<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

                                   ----------

[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

     Portions of the registrant's definitive Proxy Statement relating to the
2004 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission, are incorporated by reference in Part III of this Annual
Report on Form 10-K as indicated herein.






<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

Item                                                                                 Page
----                                                                                 ----
<S>                                                                                   <C>
                                     PART I

1. Business.......................................................................      5

2. Properties.....................................................................     23

3. Legal Proceedings..............................................................     23

4. Submission of Matters to a Vote of Security Holders............................     26

                                     PART II

5. Market for the Registrant's Common Equity and Related Shareholder Matters......     27

6. Selected Financial Data........................................................     27

7. Management's Discussion and Analysis of Financial Condition and Results of
      Operations..................................................................     29

7A. Quantitative and Qualitative Disclosures about Market Risk....................     55

8.  Financial Statements and Supplementary Data...................................     56

9.  Changes in and Disagreements with Accountants on Accounting and Financial
       Disclosure.................................................................    100

9A. Controls and Procedures.......................................................    100

                                    PART III

10. Directors and Executive Officers of the Registrant............................    101

11. Executive Compensation........................................................    101

12. Security Ownership of Certain Beneficial Owners and Management................    101

13. Certain Relationships and Related Transactions................................    101

14. Principal Accountant Fees and Services........................................    101

                                    PART IV

15. Exhibits, Financial Statement Schedule and Reports on Form 8-K................    102

    Signatures....................................................................    107
</TABLE>

Disclosure Concerning Forward-Looking Statements

     The statements in this Annual Report on Form 10-K (the "Annual Report")
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, Millennium Chemicals Inc. and its majority-owned
subsidiaries (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.


                                       2




<PAGE>

     These forward-looking statements are only present expectations as at the
time of this filing. Actual events or results may differ materially. Factors
that could cause such a difference include:

     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 this Annual Report.

     Some of these Cautionary Statements are discussed in more detail under
"Business" and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this Annual Report. Readers are cautioned not to
place undue reliance on forward-looking or Cautionary Statements, which reflect
management's opinions only as of the date hereof. 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 Annual Report. 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


                                       3




<PAGE>

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 I

Item 1. Business

     The Company is a major international chemical company, with leading market
positions in a broad range of commodity, industrial, performance and specialty
chemicals.

     The Company has three business segments: Titanium Dioxide and Related
Products, Acetyls, and Specialty Chemicals. The Company also owns a 29.5%
interest in Equistar, a partnership between the Company and Lyondell Chemical
Company ("Lyondell"). The Company accounts for its interest in Equistar as an
equity investment.

     The Company has leading market positions in the United States and the
world:

     o    Through its Titanium Dioxide and Related Products business segment,
          the Company is the second-largest producer of titanium dioxide
          ("TiO[u]2") in the world, with manufacturing facilities in the United
          States, the United Kingdom, France, Brazil and Australia. The Company
          is also the largest merchant seller of titanium tetrachloride
          ("TiCl[u]4") in North America and Europe and a major producer of
          zirconia, silica gel and cadmium-based pigments;

     o    Through its Acetyls business segment, the Company is the
          second-largest producer of vinyl acetate monomer ("VAM") and acetic
          acid in North America, and through its 85% interest in La Porte
          Methanol Company, LP ("La Porte Methanol Company"), a partner in a
          leading US producer of methanol;

     o    Through its Specialty Chemicals business segment, the Company is a
          leading producer of terpene-based fragrance and flavor chemicals;

     o    Through its 29.5% interest in Equistar, the Company is a partner in
          the second-largest producer of ethylene and the third-largest producer
          of polyethylene in North America, and a leading producer of
          performance polymers, oxygenated chemicals, aromatics and specialty
          petrochemicals.

     The Company manages its operations under an operational excellence business
model, focused on optimizing cash flow while providing resources for disciplined
growth. As a result of a strategic review completed in mid-2003, and a cost
reduction program that was implemented as a result of that review, the Company
identified and communicated three priorities for the near to medium term: 1)
achieving a world class cost position in its core businesses; 2) focusing on
earning its customers' business with highly competitive products and services;
and 3) improving financial flexibility through debt reduction. These priorities
provide the foundation for the Company's management structures, work processes,
and pay practices.

     The Company was incorporated in Delaware on April 18, 1996 and became a
publicly traded company following its demerger (i.e., spin-off) from Hanson plc
("Hanson"), a company incorporated in the United Kingdom, on October 1, 1996
(the "Demerger"). The Company's principal executive offices are located at 20
Wight Avenue, Suite 100, Hunt Valley, MD 21030. Its telephone number is (410)
229-4400 and its fax number is (410) 229-5003. Its website is
http://www.millenniumchem.com. The Company's Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements
and all amendments thereto are available free of charge through the Company's
website as soon as reasonably practicable after they are electronically filed
with or furnished to the Securities and Exchange Commission. Information
contained on the Company's website is not incorporated into this Annual Report
and does not constitute a part of this Annual Report.


                                       5




<PAGE>

     In this Annual Report:

     o    References to the Company are to Millennium Chemicals Inc., including
          its consolidated subsidiaries, except as the context otherwise
          requires.

     o    References to "tpa" are to metric tons per annum (a metric ton is
          equal to 1,000 kilograms or 2,204.6 pounds).

     o    References to the Company's and Equistar's market positions, with the
          exception of the Company's market position in the Specialty Chemicals
          business segment, are based on estimates of their respective
          production capacities, as compared to the production capacities of
          other industry participants. The reference to the Company's market
          position with respect to the Specialty Chemicals business segment is
          based on sales volumes of the Specialty Chemicals business segment, as
          compared to the estimated sales volumes of its competitors.

     o    Estimates of the Company's and Equistar's production capacities are
          based upon engineering assessments made by the Company and Equistar,
          respectively, and estimates of the production capacities and sales
          volumes of other industry participants are based on available
          information from a variety of sources. Actual production may vary
          depending on a number of factors including feedstocks, product mix,
          unscheduled maintenance and demand.

