tax-free treatment of the Demerger stock dividend for United Kingdom tax
purposes for Hanson and Hanson's shareholders, Hanson agreed with the United
Kingdom Inland Revenue that the Company would continue to be centrally managed
and controlled in the United Kingdom at least until September 30, 2001. The
Company agreed with Hanson not to take, or fail to take, during such five-year
period, any action that would result in a breach of, or constitute
non-compliance with, any of the representations and undertakings made by Hanson
in its agreement with the United Kingdom Inland Revenue. The Company also agreed
to indemnify Hanson against any liability and penalties arising out of a breach
of such agreement.

     Effective February 4, 2002, the Company ceased being centrally managed and
controlled in the United Kingdom. The Company believes that it has satisfied all
obligations that it be managed and controlled in the United Kingdom for the
requisite five-year period.

     See Note 7 for additional information regarding income tax contingencies.

Note 16 -- Operations by Business Segment and Geographic Area

     The Company's principal operations are managed and grouped as three
separate business segments: Titanium Dioxide and Related Products, Acetyls and
Specialty Chemicals. Operating income and expense not identified with the three
separate business segments, including certain of the Company's S, D&A costs not
allocated to its three business segments, employee-related costs from
predecessor businesses and certain other expenses, including costs associated
with the Company's cost reduction program announced in July 2003 and the
Company's reorganization activities in 2001 (see Note 3), are grouped under the
heading Other. The accounting policies of the segments are the same as those
described in Note 1.


                                       70



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 16 -- Operations by Business Segment and Geographic Area - Continued

     Most of the Company's foreign operations are conducted by subsidiaries in
the United Kingdom, France, Brazil and Australia. Sales between the Company's
operations are made on terms similar to those of its third-party distributors.

     Income and expense not allocated to business segments in computing
operating income include interest income and expense, other income and expense
and loss on Equistar investment.

     Export sales from the United States for the years ended December 31, 2003,
2002 and 2001 were approximately $316, $254 and $245, respectively.

     The following is a summary of the Company's operations by business segment:

<TABLE>
<CAPTION>
                                                        2003     2002     2001
                                                       ------   ------   ------
<S>                                                    <C>      <C>      <C>
Net sales
   Titanium Dioxide and Related Products ...........   $1,172   $1,129   $1,145
   Acetyls .........................................      421      334      355
   Specialty Chemicals .............................       94       91       90
                                                       ------   ------   ------
      Total ........................................   $1,687   $1,554   $1,590
                                                       ======   ======   ======
Operating (loss) income
   Titanium Dioxide and Related Products ...........   $  (51)  $   63   $   72
   Acetyls .........................................       27       11      (16)
   Specialty Chemicals .............................        2        6       12
   Other ...........................................      (29)      --      (54)
                                                       ------   ------   ------
      Total ........................................   $  (51)  $   80   $   14
                                                       ======   ======   ======
Depreciation and amortization
   Titanium Dioxide and Related Products ...........   $   94   $   83   $   81
   Acetyls .........................................       11       11       21
   Specialty Chemicals .............................        8        8        8
                                                       ------   ------   ------
      Total ........................................   $  113   $  102   $  110
                                                       ======   ======   ======
Capital expenditures
   Titanium Dioxide and Related Products ...........   $   42   $   61   $   82
   Acetyls .........................................        3        1        6
   Specialty Chemicals .............................        3        9        3
   Other ...........................................       --       --        6
                                                       ------   ------   ------
      Total ........................................   $   48   $   71   $   97
                                                       ======   ======   ======
Identifiable assets
   Titanium Dioxide and Related Products ...........   $1,487   $1,389
   Acetyls .........................................      285      294
   Specialty Chemicals .............................       95       99
   Other (1) .......................................      531      614
                                                       ------   ------
      Total ........................................   $2,398   $2,396
                                                       ======   ======
</TABLE>

----------
(1)  Other assets consist primarily of cash and cash equivalents, the Company's
     interest in Equistar and other assets.


                                       71



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 16 -- Operations by Business Segment and Geographic Area - Continued

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                    ------------
                                                                     2003   2002
                                                                     ----   ----
<S>                                                                  <C>    <C>
Goodwill
   Titanium Dioxide and Related Products ........................    $ 56   $ 58
   Acetyls ......................................................      48     48
                                                                     ----   ----
      Total .....................................................    $104   $106
                                                                     ====   ====
</TABLE>

     The following is a summary of the Company's operations by geographic
region:

<TABLE>
<CAPTION>
                                                        2003     2002      2001
                                                       ------   ------   -------
<S>                                                    <C>      <C>      <C>
Net sales
   United States ...................................   $  984   $  923   $  983
                                                       ------   ------   ------
   Non-United States
      United Kingdom ...............................      447      404      364
      France .......................................      187      183      179
      Asia/Pacific .................................      203      178      160
      Brazil .......................................      107      103      113
                                                       ------   ------   ------
                                                          944      868      816
                                                       ------   ------   ------
   Inter-area elimination ..........................     (241)    (237)    (209)
                                                       ------   ------   ------
      Total ........................................   $1,687   $1,554   $1,590
                                                       ======   ======   ======
Operating income (loss)
   United States ...................................   $   (9)  $    6   $  (53)
                                                       ------   ------   ------
   Non-United States
      United Kingdom ...............................       27        5       (5)
      France .......................................     (137)     (11)      (8)
      Asia/Pacific .................................       51       54       52
      Brazil .......................................       21       23       30
                                                       ------   ------   ------
                                                          (38)      71       69
                                                       ------   ------   ------
   Inter-area elimination ..........................       (4)       3       (2)
                                                       ------   ------   ------
      Total ........................................   $  (51)  $   80   $   14
                                                       ======   ======   ======
Identifiable assets
   United States ...................................   $1,424   $1,536
                                                       ------   ------
   Non-United States
      United Kingdom ...............................      451      346
      France .......................................      146      250
      Asia/Pacific .................................      231      137
      Brazil .......................................      133      116
      All Other ....................................       13       11
                                                       ------   ------
                                                          974      860
                                                       ------   ------
      Total ........................................   $2,398   $2,396
                                                       ======   ======
</TABLE>


                                       72



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 17 -- Quarterly Financial Data (unaudited)