                                Business Segments

     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 selling, development and
administrative ("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 Annual Report), are
grouped under the heading Other. See Note 16 to the Consolidated Financial
Statements included in this Annual Report. The Company's 29.5% interest in
Equistar is accounted for under the equity method. See Notes 1 and 4 to the
Consolidated Financial Statements included in this Annual Report.

     The Company's Titanium Dioxide and Related Products segment is operated
through Millennium Inorganic Chemicals Inc. and its non-United States affiliates
(collectively, "Millennium Inorganic Chemicals"). Third party equity investors
own a minority interest in Millennium Inorganic Chemicals Do Brasil S.A.
("Millennium Brasil"), which is one of the non-United States affiliates of the
Titanium Dioxide and Related Products segment. The Company's Acetyls segment is
operated through Millennium Petrochemicals Inc. ("Millennium Petrochemicals"),
and the Company's Specialty Chemicals segment is operated through Millennium
Specialty Chemicals Inc. ("Millennium Specialty Chemicals"). In addition to its
29.5% interest in Equistar, the Company owns an 85% interest in La Porte
Methanol Company, a Delaware limited partnership, which owns a methanol plant
located in La Porte, Texas and certain related facilities that were contributed
to the partnership by Millennium Petrochemicals. La Porte Methanol Company is
included in the Company's Consolidated Financial Statements.

                               Principal Products

     The following is a description of the principal products of each of the
Company's three business segments:

<TABLE>
<CAPTION>
                   Product                                    Uses
                   -------                                    ----
<S>                                             <C>
Titanium Dioxide and Related Products:
   Titanium dioxide ("TiO[u]2")..............   A white pigment used to provide
                                                whiteness, brightness, opacity
                                                and durability in paint and
                                                coatings, plastics, paper and
                                                elastomers.

   Titanium tetrachloride ("TiCl[u]4").......   The intermediate product used in
                                                making TiO[u]2. TiCl[u]4 is also
                                                used for: the manufacture of
                                                titanium metal, which is used to
                                                make a wide variety of products
                                                including eyeglass frames,
                                                aerospace parts and golf clubs;
                                                the manufacture of catalysts and
                                                specialty pigments; and as a
                                                surface treatment for glass.
</TABLE>


                                       6




<PAGE>

<TABLE>
<CAPTION>
                   Product                                    Uses
                   -------                                    ----
<S>                                             <C>
   Zirconium-based compounds and chemicals...   Chemicals used in coloring for
                                                ceramics, in pigment surface
                                                treatment, solid oxide fuel
                                                cells and to enhance optics.

   Ultra-fine TiO[u]2........................   Nanoparticle and ultra-fine
                                                products used in optical,
                                                electronic, catalyst and
                                                ultra-violet absorption
                                                applications.

   Silica gel................................   Inorganic product used to reduce
                                                gloss and control flow in
                                                coatings. Also used to stabilize
                                                beer and extend the shelf life
                                                of plastic films, powdered food
                                                products and pharmaceuticals.

   Cadmium-based pigments....................   Inorganic colors used in
                                                engineered plastics, artists'
                                                colors, ceramics, inks,
                                                automotive refinish coatings,
                                                coil and extrusion coatings,
                                                aerospace coatings and specialty
                                                industrial finishes.

   Zircon Sand ("Zircon")....................   A coarse fine white mineral
                                                powder used in refractory
                                                material, ceramic material and
                                                foundry sand.

Acetyls:
   Vinyl acetate monomer.....................   A petrochemical product used to
                                                produce a variety of polymers
                                                products used in adhesives,
                                                water-based paint, textile
                                                coatings and paper coatings.

   Acetic acid...............................   A feedstock used to produce
                                                vinyl acetate monomer,
                                                terephthalic acid (used to
                                                produce polyester for textiles
                                                and plastic bottles), industrial
                                                solvents, and a variety of other
                                                chemicals.

   Methanol..................................   A feedstock used to produce
                                                acetic acid; methyl tertiary
                                                butyl ether ("MTBE"), a gasoline
                                                additive; formaldehyde; and
                                                several other products. The
                                                Company is a producer of
                                                methanol through its 85%
                                                interest in La Porte Methanol
                                                Company.

Specialty Chemicals:
   Terpene fragrance chemicals...............   Individual components that are
                                                blended to make fragrances used
                                                in detergents, soaps, perfumes,
                                                personal-care items and
                                                household goods.

   Flavor chemicals..........................   Individual components that are
                                                blended to impart or enhance
                                                flavors used in toothpaste,
                                                chewing gum and other consumer
                                                products.
</TABLE>

     For a description of Equistar's principal products, see "Equity Interest in
Equistar" below.

                      Titanium Dioxide and Related Products

Titanium Dioxide

     The Company is the second-largest producer of TiO[u]2 in the world, based
on reported production capacities. TiO[u]2 is a white pigment used for imparting
whiteness, brightness, opacity and durability in a wide range of products,
including paint and coatings, plastics, paper and elastomers.

     As of the date of this report, the Company's annual production capacity,
using the chloride process and the sulfate process discussed below, is
approximately 690,000 metric tons per annum.

     The Company has decided to rationalize certain equipment at its Le Havre,
France plant in the second quarter of 2004, which will result in the reduction
of the rated capacity for that plant from 95,000 metric tons per annum to 65,000
tons per annum. This rationalization will include the idling of certain
equipment. In addition to the Le Havre plant reduction, in the second quarter of
2004, the Company will also recognize an aggregate gain of 10,000


                                       7




<PAGE>

metric tons per annum of production capacity at its Ashtabula, Ohio and
Australian chloride plants, due primarily to reliability improvements made with
a limited investment in those plants. Therefore, in the second quarter of 2004,
the Company's total net reduction of production capacity for TiO[u]2 will
be 20,000 metric tons per annum. The rated capacities provided in the table
below reflect both the reduction of capacity at the Le Havre plant and the
increase in capacity at the Ashtabula, Ohio and Australian plants.

                   Millennium Chemicals' TiO[u]2 Rated Capacity
                             (metric tons per annum)

<TABLE>
<CAPTION>
                                                                      Percentage
Process                                                   Capacity   of Capacity
-------                                                   --------   -----------
<S>                                                        <C>           <C>
Chloride...............................................    515,000        77%
Sulfate................................................    155,000        23%
                                                          --------   -----------
   Total...............................................    670,000       100%
</TABLE>

     TiO[u]2 is produced in two crystalline forms: rutile and anatase. Rutile
TiO[u]2 is a more tightly packed crystal that has a higher refractive index than
anatase TiO[u]2 and, therefore, better opacification and tinting strength in
many applications. Some rutile TiO[u]2 products also provide better resistance
to the harmful effects of weather. Rutile TiO[u]2 is the preferred form for
use in paint and coatings, ink and plastics. Anatase TiO[u]2 has a bluer
undertone and is less abrasive than rutile. It is often preferred for use in
paper, ceramics, rubber and man-made fibers.

     TiO[u]2 producers process titaniferous ores to extract a white pigment
using one of two different technologies. The sulfate process is a wet chemical
process that uses concentrated sulfuric acid to extract TiO[u]2, in either
anatase or rutile form. The sulfate process generates higher volumes of waste
materials, including iron sulfate and spent sulfuric acid. The newer chloride
process is a high-temperature process in which chlorine is used to extract
TiO[u]2 in rutile form, with greater purity and higher control over the size
distribution of the pigment particles than the sulfate process permits. In
general, the chloride process is also less intensive than the sulfate process
in terms of capital investment, labor and energy. Because much of the chlorine
can be recycled, the chloride process produces less waste subject to
environmental regulation. Once an intermediate TiO[u]2 pigment has been
produced by either the chloride or sulfate process, it is "finished" into a
product with specific performance characteristics for particular end-use
applications through proprietary processes involving surface treatment with
various chemicals and combinations of milling and micronizing.

     The Company's TiO[u]2 plants are located in the four major world markets
for TiO[u]2: North America, South America, Western Europe and the Asia/Pacific
region. The North American plants, consisting of one in Baltimore, Maryland and
two in Ashtabula, Ohio have aggregate production capacities of 265,000 tpa using
the chloride process. The plant in Salvador, Bahia, Brazil has a capacity to
produce approximately 60,000 tpa using the sulfate process. The Company also
owns a mineral sands mine located at Mataraca, Paraiba, Brazil, which supplies
the Brazilian plant with titanium ores. The mine has over two million metric
tons of recoverable reserves and a capacity to produce over 120,000 tpa of
ilmenite (titanium-bearing ore), which is generally consumed in the Salvador
TiO[u]2 plant, and 19,000 tpa of zircon and 2,000 tpa of natural rutile
titanium ore, which are sold to third parties. The Company's Stallingborough,
United Kingdom plant has chloride-process production capacity of 150,000 tpa.
The plants in France at Le Havre, Normandy and Thann, Alsace have
sulfate-process capacities of 65,000 tpa and 30,000 tpa, respectively. The
Kemerton plant in Western Australia has chloride-process production capacity
of 100,000 tpa.

     The Company's TiO[u]2 plants operated at an average rate of 89%, 89% and
85% of installed capacity during 2003, 2002 and 2001, respectively. Production
volumes for 2003 and 2002 were similar. The increase in the operating rate in
2002 compared to the rate in 2001 was primarily due to higher production driven
by increased market demand.

     Titanium-bearing ores used in the TiO[u]2 extraction process (ilmenite,
leucoxene and natural rutile) occur as mineral sands and hard rock in many parts
of the world. Mining companies increasingly treat ilmenite to extract iron and
other minerals and produce slag or synthetic rutile with higher TiO[u]2
concentrations, resulting in lower amounts of wastes and by-products during the
TiO[u]2 production process. Ores are generally shipped by bulk carriers from
terminals in the country of origin to TiO[u]2 production plants, usually
located near port facilities. The Company obtains ores from a number of
suppliers in South Africa, Australia, Canada, Brazil, and Ukraine, generally
pursuant to one- to six-year supply contracts expiring in 2004 through 2006.
Rio Tinto Iron & Titanium Inc. (through its affiliates Richards Bay Iron &
Titanium (Proprietary) Limited and QIT-Fer et Titane Inc.) and Iluka Resources


                                       8




<PAGE>

Limited are the world's largest producers of titanium ores and upgraded
titaniferous raw materials and accounted for approximately 71% of the titanium
ores and upgraded titaniferous raw materials purchased by the Company in 2003.

     Other major raw materials and utilities used in the production of TiO[u]2
are chlorine, caustic soda, petroleum and metallurgical coke, aluminum, sodium
silicate, sulfuric acid, oxygen, nitrogen, natural gas and electricity. The
number of sources for and availability of these materials is specific to the
particular geographic region in which the facility is located. For the Company's
Australian plant, chlorine and caustic soda are obtained exclusively from one
supplier under a long-term supply agreement. There are certain risks related to
the acquisition of raw materials from less-developed or developing countries.

     A number of the raw materials used by the Company in the production of
TiO[u]2 are provided by only a few vendors and, accordingly, if one significant
supplier or a number of significant suppliers were unable to meet their
obligations under present supply arrangements, the Company could suffer reduced
supplies and/or be forced to incur increased prices for these raw materials.
Such an event could have a material adverse effect on the consolidated financial
condition, results of operations and cash flows of the Company. At the present
time, chloride- and sulfate-process feedstock is available in sufficient
quantities.

     Of the total 591,000 metric tons of TiO[u]2 sold by the Company in 2003,
approximately 61% was sold to customers in the paint and coatings industry,
approximately 24% to customers in the plastics industry, approximately 14% to
customers in the paper industry, and approximately 1% to other customers. The
Company's ten largest customers accounted for approximately 40% of its TiO[u]2
sales volume in 2003. The Company experiences some seasonality in its sales
because, in general, its customers' sales of paint and coatings are greatest in
the spring and summer months.

     TiO[u]2 is sold by the Company either directly to its customers or, to a
lesser extent, through agents or distributors. TiO[u]2 is distributed by rail,
truck and ocean carrier in either dry or slurry form.