<TABLE>
<CAPTION>
                                                                     1st Qtr.    2nd Qtr.     3rd Qtr.    4th Qtr.
                                                                     --------    --------     --------    --------
<S>                                                                  <C>         <C>          <C>         <C>
2003
Net sales.........................................................   $  415      $  416       $  431      $  425
Operating income (loss)...........................................       27          24 (2)       (5)(4)     (97)(6)
Net loss before cumulative effect of accounting change............      (26)(1)      (9)(3)      (28)(5)    (120)(7)
Cumulative effect of accounting change............................       (1)         --           --          --
Net loss after cumulative effect of accounting change.............      (27)(1)      (9)(3)      (28)(5)    (120)(7)
Basic and diluted loss per share:
   Before cumulative effect of accounting change..................    (0.41)(1)   (0.14)(3)    (0.44)(5)   (1.87)(7)
   From cumulative effect of accounting change....................    (0.02)         --           --          --
   After cumulative effect of accounting change...................    (0.43)(1)   (0.14)(3)    (0.44)(5)   (1.87)(7)

2002
Net sales.........................................................   $  351      $  405       $  411      $  387
Operating income..................................................        7          20 (8)       30          23 (9)
Net (loss) income before cumulative effect of accounting change...      (33)          2 (8)        5          (2)(10)
Cumulative effect of accounting change............................     (305)         --           --          --
Net (loss) income after cumulative effect of accounting change....     (338)          2 (8)        5          (2)(10)
Basic and diluted (loss) earnings per share:
   Before cumulative effect of accounting change..................    (0.52)       0.02 (8)     0.08       (0.03)(10)
   From cumulative effect of accounting change....................    (4.80)         --           --          --
   After cumulative effect of accounting change...................    (5.32)       0.02 (8)     0.08       (0.03)(10)
</TABLE>

----------
(1)  Includes $3 after tax or $0.04 per share from the Company's share of
     Equistar's loss on sale of assets.

(2)  Includes $1 of reorganization charges.

(3)  Includes after-tax reorganization charges of $1 or $0.02 per share and the
     Company's after-tax share of Equistar's debt prepayment costs of $4 or
     $0.06 per share.

(4)  Includes $15 of reorganization and office closure charges.

(5)  Includes after-tax reorganization and office closure charges of $10 or
     $0.16 per share and an after-tax benefit of $2 or $0.03 per share from the
     collection of a note receivable previously written off.

(6)  Includes $103 of asset impairment charges and $2 of reorganization and
     office closure charges.

(7)  Includes after-tax asset impairment charges of $101 or $1.58 per share, a
     net tax benefit of $18 or $0.28 per share unrelated to transactions in
     2003, after-tax reorganization and office closure charges of $1 or $0.03
     per share, and the Company's after-tax share of Equistar's financing costs
     of $3 or $0.04 per share and severance costs of $1 or $0.02 per share.

(8)  Includes a benefit of $5 ($3 after-tax or $0.05 per share) from a reduction
     of reserves due to favorable resolution of environmental claims related to
     predecessor businesses reserved for in prior years.

(9)  Includes a benefit of $1 from a reduction of reserves due to favorable
     resolution of environmental claims related to predecessor businesses
     reserved for in prior years.

(10) Includes a benefit of $1 after-tax or $0.01 per share from a reduction of
     reserves due to favorable resolution of environmental claims related to
     predecessor businesses reserved for in prior years, a tax benefit of $22 or
     $0.35 per share, primarily related to a federal tax refund claim, and a tax
     charge of $10 or $0.16 per share to establish a valuation allowance against
     deferred tax assets for the Company's French subsidiaries.


                                       73



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                    (Dollars in millions, except share data)

Note 18 -- Supplemental Financial Information

     Millennium America, a wholly-owned indirect subsidiary of the Company, is a
holding company for all of the Company's operating subsidiaries other than its
operations in the United Kingdom, France, Brazil and Australia. Millennium
America is the issuer of the 7% Senior Notes, the 7.625% Senior Debentures, and
the 9.25% Senior Notes, and is the principal borrower under the Credit
Agreement. Millennium Chemicals is the issuer of the 4% Convertible Senior
Debentures. Millennium America fully and unconditionally guarantees all
obligations under the Credit Agreement and the 4% Convertible Senior Debentures.
The 7% Senior Notes, the 7.625% Senior Debentures and the 9.25% Senior Notes, as
well as outstanding amounts under the Credit Agreement, are fully and
unconditionally guaranteed by Millennium Chemicals. Accordingly, the following
Condensed Consolidating Balance Sheets at December 31, 2003 and 2002, and the
Condensed Consolidating Statements of Operations and Cash Flows for each of the
three years in the period ended December 31, 2003, are provided for the Company
as supplemental financial information to the Company's consolidated financial
statements to disclose the financial position, results of operations and cash
flows of (i) Millennium Chemicals, (ii) Millennium America, and (iii) all
subsidiaries of Millennium Chemicals other than Millennium America (the
"Non-Guarantor Subsidiaries"). The investment in subsidiaries of Millennium
America and Millennium Chemicals are accounted for by the equity method;
accordingly, the shareholders' equity (deficit) of Millennium America and
Millennium Chemicals are presented as if each of those companies and their
respective subsidiaries were reported on a consolidated basis.


                                       74



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
                    (Dollars in millions, except share data)

Note 18 -- Supplemental Financial Information - Continued

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                        As of December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                                              Millennium
                                             Millennium      Millennium     Non-Guarantor                   Chemicals Inc.
                                            America Inc.   Chemicals Inc.    Subsidiaries   Eliminations   and Subsidiaries
                                            ------------   --------------   -------------   ------------   ----------------
<S>                                            <C>              <C>             <C>            <C>              <C>
2003 (Restated - See Note 19)
                  ASSETS
Inventories .............................      $   --           $ --            $  457         $    --          $  457
Other current assets ....................          24              1               526              --             551
Property, plant and equipment, net ......          --             --               766              --             766
Investment in Equistar ..................          --             --               469              --             469
Investment in subsidiaries ..............         369             95                --            (464)             --
Other assets ............................          12              3                36              --              51
Goodwill ................................          --             --               104              --             104
Due from parent and affiliates, net .....         733             --                --            (733)             --
                                               ------           ----            ------         -------          ------
   Total assets .........................      $1,138           $ 99            $2,358         $(1,197)         $2,398
                                               ======           ====            ======         =======          ======
LIABILITIES AND SHAREHOLDERS'
       (DEFICIT) EQUITY

Current maturities of long-term debt ....      $   --           $ --            $    6         $    --          $    6
Other current liabilities ...............           9              1               355              --             365
Long-term debt ..........................       1,295            150                16              --           1,461
Deferred income taxes ...................          --             --               272              --             272
Other liabilities .......................          --             --               325              --             325
Due to parent and affiliates, net .......          --              6               727            (733)             --
                                               ------           ----            ------         -------          ------
   Total liabilities ....................       1,304            157             1,701            (733)          2,429
Minority interest .......................          --             --                27              --              27
Shareholders' (deficit) equity ..........        (166)           (58)              630            (464)            (58)
                                               ------           ----            ------         -------          ------
   Total liabilities and shareholders'
      (deficit) equity ..................      $1,138           $ 99            $2,358         $(1,197)         $2,398
                                               ======           ====            ======         =======          ======
2002 (Restated - See Note 19)
                  ASSETS

Inventories .............................      $   --           $ --            $  406         $    --          $  406
Other current assets ....................          10             --               403              --             413
Property, plant and equipment, net ......          --             --               862              --             862
Investment in Equistar ..................          --             --               563              --             563
Investment in subsidiaries ..............         364            110                --            (474)             --
Other assets ............................          15             --                31              --              46
Goodwill ................................          --             --               106              --             106
Due from parent and affiliates, net .....         638             --                --            (638)             --
                                               ------           ----            ------         -------          ------
   Total assets .........................      $1,027           $110            $2,371         $(1,112)         $2,396
                                               ======           ====            ======         =======          ======
LIABILITIES AND SHAREHOLDERS'
       (DEFICIT) EQUITY

Current maturities of long-term debt ....      $    3           $ --            $    9         $    --          $   12
Other current liabilities ...............           8             --               455              --             463
Long-term debt ..........................       1,196             --                16              --           1,212
Deferred income taxes ...................          --             --               300              --             300
Other liabilities .......................          --             --               410              --             410
Due to parent and affiliates, net .......          --            130               508            (638)             --
                                               ------           ----            ------         -------          ------
   Total liabilities ....................       1,207            130             1,698            (638)          2,397
Minority interest .......................          --             --                19              --              19
Shareholders' (deficit) equity ..........        (180)           (20)              654            (474)            (20)
                                               ------           ----            ------         -------          ------
   Total liabilities and shareholders'
      (deficit) equity ..................      $1,027           $110            $2,371         $(1,112)         $2,396
                                               ======           ====            ======         =======          ======
</TABLE>


                                       75



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
                    (Dollars in millions, except share data)

Note 18 -- Supplemental Financial Information - Continued

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                                  Millennium
                                                 Millennium      Millennium     Non-Guarantor                   Chemicals Inc.
                                                America Inc.   Chemicals Inc.    Subsidiaries   Eliminations   and Subsidiaries
                                                ------------   --------------   -------------   ------------   ----------------
<S>                                                <C>              <C>             <C>             <C>             <C>
2003
Net sales ...................................      $  --            $  --           $1,687          $ --            $1,687
Cost of products sold .......................         --               --            1,377            --             1,377
Depreciation and amortization ...............         --               --              113            --               113
Selling, development and administrative
   expense ..................................         --                1              126            --               127
Reorganization and office closure costs .....         --               --               18            --                18
Asset impairment charges ....................         --               --              103            --               103
                                                   -----            -----           ------          ----            ------
   Operating loss ...........................         --               (1)             (50)           --               (51)
Interest expense (income), net ..............        (94)              --                2            --               (92)
Intercompany interest income (expense),
   net ......................................         98               (3)             (95)           --                --
Loss on Equistar investment .................         --               --             (100)           --              (100)
Equity in loss of subsidiaries ..............       (110)            (180)              --           290                --
Other expense ...............................         (1)              --               (4)           --                (5)
(Provision for) benefit from income taxes ...         (1)               1               65            --                65
Cumulative effect of accounting change ......          1               (1)              (1)           --                (1)
                                                   -----            -----           ------          ----            ------
   Net loss .................................      $(107)           $(184)          $ (183)         $290            $ (184)
                                                   =====            =====           ======          ====            ======
2002
Net sales ...................................      $  --            $  --           $1,554          $ --            $1,554
Cost of products sold .......................         --               --            1,234            --             1,234
Depreciation and amortization ...............         --               --              102            --               102
Selling, development and administrative
   expense ..................................          1                1              136            --               138
                                                   -----            -----           ------          ----            ------
   Operating (loss) income ..................         (1)              (1)              82            --                80
Interest expense, net .......................        (86)              --               --            --               (86)
Intercompany interest income (expense),
   net ......................................        103               (5)             (98)           --                --
Loss on Equistar investment .................         --               --              (73)           --               (73)
Equity in loss of subsidiaries ..............        (97)             (23)              --           120                --
Other expense ...............................         --               --               (7)           --                (7)
(Provision for) benefit from income taxes ...         (6)               1               63            --                58
Cumulative effect of accounting change ......       (305)            (305)            (305)          610              (305)
                                                   -----            -----           ------          ----            ------
   Net loss .................................      $(392)           $(333)          $ (338)         $730            $ (333)
                                                   =====            =====           ======          ====            ======
2001
Net sales ...................................      $  --            $  --           $1,590          $ --            $1,590
Cost of products sold .......................         --               --            1,261            --             1,261
Depreciation and amortization ...............         --               --              110            --               110
Selling, development and administrative
   expense ..................................         --               --              169            --               169
Reorganization and plant closure costs ......         --               --               36            --                36
                                                   -----            -----           ------          ----            ------
   Operating income .........................         --               --               14            --                14
Interest expense, net .......................        (81)              --               (1)           --               (82)
Intercompany interest income (expense),
   net ......................................        108               (4)            (104)           --                --
Loss on Equistar investment .................         --               --              (83)           --               (83)
Equity in loss of subsidiaries ..............        (76)             (51)              --           127                --
Other expense ...............................         (2)              (1)              --            --                (3)
(Provision for) benefit from income taxes ...         (9)               2              107            --               100
                                                   -----            -----           ------          ----            ------
   Net loss .................................      $ (60)           $ (54)          $  (67)         $127            $  (54)
                                                   =====            =====           ======          ====            ======
</TABLE>