     The global markets for TiO[u]2 and related products are highly competitive.
The Company competes primarily on the basis of price, product quality and
service. Certain of the Company's competitors are more vertically integrated
than the Company, producing titanium-bearing ores as well as TiO[u]2. The
Company is vertically integrated at its Brazilian facility, which owns a
titanium ore mine that supplies that facility. The Company's major competitors
in the TiO[u]2 business are E. I. Du Pont de Nemours and Company ("DuPont");
Kerr-McGee Chemical Corporation (both directly and through various joint
ventures) ("Kerr-McGee Chemicals"), a unit of Kerr-McGee Corporation; Huntsman
Tioxide ("Huntsman"), a business segment of Huntsman International LLC; and
Kronos Worldwide, Inc. ("Kronos"), a majority-owned subsidiary of NL Industries
Inc. Collectively, DuPont, the Company, Kerr-McGee Chemicals, Huntsman and
Kronos account for approximately three-quarters of the world's production
capacity.

     In certain applications, TiO[u]2 competes with other whitening agents that
are generally less effective but less expensive. These alternate products
include kaolin clays, calcium carbonate pigments, both ground and precipitated
forms, and synthetic polymers materials. New plant capacity additions in the
TiO[u]2 industry are slow to develop because of the substantial capital
expenditure required and the significant lead time (three to five years
typically for a new plant) needed for planning, obtaining environmental
approvals and permits, construction of manufacturing facilities and arranging
for raw material supplies. Debottlenecking and other capacity expansions at
existing plants require substantially less time and capital and can increase
overall industry capacity. As of the date of this report, no major new plant
capacity additions or expansions have been announced in the TiO[u]2 industry.

Related Products

     The Company produces a number of specialty and performance TiO[u]2-related
products, some of which are manufactured at dedicated plants and others of which
are manufactured at plants that also produce other TiO[u]2 products.

     Titanium Tetrachloride: The Company is the largest merchant seller of
TiCl[u]4 in North America and Europe. It produces TiCl[u]4 for merchant sales at
its plants in Ashtabula, Ohio and Thann, Alsace, France. TiCl[u]4 is distributed
by rail and truck as anhydrous TiCl[u]4 and as an aqueous solution, titanium
oxychloride. These products are sold into a wide variety of markets, including
the titanium metal, catalyst, pearlescent pigment and surface treatment markets.
The Company's principal competitors in the TiCl[u]4 market are Toho Titanium Co.
and Kronos.

     Ultra-fine TiO[u]2 Products: Ultra-fine TiO[u]2 products are produced at
the Company's plant in Thann, Alsace, France. These non-pigmentary products
with a particle size of less than 150 nanometers in size are produced and


                                       9




<PAGE>

sold for their physio-chemical characteristics in various applications. The
Company is a major supplier of ultra-fine TiO[u]2 used to remove nitrogen oxides
from power plant emissions. The principal competitors in the ultra-fine TiO[u]2
products market are Ishihara Sangyo Kaisha, Ltd., Kerr-McGee Chemicals, and
Tayca Corporation.

     Zirconium-based Compounds and Chemicals: A wide range of zirconium products
is produced at the Company's Rockingham, Western Australia plant. These products
are sold globally into the electronics, catalyst, glass, solid oxide fuel cells
and colored pigments markets. In addition, zirconium dioxide is sold internally
to the Company's TiO[u]2 operations and to other TiO[u]2 producers to enhance
the durability and treat the surfaces of various TiO[u]2 products. The Company's
principal competitors in this market are Daiichi Kigenso Kagakukgyo Co., Ltd.
and MEL Chemicals, a subsidiary of Luxfer Holdings, PLC.

     Silica Gel: The Company produces several grades of fine-particle silica gel
at the St. Helena plant in Baltimore, Maryland, and markets them
internationally. Fine-particle silica gel is a chemically and biologically inert
form of silica with a particle size ranging from three to ten microns. The
Company's SiLCRON'r' brand of fine-particle silica gel is used in coatings as a
flatting or matting (gloss reduction) agent and to provide mar-resistance.
SiLCRON'r' is also used in food and pharmaceutical applications. SiL-PROOF'r'
grades of fine-particle silica gel are chill-proofing agents used to stabilize
chilled beer and prevent clouding. Fine-particle silica gel is distributed in
dry form in palletized bags by truck and ocean carrier. The Company's principal
competitors in this market are W.R. Grace & Co., Ineos Silicas, The PQ
Corporation, and Fuji Silysia Ltd.

     Cadmium-based Pigments: The Company manufactures a line of cadmium-based
colored pigments at its St. Helena, Maryland plant, and markets them
internationally. In addition to their brilliance, cadmium colors are light and
heat stable. These properties promote their use in such applications as artists'
colors, plastics and glass colors. Due to concern for the toxicity of heavy
metals, including cadmium, the Company has introduced low-leaching cadmium-based
pigments that meet all United States government requirements for landfill
disposal of non-hazardous waste. Colored pigments are distributed in dry form in
drums by truck and ocean carrier. The principal competitor in this market is
Johnson Matthey plc.

     Zircon: Zircon is a coproduct of titanium minerals production mined at the
Company's Mataraca, Paraiba, Brazil mineral sands mine. Zircon is stable to very
high temperatures and insoluble in water, dilute acids and hot concentrated
sulfuric acid. Zircon is used primarily as an opacifier in the ceramics industry
(particularly in ceramic tiles) and is also sold to molders for use in
refractory and foundry applications. The Company's principal competitor in this
market is INB.

                                     Acetyls

     The following table sets forth information concerning the Company's annual
production capacity, as of the date of this report, for its principal Acetyls
products:

                  Millennium Chemicals' Acetyls Rated Capacity
                         (millions of pounds per annum)

<TABLE>
<CAPTION>
Product                                                                 Capacity
-------                                                                 --------
<S>                                                                       <C>
Vinyl Acetate Monomer ("VAM")........................................       850
Acetic Acid..........................................................     1,200
</TABLE>

     The Company also owns an 85% interest in La Porte Methanol Company, which
owns a methanol plant with an annual production capacity of 207 million gallons
per annum. For a description of the plant and La Porte Methanol Company, see "La
Porte Methanol Company" below.