                                       76



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
                    (Dollars in millions, except share data)

Note 18 -- Supplemental Financial Information - Continued

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                                 Millennium
                                                Millennium      Millennium     Non-Guarantor                   Chemicals Inc.
                                               America Inc.   Chemicals Inc.    Subsidiaries   Eliminations   and Subsidiaries
                                               ------------   --------------   -------------   ------------   ----------------
<S>                                               <C>             <C>               <C>             <C>            <C>
2003
Cash flows from operating activities .......      $   7           $  (2)            $(95)           $--            $ (90)
Cash flows from investing activities:
   Capital expenditures ....................         --              --              (48)            --              (48)
                                                  -----           -----             ----            ---            -----
Cash used in investing activities ..........         --              --              (48)            --              (48)
Cash flows from financing activities:
   Dividends to shareholders ...............         --             (17)              --             --              (17)
   Proceeds from long-term debt, net .......        478             146                2             --              626
   Repayment of long-term debt .............       (378)             --               (9)            --             (387)
   Intercompany ............................        (93)           (127)             220             --               --
   Decrease in notes payable and other
      short-term borrowings ................         --              --              (19)            --              (19)
                                                  -----           -----             ----            ---            -----
Cash provided by financing activities ......          7               2              194             --              203
                                                  -----           -----             ----            ---            -----
Effect of exchange rate changes on cash ....         --              --               19             --               19
                                                  -----           -----             ----            ---            -----
Increase in cash and cash equivalents ......         14              --               70             --               84
Cash and cash equivalents at beginning
   of year .................................          6              --              119             --              125
                                                  -----           -----             ----            ---            -----
Cash and cash equivalents at end of year ...      $  20           $  --             $189            $--            $ 209
                                                  =====           =====             ====            ===            =====

2002
Cash flows from operating activities .......      $  18           $  (6)            $ 72            $--            $  84
Cash flows from investing activities:
   Capital expenditures ....................         --              --              (71)            --              (71)
   Proceeds from sales of property, plant
      & equipment ..........................         --              --                1             --                1
                                                  -----           -----             ----            ---            -----
Cash used in investing activities ..........         --              --              (70)            --              (70)
Cash flows from financing activities:
   Dividends to shareholders ...............         --             (35)              --             --              (35)
   Proceeds from long-term debt ............        290              --               12             --              302
   Repayment of long-term debt .............       (264)             --               (8)            --             (272)
   Intercompany ............................        (43)             41                2             --               --
   Increase in notes payable ...............         --              --                3             --                3
                                                  -----           -----             ----            ---            -----
Cash (used in) provided by financing
   activities ..............................        (17)              6                9             --               (2)
                                                  -----           -----             ----            ---            -----
Effect of exchange rate changes on cash ....         --              --               (1)            --               (1)
                                                  -----           -----             ----            ---            -----
Increase in cash and cash equivalents ......          1              --               10             --               11
Cash and cash equivalents at beginning
   of year .................................          5              --              109             --              114
                                                  -----           -----             ----            ---            -----
Cash and cash equivalents at end of year ...      $   6           $  --             $119            $--            $ 125
                                                  =====           =====             ====            ===            =====
</TABLE>


                                       77



<PAGE>


                            MILLENNIUM CHEMICALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
                    (Dollars in millions, except share data)

Note 18 -- Supplemental Financial Information - Continued

          CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - Continued
              For the Years Ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                                 Millennium
                                                Millennium      Millennium     Non-Guarantor                   Chemicals Inc.
                                               America Inc.   Chemicals Inc.    Subsidiaries   Eliminations   and Subsidiaries
                                               ------------   --------------   -------------   ------------   ----------------
<S>                                                <C>             <C>              <C>             <C>              <C>
2001
Cash flows from operating activities .......       $   7           $ (5)            $110            $--              $112
Cash flows from investing activities:
   Capital expenditures ....................          --             --              (97)            --               (97)
   Proceeds from sales of property, plant
      & equipment ..........................          --             --               19             --                19
                                                     ---           ----             ----            ---              ----
Cash used in investing activities ..........          --             --              (78)            --               (78)
Cash flows from financing activities:
   Dividends to shareholders ...............          --            (35)              --             --               (35)
   Proceeds from long-term debt ............         741             --               42             --               783
   Repayment of long-term debt .............        (675)            --              (61)            --              (736)
   Intercompany ............................         (51)            40               11             --                --
   Decrease in notes payable ...............         (17)            --              (17)            --               (34)
                                                   -----           ----             ----            ---              ----
Cash (used in) provided by financing
   activities ..............................          (2)             5              (25)            --               (22)
                                                   -----           ----             ----            ---              ----
Effect of exchange rate changes on cash ....          --             --               (5)            --                (5)
                                                   -----           ----             ----            ---              ----
Increase in cash and cash equivalents ......           5             --                2             --                 7
Cash and cash equivalents at beginning
   of year .................................          --             --              107             --               107
                                                   -----           ----             ----            ---              ----
Cash and cash equivalents at end of year ...       $   5           $ --             $109            $--              $114
                                                   =====           ====             ====            ===              ====
</TABLE>


                                       78



<PAGE>


Note 19 -- Restatement of Financial Statements

     The Company restated its financial statements for the years 2001 through
2003 to correct errors in its computation of deferred income taxes relating to
its Equistar investment. This restatement decreased the Company's liability
for deferred income taxes and Shareholders' deficit at December 31, 2003 and
2002 by $15. This restatement similarly decreased liabilities for deferred
income taxes and increased Shareholders' equity at December 31, 2001 and 2000
by $15. The restatement did not affect the Company's cash flow or operating
income in any year.

     A summary of the aggregate effect of this restatement on the Company's
Consolidated Balance Sheets for the periods presented herein is shown below.

<TABLE>
<CAPTION>
                                                  As of December 31, 2003     As of December 31, 2002
                                                 -------------------------   -------------------------
                                                 As Reported   As Restated   As Reported   As Restated
                                                 -----------   -----------   -----------   -----------
<S>                                                <C>           <C>           <C>           <C>
Changes to Consolidated Balance Sheets:
   Deferred income taxes .....................     $  287        $  272        $  315        $  300
   Total liabilities .........................      2,444         2,429         2,412         2,397
   Accumulated deficit .......................       (977)         (962)         (776)         (761)
   Total shareholders' deficit ...............        (73)          (58)          (35)          (20)
</TABLE>


                                       79



<PAGE>


     Item 9A. Controls and Procedures

(a)    The Company maintains disclosure controls and procedures that are
       designed to provide reasonable assurance that information required to be
       disclosed in the Company's filings under the Securities Exchange Act of
       1934 is recorded, processed, summarized and reported within the periods
       specified in the rules and forms of the Securities and Exchange
       Commission and that such information is accumulated and communicated to
       the Company's management, including its principal executive officer and
       principal financial officer, as appropriate, to allow timely decisions
       regarding required disclosure.

       As a result of activities relating to the Company's proposed business
       combination with Lyondell, the Company discovered errors in the
       computation of its tax basis in Equistar used to compute the Company's
       deferred income taxes. The restatement reflected in this Amendment No. 2
       decreased the Company's liability for deferred income taxes and
       Shareholders' deficit at December 31, 2003 and 2002 by $15 million. This
       restatement similarly decreased liabilities for deferred income taxes
       and increased Shareholders' equity at December 31, 2001 and 2000 by
       $15 million. The restatement did not affect the Company's cash flow or
       operating income in any year.

       The Company believes that the errors resulted from a "material weakness"
       in internal controls relating to the computation of deferred income taxes
       for its investment in Equistar.

       As a result of the Company's decision to restate its financial
       statements, the Company carried out an evaluation under the supervision
       and with the participation of the Company's management, including the
       Company's principal executive officer and principal financial officer, of
       the effectiveness of the design and operation of the Company's disclosure
       controls and procedures as of December 31, 2003. Based on this
       evaluation, the Company's principal executive officer and principal
       financial officer concluded that, solely as a result of the material
       weakness referred to above, the Company's disclosure controls and
       procedures were not effective as of December 31, 2003.

(b)    There were no changes in the Company's internal controls over financial
       reporting that occurred during the most recent fiscal quarter covered by
       this Annual Report that have materially affected, or are reasonably
       likely to materially affect, the Company's internal controls over
       financial reporting.

       As a result of Section 404 of the Sarbanes-Oxley Act of 2002 and the
       rules issued thereunder (collectively, the "Section 404 Requirements"),
       the Company will be required to include in its Annual Report on Form 10-K
       for the year ending December 31, 2004 a report on management's assessment
       of the effectiveness of the Company's internal controls over financial
       reporting. As part of the process of preparing for compliance with the
       Section 404 Requirements, in 2003, the Company initiated a review of its
       internal controls over financial reporting. This review is being
       conducted under the direction of senior management. As a result,
       management has made improvements to the Company's internal controls
       through the date of the filing of this Amendment No. 2 as part of its
       normal review process. The Company's management does not believe these
       changes have materially affected, or are reasonably likely to materially
       affect, the Company's internal controls over financial reporting. The
       Company anticipates that improvements will continue to be made as part of
       the ongoing review.

       As a result of the errors discovered as discussed in paragraph (a) above,
       the Company performed a thorough analysis and re-computation of the
       Company's tax basis in Equistar to correct the Company's deferred income
       taxes. Additionally, the Company is establishing formal procedures for
       the regular review of the Company's tax basis relating to its investment
       in Equistar. These procedures will be evaluated for effectiveness and
       implemented in the third quarter.


                                       80



<PAGE>


                                     PART IV

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K

 (a) The Following Documents are Filed as Part of This Report:

     1.  Financial Statement Schedule.

         Financial Statement Schedule II -- Valuation and Qualifying Accounts,
         located on page S-1 of this Amendment No. 2 to the Annual Report on
         Form 10-K/A, should be read in conjunction with the Financial
         Statements included in Item 8 of this Amendment No. 2 to the Annual
         Report on Form 10-K/A. Schedules, other than Schedule II, are omitted
         because of the absence of the conditions under which they are required
         or because the information called for is included in the Consolidated
         Financial Statements of the Company or the Notes thereto.

     2.  Exhibits.

<TABLE>
<CAPTION>
Exhibit
 Number                             Description of Document
-------                             -----------------------
<S>       <C>
 3.1(a)   Amended and Restated Certificate of Incorporation of the Company
          (Filed as Exhibit 3.1 to the Company's Registration Statement on Form
          10 (File No. 1-12091) (the "Form 10"))*

 3.1(b)   Certificate of Elimination of Series A Junior Preferred Stock of
          Millennium Chemicals Inc. (Filed as Exhibit 3.1(b) to the Company's
          Annual Report on Form 10-K for the year ended December 31, 2002 (the
          "2002 Form 10-K")) *

 3.2      By-laws of the Company (as amended on February 4, 2002) (Filed as
          Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year
          ended December 31, 2001 (the "2001 Form 10-K"))*

 4.1(a)   Form of Indenture, dated as of November 27, 1996, among Millennium
          America (formerly named Hanson America Inc.), the Company and The Bank
          of New York, as Trustee, in respect of the 7% Senior Notes due
          November 15, 2006 and the 7.625% Senior Debentures due November 15,
          2026 (Filed as Exhibit 4.1 to the Registration Statement of the
          Company and Millennium America on Form S-1 (Registration No.
          333-15975) (the "Form S-1"))*

 4.1(b)   First Supplemental Indenture dated as of November 21, 1997 among
          Millennium America, the Company and The Bank of New York, as Trustee
          (Filed as Exhibit 4.1(b) to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1997 (the "1997 Form 10-K"))*
</TABLE>


                                       81



<PAGE>


<TABLE>
<CAPTION>
Exhibit
 Number                             Description of Document
-------                             -----------------------
<S>       <C>
 4.2      Indenture, dated as of June 18, 2001, among Millennium America as
          Issuer, the Company as Guarantor, and The Bank of New York, as Trustee
          (including the form of 9 1/4% Senior Notes due 2008 and the Note
          Guarantee) (Filed as Exhibit 4.1 to the Registration Statement of the
          Company and Millennium America (Registration Nos. 333-65650 and
          333-65650-1) on Form S-4 (the "Form S-4"))*