Vinyl Acetate Monomer

     The Company is the second-largest producer of VAM in North America, and the
third-largest producer worldwide, based on reported production capacities. Its
VAM plant is located next to the Company's acetic acid plant at La Porte, Texas.
The process used by the Company to produce VAM is proprietary.

     The principal feedstocks for the production of VAM are acetic acid and
ethylene. The Company obtains its entire requirements for acetic acid from its
internal production and buys all of its ethylene requirements from Equistar
under a long-term supply contract based on market prices.


                                       10




<PAGE>

     The Company has a long-term agreement with DuPont to convert acetic acid
produced at the Company's La Porte, Texas plant into VAM through DuPont's nearby
VAM plant and to acquire all the VAM production at DuPont's plant not utilized
internally by DuPont. The contract expires on December 31, 2006 but may be
extended by mutual agreement thereafter from year-to-year. The conversion
agreement increases the Company's effective VAM capacity to approximately 11% of
the world's installed capacity.

     The Company sells VAM into domestic and export markets under contracts that
range in term from one to seven years, as well as on a spot basis. The majority
of sales are completed under contract. The pricing for domestic contracts
generally is determined by formula or index-based pricing in accordance with
movements in the costs of raw materials. The Company also sells VAM to Equistar
pursuant to a yearly contract at a formula-based price. Equistar has provided
notice to the Company that it will terminate this contract on December 31, 2004.
The Company ships this product by barge, ocean-going vessel, pipeline, tank car
and tank truck. The Company has bulk storage arrangements for VAM in the
Netherlands, the United Kingdom, Italy, Turkey and several Asian countries to
better serve its customers' requirements in those regions. Sales are made
through the Company's direct sales force and through agents and distributors.
The Company's ten largest VAM customers accounted for approximately 71% of
its VAM sales volume in 2003.

     The global market for VAM is highly competitive. The Company competes
primarily on the basis of price, product quality and service. The Company's
principal competitors in the VAM business are Celanese AG ("Celanese"); BP
p.l.c. ("BP"); Dow Chemical Company ("Dow"); Acetex Chemie S.A., a subsidiary of
Acetex Corporation ("Acetex"); and Dairen Chemical Corporation.

Acetic Acid

     The Company is the second-largest producer of acetic acid in North America,
and the third-largest producer worldwide, based on reported production
capacities. Its acetic acid plant is located at La Porte, Texas, near its VAM
plant. In 2003, the Company used approximately 54% of its acetic acid production
to produce VAM. The Company utilizes proprietary technology to produce acetic
acid.

     The principal raw materials required for the production of acetic acid are
carbon monoxide and methanol. The Company purchases its carbon monoxide from
Linde AG ("Linde") pursuant to a long-term contract under which pricing is based
primarily on cost of production. Linde produces this carbon monoxide at its
synthesis gas ("syngas") plant at La Porte, Texas. La Porte Methanol Company,
85% owned by the Company, and 15% owned by Linde, supplies all of the Company's
requirements for methanol. See "La Porte Methanol Company" below.

     Acetic acid not consumed internally by the Company for the production of
VAM is sold into domestic and export markets under contract and on a spot basis.
Contracts range in term from one to five years. Pricing for domestic sales under
these contracts generally is determined by formula or index-based pricing in
accordance with movements in the costs of raw materials. Acetic acid is shipped
by ocean-going vessel, barge, tank car and tank truck. Sales are made through
the Company's direct sales force and through agents and distributors. The top
ten customers accounted for approximately 71% of the Company's acetic acid
sales volume in 2003.

     The global market for acetic acid is highly competitive. The Company
competes primarily on the basis of price, product quality and service. The
Company's principal competitors in the acetic acid business are Celanese, BP,
Kyodo Sakusan, Acetex and Eastman Chemical Company ("Eastman").

                               Specialty Chemicals

     The Company is one of the world's leading producers of terpene-based
fragrance ingredients and a major producer of flavor ingredients, primarily for
the oral care markets. In addition, the Company supplies products for a number
of other applications, including chemical reaction agents, or initiators, for
the rubber industry and solvents and cleaners, like pine oil, for the hard
surface cleaner markets.

     The Company operates manufacturing facilities in Jacksonville, Florida and
Brunswick, Georgia. The Jacksonville site has facilities for the fractionation
of crude sulfate turpentine ("CST"), the key raw material used by the Company
for the production of fragrance ingredients. Through fractionation, the
components of CST are separated into relatively pure individual materials, such
as alpha- and beta-pinene. The Company believes it is the largest purchaser and
distiller of CST in the world, based on the amount of CST processed.
Sophisticated chemical processes are then used to produce a number of fragrance
and flavor ingredients.

     The Jacksonville facility also produces synthetic pine oil, anethole,
l-carvone and coolants. Synthetic pine oil is an active ingredient in cleaning
products. Anethole is a flavor ingredient and sweetener used in mint


                                       11




<PAGE>

formulations, primarily in the oral care market. L-carvone is the primary
component in spearmint oil and is used in flavor formulations. Coolants are used
in confectionery, oral care and other food and personal care applications. The
Brunswick site produces linalool, geraniol and dihydromyrcenol from the
alpha-pinene component of CST. Linalool, geraniol and dihydromyrcenol are used
in a wide range of fragrance applications including soaps, detergents and fine
fragrances. Linalool and geraniol are produced utilizing a proprietary and, the
Company believes, unique technology. Linalool and geraniol produced at the
Brunswick site are generally further processed at the Jacksonville site to
produce fragrance ingredients, including linalyl and geranyl acetate,
citronellol and dimethyloctanol. The Company believes, based on production
capacity, it operates the world's largest dihydromyrcenol facility at Brunswick,
with a rated annual capacity of over three thousand tons.

     CST is a by-product of the kraft papermaking process. The Company purchases
CST from approximately 30 pulp mills in North America. These purchases are made
under long-term contracts in order to ensure a stable supply of CST.
Additionally, the Company purchases quantities of gum turpentine or its
derivatives from Indonesia, China and other Asian countries, Europe and South
America, as business conditions dictate.