 4.3      Indenture, dated as of November 25, 2003, among the Company as Issuer,
          Millennium America as Guarantor, and the Bank of New York, as Trustee,
          in respect to the 4% Convertible Senior Debentures due November 15,
          2023 (Filed as Exhibit 4.1 to the Company's Current Report on Form 8-K
          dated November 25, 2003)*

10.1      Form of Indemnification Agreement, dated as of September 30, 1996,
          between Hanson and the Company (Filed as Exhibit 10.8 to the Form 10)*

10.2      Form of Tax Sharing and Indemnification Agreement, dated as of
          September 30, 1996, between Hanson, Millennium Overseas Holdings Ltd.,
          Millennium America Holdings Inc. (formerly HM Anglo American Ltd.),
          Hanson North America Inc. and the Company (Filed as Exhibit 10.9(a) to
          the Form 10)*

10.3(a)   Deed of Tax Covenant, dated as of September 30, 1996, between Hanson,
          Millennium Overseas Holdings Ltd., Millennium Inorganic Chemicals
          Limited (formerly SCM Chemicals Limited), SCMC Holdings B.V. (formerly
          Hanson SCMC B.V.), Millennium Inorganic Chemicals Ltd. (formerly SCM
          Chemicals Ltd.), and the Company (the "Deed of Tax Covenant") (Filed
          as Exhibit 10.9(b) to the Form 10)*

10.3(b)   Amendment to the Deed of Tax Covenant dated January 28, 1997 (Filed as
          Exhibit 10.9(c) to the Company's Annual Report on Form 10-K for the
          year ended December 31, 1996 (the "1996 Form 10-K"))*

10.4(a)   Credit Agreement, dated June 18, 2001, among Millennium America Inc.,
          as Borrower, Millennium Inorganic Chemicals Limited, as Borrower,
          certain borrowing subsidiaries of Millennium Chemicals Inc., from time
          to time party thereto, Millennium Chemicals Inc., as Guarantor, the
          lenders from time to time party thereto, Bank of America, N.A., as
          Syndication Agent and The Chase Manhattan Bank as Administrative Agent
          and collateral agent (Filed as Exhibit 10.1 to the Form S-4)*

10.4(b)   First Amendment, dated as of December 14, 2001, to the Credit
          Agreement dated as of June 18, 2001, with Bank of America, N.A. and JP
          Morgan Chase Bank and the lenders party thereto (Filed as Exhibit 99.1
          to the Company's Current Report on Form 8-K dated December 18, 2001)*

10.4(c)   Second Amendment, dated as of June 19, 2002, to the Credit Agreement
          dated as of June 18, 2001, with the Bank of America, N.A. and JP
          Morgan Chase Bank and the lenders party thereto (Filed as Exhibit 10.1
          to the Company's Quarterly Report on Form 10-Q for the quarter ended
          June 30, 2002 (the "June 30, 2002, Form 10-Q"))*

10.4(d)   Third Amendment, dated as of April 25, 2003, to the Credit Agreement
          dated as of June 18, 2001, with the Bank of America, N.A. and JP
          Morgan Chase Bank and the lenders party thereto (Filed as Exhibit 10.1
          to the Company's Quarterly Report on Form 10-Q for the quarter ended
          March 31, 2003)*

10.4(e)   Fourth Amendment, dated as of November 18, 2003, to the Credit
          Agreement dated as of June 18, 2001, with the Bank of America, N.A.
          and JP Morgan Chase Bank and the lenders party thereto (Filed as
          Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
          quarter ended March 31, 2003)*

10.5      Form of Change in Control Agreements between Millennium America
          Holdings Inc., (or certain of its subsidiaries), and each of Robert E.
          Lee, C. William Carmean, Timothy E. Dowdle, Marie S. Dreher, John E.
          Lushefski and Myra J. Perkinson (Filed as Exhibit 10.7 to the 2002
          Form 10-K)*'D'

10.6(a)   Millennium Chemicals Inc. Annual Performance Incentive Plan (Filed as
          Exhibit 10.23 to the Form 10)*'D'
</TABLE>


                                       82



<PAGE>


<TABLE>
<CAPTION>
Exhibit
 Number                             Description of Document
-------                             -----------------------
<S>        <C>
10.6(b)    Amendment Number 1 dated January 20, 1997, to the Millennium
           Chemicals Inc. Annual Performance Plan (Filed as Exhibit 10.23(b) to
           the 1996 Form 10-K)*'D'

10.6(c)    Amendment Number 2 dated January 23, 1998, to the Millennium
           Chemicals Inc. Annual Performance Incentive Plan (Filed as Exhibit
           10.23(c) to the 1997 Form 10-K)*'D'

10.6(d)    Amendment Number 3 dated January 22, 1999, to the Millennium
           Chemicals Inc. Annual Performance Incentive Plan (Filed as Exhibit
           10.20(d) to the 1998 Form 10-K)*'D'

10.6(e)    Amendment Number 4 dated as of June 1, 2002, to the Millennium
           Chemicals Inc. Annual Performance Incentive Plan (Filed as Exhibit
           10.9(e) to the 2002 Form 10-K)*'D'

10.7(a)    Millennium Chemicals Inc. Long Term Stock Incentive Plan (Filed as
           Exhibit 10.25 to the Form 10)*'D'

10.7(b)    Amendment Number 1 to the Millennium Chemicals Inc. Long Term Stock
           Incentive Plan (Filed as Exhibit 10.6 to the Company's Quarterly
           Report on Form 10-Q for the quarter ended September 30, 1997)*'D'

10.7(c)    Amendment dated July 24, 1997 to the Millennium Chemicals Inc. Long
           Term Stock Incentive Plan (Filed as Exhibit 10.25(c) to the 1997
           Form 10-K)*'D'

10.7(d)    Amendments dated January 23, 1998 and December 10, 1998, to the
           Millennium Chemicals Inc. Long Term Stock Incentive Plan (Filed as
           Exhibit 10.23(d) to the 1998 Form 10-K)*'D'

10.7(e)    Amendment dated as of November, 2002, to the Millennium Chemicals
           Inc. Long Term Stock Incentive Plan*'D' (Filed as Exhibit 10.7(e) to
           the Company's Amendment No. 1 to the Annual Report on Form 10-K for
           the year ended December 31, 2003 (the "2003 Form 10-K/A")

10.8(a)    Amended and Restated Millennium Chemicals Inc. Supplemental Executive
           Retirement Plan (Filed as Exhibit 10.11(a) to the 2002 Form 10-K)*'D'

10.8(b)    Millennium Chemicals Inc. 2003 Supplemental Executive Retirement Plan
           (Filed as Exhibit 10.11(b) to the 2002 Form 10-K)*'D'

10.9(a)    Millennium Chemicals Grandfathered Supplemental Executive Retirement
           Plan (Filed as Exhibit 10.15(b) to the 2000 Form 10-K)*'D'

10.9(b)    Amendment dated as of November, 2002, to the Millennium Chemicals
           Grandfathered Supplemental Executive Retirement Plan*'D' (Filed as
           Exhibit 10.9(b) to the 2003 Form 10-K/A)

10.10(a)   Millennium Petrochemicals Grandfathered Supplemental Executive
           Retirement Plan (Filed as Exhibit 10.16 to the 2000 Form 10-K)*'D'

10.10(b)   Amendment dated as of November, 2002, to the Millennium
           Petrochemicals Grandfathered Supplemental Executive Retirement
           Plan*'D' (Filed as Exhibit 10.10(b) to the 2003 Form 10-K/A)

10.11(a)   Millennium Inorganic Chemicals Grandfathered Supplemental Executive
           Retirement Plan (Filed as Exhibit 10.17 to the 2000 Form 10-K)*'D'

10.11(b)   Amendment dated as of November, 2002, to the Millennium Inorganic
           Chemicals Inc. Grandfathered Supplemental Executive Retirement
           Plan*'D' (Filed as Exhibit 10.11(b) to the 2003 Form 10-K/A)

10.12(a)   Millennium Specialty Chemicals Grandfathered Supplemental Executive
           Retirement Plan (Filed as Exhibit 10.18 to the 2000 Form 10-K)*'D'

10.12(b)   Amendment dated as of November, 2002, to the Millennium Specialty
           Chemicals Inc. Grandfathered Supplemental Executive Retirement
           Plan*'D' (Filed as Exhibit 10.12(b) to the 2003 Form 10-K/A)

10.13(a)   Millennium Chemicals Inc. Salary and Bonus Deferral Plan (Filed as
           Exhibit 10.30 to the 1996 Form 10-K)*'D'

10.13(b)   Amendment Number 1 dated January 23, 1998, to the Millennium
           Chemicals Inc. Salary and Bonus Deferral Plan (Filed as
           Exhibit 10.30(b) to the 1997 Form 10-K)*'D'
</TABLE>


                                       83



<PAGE>


<TABLE>
<CAPTION>
Exhibit
 Number                             Description of Document
-------                             -----------------------
<S>        <C>
10.13(c)   Amendment Number 2 dated January 22, 1999, to the Millennium
           Chemicals Inc. Salary and Bonus Deferral Plan (Filed as
           Exhibit 10.28(c) to the 1998 Form 10-K)*'D'

10.13(d)   Amendment Number Three to the Millennium Chemicals Inc. Salary and
           Bonus Deferral Plan dated November 2002 (Filed as Exhibit 10.19(d) to
           the 2002 Form 10-K)*'D'

10.14(a)   Millennium Chemicals Inc. Supplemental Savings and Investment Plan
           (Filed as Exhibit 10.29 to the 1998 Form 10-K)*'D'

10.14(b)   Amendment to the Millennium Chemicals Inc. Supplemental Savings and
           Investment Plan (Filed as Exhibit 10.20(b) to the 2002 Form 10-K)*'D'
           (Filed as Exhibit 10.14(b) to the 2003 Form 10-K/A)

10.15      Millennium Chemicals Inc. 2003 Long Term Incentive Plan*'D'

10.16      Millennium Chemicals Inc. 2004 Long Term Incentive Plan*'D'

10.17      Millennium Chemicals Inc. 2003 Executive Long Term Executive Plan*'D'

10.18      Millennium Chemicals Inc. 2004 Executive Long Term Incentive Plan*'D'

10.19(a)   Millennium America Holdings Inc. Long Term Incentive Plan and
           Executive Long Term Incentive Plan Trust Agreement (Filed as
           Exhibit 10.23 to the 2000 Form 10-K)*'D'

10.19(b)   Amendment Number 1 to the Millennium America Holdings Inc. Long Term
           Incentive Plan Trust Agreement (Filed as Exhibit 10.23(b) to the 2002
           Form 10-K)*'D'

10.20(a)   Millennium Chemicals Inc. Omnibus Incentive Compensation Plan (Filed
           as Exhibit 10.24 to the 2000 Form 10-K)*'D'

10.20(b)   Form of Stock Option Agreement under Omnibus Incentive Compensation
           Plan (Filed as Exhibit 10.24(b) to the 2001 Form 10-K)*'D'

10.20(c)   Amendment to Millennium Chemicals Inc. 2001 Omnibus Incentive
           Compensation Plan (Filed as Exhibit 10.24(c) to the 2002
           Form 10-K)*'D'

10.20(d)   Amendment dated as of November, 2002, to the Millennium Chemicals
           Inc. 2001 Omnibus Incentive Compensation Plan*'D' (Filed as
           Exhibit 10.20(d) to the 2003 Form 10-K/A)

10.20(e)   Form of Millennium Chemicals Inc. 2001 Omnibus Incentive Compensation
           Plan Restricted Stock Award Agreement for Non-Employee Directors*'D'

10.20(f)   Form of Millennium Chemicals Inc. 2001 Omnibus Incentive Compensation
           Plan Performance Unit Award Agreement for International Officers and
           Key Employees*'D'

10.20(g)   Form of Millennium Chemicals Inc. 2001 Omnibus Incentive Compensation
           Plan Restricted Stock Award Agreement for International Officers and
           Key Employees*'D'

10.20(h)   Form of Millennium Chemicals Inc. 2001 Omnibus Incentive Compensation
           Plan Restricted Stock Award Agreement for Officers and Key
           Employees*'D'