     Fragrance ingredients are used primarily in the production of perfumes. The
major consumers of perfumes worldwide are soap and detergent manufacturers. The
Company sells directly worldwide to major soap, detergent and fabric conditioner
producers. It also sells a significant quantity of product to the major
fragrance compounders and to producers of cosmetics and toiletries.
Approximately 68% of the Company's specialty chemical sales are to users of
fragrance ingredients, 23% are to users of flavor ingredients, and 9% are to
users of solvents and cleaners and industrial specialties. Approximately 60% of
the Company's 2003 specialty chemicals sales were made outside the United States
to approximately 49 different countries. Sales are made primarily through the
Company's direct sales force, while agents and distributors are used in outlying
areas where volume does not justify full-time sales coverage.

     The markets in which the Company's Specialty Chemicals business segment
competes are highly competitive. The Company competes primarily on the basis of
price, quality, service and on its ability to produce its products to the
technical and quality specifications of its customers. The Company works closely
with many of its customers in developing products to satisfy specific
requirements of those customers. The Company's supply agreements with customers
are typically short-term in duration (up to one year). Therefore, its Specialty
Chemicals business segment is substantially dependent on long-term customer
relationships based upon quality, innovation and customer service. From time to
time, a customer may change the formulations of an end product in which one of
the Company's fragrance ingredients is used, which may affect demand for that
ingredient. The top ten customers accounted for approximately 57% of the
Company's Specialty Chemicals business segment revenue in 2003. The major
Specialty Chemicals competitors are BASF AG, Givaudan SA, Derives Resiniques Et
Terpeniques (DRT), Kuraray Co. LTD and International Flavors & Fragrances Inc.

                            Research and Development

     The Company's expenditures for research and development totaled $21
million, $20 million and $20 million in 2003, 2002 and 2001, respectively.
Research and development expense increased by approximately $1 million from 2002
to 2003 due to the Company's intensified focus on product quality and
improvement. The Company conducts research at its facilities in Baltimore,
Maryland; Stallingborough, United Kingdom; Bunbury, Western Australia; Le Havre,
France and Jacksonville, Florida. The Company's research efforts are principally
focused on improvements in process technology, product development, technical
service to customers, applications research and product quality enhancements.

                             International Exposure

     The Company generates revenue from export sales (i.e., sales from within
the United States to foreign customers), as well as revenue from those of the
Company's operations that are conducted outside the United States. Export sales,
which are made to more than 90 countries, amounted to approximately 16%, 14% and
13% of total revenues in 2003, 2002 and 2001, respectively. Revenue from
non-United States operations amounted to approximately 46%, 45% and 41% of total
revenues in 2003, 2002 and 2001, respectively, principally reflecting the
operations of the Company's Titanium Dioxide and Related Products business
segment in Europe, Australia and Brazil. Identifiable assets of the non-United
States operations represented 41% and 36% of total identifiable assets at
December 31, 2003 and 2002, respectively, principally reflecting the assets of
these operations. Identifiable assets of non-United States operations as a
percentage of the Company's total assets increased in 2003 compared to 2002, due
to an increase in assets outside the United States, primarily current assets,
partially offset by the writedown of


                                       12




<PAGE>

property, plant and equipment at the Company's Le Havre, France TiO[u]2
manufacturing plant and a decrease in the Company's identifiable assets in the
United States, primarily the Company's investment in Equistar. See Notes 2 and 4
to the Consolidated Financial Statements included in this Annual Report.

     The Company obtains a portion of its principal raw materials from sources
outside the United States. The Company obtains ores used in the production of
TiO[u]2 from a number of suppliers in South Africa, Australia, Canada, Brazil
and Ukraine. The Company's Specialty Chemicals business segment obtains a
portion of its requirements of CST and gum turpentine and its derivatives
from suppliers in Indonesia, China and other Asian countries, Europe and
South America.

     The Company's export sales and its non-United States manufacturing and
sourcing are subject to the customary risks of doing business abroad, such as
fluctuations in currency exchange rates, transportation delays and
interruptions, political and economic instability and disruptions, restrictions
on the transfer of funds, the imposition of duties and tariffs, import and
export controls and changes in governmental policies. The Company's exposure to
these risks will increase if and to the extent that the Company expands its
foreign operations. From time to time, the Company utilizes derivative financial
instruments to hedge the impact of currency fluctuations on its purchases and
sales.

     The functional currency of each of the Company's non-United States
operations 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.

     As a result of translating the functional currency financial statements of
all its foreign subsidiaries into US dollars, consolidated shareholders' deficit
decreased by approximately $128 million and $27 million during 2003 and 2002,
respectively, and consolidated shareholders' equity decreased by $19 million
during 2001. Future events, which may significantly increase or decrease the
risk of future movement in the currencies in which the Company conducts
business, including the Brazilian real or the euro, 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. The Company hedges certain revenues and
costs to minimize the impact of changes in the exchange rates of those
currencies compared to the functional currencies. The Company does not use
derivative financial instruments for trading or speculative purposes. Net
foreign currency transactions aggregated losses of $2 million and $7 million in
2003 and 2001, respectively, and gains of $3 million in 2002.

                           Equity Interest in Equistar

     Through its 29.5% interest in Equistar, the Company is a partner in one of
the largest chemical producers in the world, with total 2003 revenues of $6.5
billion and assets of $5.0 billion as of December 31, 2003. Equistar is one of
the world's largest, and North America's second-largest, producer of ethylene.
Ethylene is the world's most widely used petrochemical. Equistar currently is
also the third-largest producer of polyethylene in North America, and a leading
producer of performance polymers, oxygenated products, aromatics and specialty
products.

     Equistar commenced operations on December 1, 1997, when the Company
contributed substantially all of the assets comprising its former ethylene,
polyethylene, ethanol and related products business to Equistar and Lyondell
contributed substantially all the assets comprising its petrochemical and
polymers business segments to Equistar. On May 15, 1998, the Company and
Lyondell expanded Equistar with the addition of the ethylene, propylene,
ethylene oxide, ethylene glycol and other ethylene oxide derivatives businesses
of the chemicals subsidiary of Occidental Petroleum Corporation (together with
its subsidiaries and affiliates, collectively "Occidental"). On August 22, 2002,


                                       13




<PAGE>

Occidental sold its 29.5% equity interest in Equistar to Lyondell, bringing
Lyondell's ownership interest in Equistar to 70.5%, with the Company continuing
to hold its 29.5% interest. See the description of the Equistar Partnership
Agreement and Equistar Parent Agreement in "Equity Interest in Equistar --
Management of Equistar; Agreements between Equistar, Lyondell and the Company"
below.