10.21(a)   Master Transaction Agreement between the Company and Lyondell (Filed
           as an Exhibit to the Company's Current Report on Form 8-K dated
           July 25, 1997)*

10.21(b)   First Amendment to Master Transaction Agreement between Lyondell and
           the Company (Filed as an Exhibit to the Company's Current Report on
           Form 8-K dated October 17, 1997)*

10.22      Amended and Restated Limited Partnership Agreement of Equistar
           Chemicals, LP dated as of November 6, 2002 (Filed as Exhibit 10.26 to
           the Company's Current Report on Form 8-K dated November 25, 2002 (the
           "November 26, 2002 Form 8-K"))*

10.23(a)   Asset Contribution Agreement (the "Millennium Asset Contribution
           Agreement") among Millennium Petrochemicals, Millennium
           Petrochemicals LP LLC and Equistar (Filed as an Exhibit to the
           Company's Current Report on Form 8-K dated December 10, 1997)*

10.23(b)   First Amendment to the Millennium Asset Contribution Agreement dated
           as of May 15, 1998 (Filed as Exhibit 10.23(b) to the 1999 Form 10-K)*

10.23(c)   Second Amendment to the Asset Contribution Agreement among Millennium
           Chemicals Inc., Millennium Petrochemicals LP LLC, and Equistar
           Chemicals, LP (Filed as Exhibit 10.27(c) to the 2002 Form 10-K)*
</TABLE>


                                       84



<PAGE>


<TABLE>
<CAPTION>
Exhibit
 Number                             Description of Document
-------                             -----------------------
<S>        <C>
10.24      Amended and Restated Parent Agreement among Lyondell, the Company and
           Equistar, dated as of November 6, 2002, (Filed as Exhibit 10.29 to
           the November 26, 2002 8-K)*

21.1       Subsidiaries of the Company*

23.2       Consent of PricewaterhouseCoopers LLP **

31.1       Certificate of Principal Executive Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002**

31.2       Certificate of Principal Financial Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002**

32.1       Certificate of Principal Executive Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002** (Furnished, not filed, in accordance
           with Item 601(b)(32)(ii) of Regulation S-K, 17 CFR
           229.601(b)(32)(ii))

32.2       Certificate of Principal Financial Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002** (Furnished, not filed, in accordance
           with Item 601(b)(32)(ii) of Regulation S-K, 17 CFR
           229.601(b)(32)(ii))

99.1       Information relevant to forward-looking statements*
</TABLE>

In addition, the Company hereby agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of any instrument not listed above that defines
the rights of the holders of long-term debt of the Company and its subsidiaries.

----------
*    Incorporated by reference.

**   Filed or furnished herewith.

'D'  Management contract or compensatory plan or arrangement required to be
     filed pursuant to Item 14(c).

(b)  Reports on Form 8-K

Current Reports on Form 8-K dated November 18, 2003, November 20, 2003, November
25, 2003, December 15, 2003 and February 4, 2004 were filed or furnished during
the quarter ended December 31, 2003 and through March 12, 2004, the date the
original Annual Report on Form 10-K was filed with the Securities and Exchange
Commission.


                                       85



<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             MILLENNIUM CHEMICALS INC.


                                             By: /s/ ROBERT E. LEE
                                                 -------------------------------
                                                    Robert E. Lee
                                                    President and
                                                Chief Executive Officer

August 9, 2004


                                       86



<PAGE>


                                  Exhibit Index

<TABLE>
<CAPTION>
Exhibit
 Number                             Description of Document
-------                             -----------------------
<S>        <C>
23.2       Consent of PricewaterhouseCoopers LLP

31.1       Certificate of Principal Executive Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002

31.2       Certificate of Principal Financial Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002

32.1       Certificate of Principal Executive Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002 (Furnished, not filed, in accordance
           with Item 601(b)(32)(ii) of Regulation S-K, 17 CFR
           229.601(b)(32)(ii))

32.2       Certificate of Principal Financial Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002 (Furnished, not filed, in accordance
           with Item 601(b)(32)(ii) of Regulation S-K, 17 CFR
           229.601(b)(32)(ii))
</TABLE>








                          STATEMENT OF DIFFERENCES

Characters normally expressed as subscript shall be preceded by............ [u]
The dagger symbol shall be expressed as.................................... 'D'
The section symbol shall be expressed as....................................'SS'











<Page>

                                                                     SCHEDULE II

                           MILLENNIUM CHEMICALS INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                    For the Years Ended 2001, 2002 and 2003
                              Dollars in millions

<Table>
<Caption>

                                                                                   Additions
                                                                            -----------------------
                                                               Balance      Charged to   Charged to                    Balance at
                                                             at Beginning   Costs and      Other                         End of
                                                               of Year       Expenses     Accounts      Deductions        Year
                                                               -------       --------     --------      ----------        ----
<S>                                                          <C>            <C>          <C>            <C>            <C>
Year ended December 31, 2001
   Deducted from asset accounts:
   Allowance for doubtful accounts.........................      $ 4            $4          $--            $ (1)(a)       $ 7
   Valuation allowance for deferred tax assets.............       79            --            8(b)          (61)(c)        26
Year ended December 31, 2002
   Deducted from asset accounts:
   Allowance for doubtful accounts.........................        7            --           --              --             7
   Valuation allowance for deferred tax assets.............       26            --           15(d)           (6)(c)        35
Year ended December 31, 2003
   Deducted from asset accounts:
   Allowance for doubtful accounts.........................        7             1            1              --             9
   Valuation allowance for deferred tax assets.............       35            --           62(e)           --            97
</Table>

---------

(a) Uncollected accounts written off, net of recoveries.

(b) Valuation allowance related to the Company's state net operating loss
    carryforwards.

(c) Portion of underlying capital loss carryover expired.

(d) Valuation allowance of $10 million related to the net deferred tax assets of
    the Company's French subsidiaries and $5 million related to the Company's
    state net operating loss carryforwards.

(e) Valuation allowance increases and foreign currency translation impact
    totaling $59 million related to the deferred tax assets of the Company's
    French subsidiaries and valuation allowance increases of $3 million related
    to the Company's state net operating loss carryforwards.








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