     Equistar's petrochemicals segment manufactures and markets olefins,
oxygenated products, aromatics and specialty products. Equistar's olefins
products include ethylene, propylene and butadiene. Olefins and their
co-products are basic building blocks used to create a wide variety of products.
Ethylene is used to produce polyethylene, ethylene oxide, ethanol, ethylene
dichloride and ethylbenzene. Propylene is used to produce polypropylene,
acrylonitrile and propylene oxide. Equistar's oxygenated products include
ethylene oxide and its derivatives, ethylene glycol, ethanol and MTBE.
Oxygenated products have uses ranging from paint to cleaners to polyester fibers
to gasoline additives. Equistar's aromatics include benzene and toluene.

     Equistar's polymers segment manufactures and markets polyolefins, including
high density polyethylene, low density polyethylene, linear low density
polyethylene, polypropylene and performance polymers. Polyethylene is used to
produce packaging film, grocery and trash bags, housewares, toys and lightweight
high-strength plastic bottles and containers for milk, juices, shampoos and
detergents. Polypropylene is used in a variety of products including fibers for
carpets and upholstery, housewares, automotive components, rigid packaging and
plastic caps and other closures. Equistar's performance polymers include
enhanced grades of polyethylene, such as wire and cable insulating resins,
polymeric powders, polymers for adhesives, sealants and coatings and reactive
polyolefins.

Equistar's Petrochemicals Segment

     Equistar produces a variety of petrochemicals at eleven facilities located
in five states. Equistar's Chocolate Bayou, Corpus Christi and two Channelview,
Texas olefins plants use crude oil-based liquid raw materials, including
naphtha, condensates and gas oils (collectively, "Petroleum Liquids"), to
produce ethylene. The use of Petroleum Liquids results in the production of a
significant amount of co-products, such as propylene, butadiene, benzene and
toluene, and specialty products such as dicyclopentadiene, isoprene, resin oil
and piperylenes. Assuming the co-products are recovered and sold, the cost of
ethylene production from Petroleum Liquids historically has been less than the
cost of producing ethylene from natural gas liquid feedstocks, including ethane,
propane and butane (collectively, "NGLs"). Facilities using Petroleum Liquids
historically have generated, on average, approximately four cents of additional
variable margin per pound of ethylene produced compared to facilities restricted
to using ethane. This margin advantage is based on an average of historical data
over a period of years and is subject to short-term fluctuations, which can be
significant. For example, during the first quarter of 2003, when crude oil
prices rose sharply in anticipation of the war in Iraq, the advantage was
significantly reduced. However, the advantage rebounded strongly in the second
quarter of 2003, bringing the 2003 yearly average back to historical levels.
Equistar has the capability to realize this margin advantage due to its ability
to process Petroleum Liquids at the Channelview, Corpus Christi and Chocolate
Bayou, Texas facilities. Equistar temporarily idled its La Porte ethylene
facility from June 2003 to August 2003 to lower its average cost of US ethylene
production by taking advantage of unused production capacity at its Channelview,
Corpus Christi and Chocolate Bayou facilities, which can process Petroleum
Liquids. The Channelview facility is particularly flexible because it can range
from processing all Petroleum Liquids to processing a majority of NGLs. The
Corpus Christi plant can range from processing predominantly Petroleum Liquids
to processing predominantly NGLs. The Chocolate Bayou facility processes 100%
Petroleum Liquids.

     Equistar's Morris, Illinois, Clinton, Iowa, Lake Charles, Louisiana, and La
Porte, Texas plants are designed to use primarily NGLs to produce ethylene with
some co-products, such as propylene. Equistar's La Porte, Texas facility can
process heavier NGLs such as butane and natural gasoline. A comprehensive
pipeline system connects Equistar's Gulf Coast plants with major olefin
customers. Raw materials are sourced both internationally and domestically from
a wide variety of sources. The majority of Equistar's Petroleum Liquids
requirements are purchased via contractual arrangements. Equistar obtains a
portion of its olefin raw material requirements from LYONDELL-CITGO Refining LP,
a joint venture owned by Lyondell and CITGO Petroleum Corporation ("LCR"), at
market-related prices. Raw materials are shipped via vessel and pipeline.

     Equistar produces ethylene oxide and derivatives thereof, including
ethylene glycol, at facilities located in Pasadena, Texas and through a joint
venture with DuPont located in Beaumont, Texas that is 50% owned by Equistar and
50% owned by DuPont. Equistar produces synthetic ethanol at its Tuscola,
Illinois facility and denatures ethanol at a facility in Newark, New Jersey.


                                       14




<PAGE>

     The following table outlines Equistar's primary petrochemical products and
the annual processing capacity for each product, as of January 1, 2004:

<TABLE>
<CAPTION>
Product                                                  Annual Capacity
-------                                          ------------------------------
<S>                                              <C>
Olefins:
   Ethylene...................................   11.6 billion pounds (a)
   Propylene..................................   5.0 billion pounds (a)(b)
   Butadiene..................................   1.2 billion pounds
Oxygenated Products:
   Ethylene oxide.............................   1.1 billion pounds ethylene
                                                 oxide equivalents, 400 million
                                                 pounds as pure ethylene
                                                 oxide (c)
   Ethylene glycol............................   1.0 billion pounds (c)
   Ethylene oxide derivatives.................   225 million pounds
   MTBE.......................................   284 million gallons (d)
   Ethanol....................................   50 million gallons
Aromatics:
   Benzene....................................   310 million gallons
   Toluene....................................   66 million gallons
Specialty Products:
   Dicyclopentadiene..........................   130 million pounds
   Isoprene...................................   145 million pounds
   Resin oil..................................   150 million pounds
   Piperylenes................................   100 million pounds
   Alkylate...................................   337 million gallons (e)
   Diethyl ether..............................   5 million gallons
</TABLE>

----------
(a)  Includes 850 million pounds/year of ethylene capacity and 200 million
     pounds/year of propylene capacity at Equistar's Lake Charles, Louisiana
     facility. Equistar's Lake Charles facility has been idled since the first
     quarter of 2001, pending sustained improvement in market conditions.

(b)  Does not include refinery-grade material or production from the product
     flexibility unit at Equistar's Channelview facility, which can convert
     ethylene and other light petrochemicals into propylene. This facility has
     an annual processing capacity of one billion pounds per year of propylene.

(c)  Includes 350 million pounds/year of ethylene oxide equivalents capacity and
     400 million pounds/year of ethylene glycol capacity at the Beaumont, Texas
     facility, which represents Equistar's 50% of the total ethylene oxide
     equivalents capacity and ethylene glycol capacity, respectively, at the
     facility. The Beaumont, Texas facility is owned by PD Glycol, a partnership
     owned 50% by Equistar and 50% by DuPont.

(d)  Includes up to 44 million gallons/year of capacity processed by Equistar
     for LCR and returned to LCR.

(e)  Includes up to 172 million gallons/year of capacity processed by Equistar
     for LCR and returned to LCR.

     Ethylene produced by the Morris and Clinton facilities is generally
consumed as raw material by the polymers operations at those sites, or is
transferred to Tuscola from Morris by pipeline for the production of ethanol.
Ethylene produced at Equistar's La Porte facility is consumed as a raw material
by Equistar's polymers operations and the Company's VAM operations in La Porte
and also is distributed by pipeline for Equistar's other internal uses and to
third parties. Ethylene and propylene produced at the Channelview, Corpus
Christi, Chocolate Bayou and Lake Charles olefins plants are generally
distributed by pipeline or via exchange agreements to Equistar's Gulf Coast
polymers and ethylene oxide and glycol facilities as well as Equistar's
affiliates and unrelated parties. Equistar's Lake Charles facility has been
idled since the first quarter of 2001, pending sustained improvement in market
conditions. For the year ended December 31, 2003, approximately 70% of the
ethylene produced by Equistar, based on sales dollars, was consumed by
Equistar's polymers or oxygenated products businesses or sold to Equistar's
owners and their affiliates at market-related prices. In addition, Equistar also
had significant ethylene sales to Occidental Chemical Corporation (a subsidiary
of Occidental, which is the beneficial owner of approximately 25% of Lyondell)
during 2003 pursuant to a long-term ethylene supply agreement.

     With respect to sales to third parties, Equistar sells a majority of its
olefin products to customers with whom it has had long-standing relationships,
generally pursuant to written agreements that typically provide for monthly


                                       15




<PAGE>

negotiation of price, customer purchases of a specified minimum quantity, and
three to six year terms with automatic one- or two-year extension provisions.
Some contracts may be terminated early if deliveries have been suspended for
several months.

     Most of the ethylene and propylene production of the Channelview, Chocolate
Bayou, Corpus Christi, La Porte and Lake Charles facilities is shipped via a
1,430 mile pipeline system that has connections to numerous Gulf Coast ethylene
and propylene consumers. Exchange agreements with other olefin producers allow
access to customers who are not directly connected to this pipeline system. Some
ethylene is shipped by railcar from Clinton, Iowa to Morris, Illinois and some
propylene is shipped by ocean-going vessel. A pipeline owned and operated by an
unrelated party is used to transport ethylene from Morris, Illinois to Tuscola,
Illinois.

     In 2003, Equistar entered into a long-term propylene supply arrangement
with Sunoco, Inc. Beginning in April, 2003, Equistar supplies 700 million pounds
of propylene annually to Sunoco for a period of 15 years, with a majority of the
propylene to be supplied under a cost-based formula and the balance to be
supplied on a market-related basis, adjusted monthly. This 15-year supply
arrangement replaces a previous contract under which Equistar supplied 400
million pounds of propylene to Sunoco at market-related prices.

     The bases for competition in Equistar's petrochemical products are price,
product quality, product deliverability, reliability of supply and customer
service. Equistar competes with other large domestic producers of
petrochemicals, including BP, Chevron Phillips Chemical Company LP ("Chevron
Phillips"), Dow, Enterprise Products Partners L.P., ExxonMobil Chemical Company
("ExxonMobil"), Huntsman Chemical Company ("Huntsman"), and Shell Chemical
Company. Industry consolidation has concentrated North American production
capacity under the control of fewer, although larger and stronger, competitors.

Equistar's Polymers Segment

     Through facilities located at nine plant sites in four states, Equistar's
polymers business unit manufactures a wide variety of polyolefins, including
polyethylene, polypropylene and various performance polymers.

     Equistar currently manufactures polyethylene using a variety of
technologies at five facilities in Texas and at its Morris, Illinois and
Clinton, Iowa facilities. The Morris and Clinton facilities are the only
polyethylene facilities located in the United States Midwest. These facilities
enjoy a freight cost advantage over Gulf Coast producers in delivering products
to customers in the United States Midwest and on the East Coast of the United
States.

     Equistar's Morris, Illinois facility manufactures polypropylene using
propylene produced as a co-product of Equistar's ethylene production as well as
propylene purchased from unrelated parties. On March 31, 2003, Equistar sold its
Bayport polypropylene manufacturing unit in Pasadena, Texas to a subsidiary of
Sunoco. Equistar produces performance polymers products, which include enhanced
grades of polyethylene and polypropylene, at several of its polymers facilities.
Equistar produces wire and cable insulating resins and compounds at its La
Porte, Texas facility, and wire and cable insulating compounds at its Fairport
Harbor, Ohio facility. Wire and cable insulating resins and compounds are used
to insulate copper and fiber optic wiring in power, telecommunication, computer
and automobile applications. Equistar intends to temporarily consolidate its
automotive compound production at the Fairport Harbor, Ohio facility and
temporarily idle the automotive compound production unit at the La Porte, Texas
facility at the end of the first quarter of 2004. On March 31, 2003, Equistar
sold its Bayport polypropylene manufacturing unit in Pasadena, Texas to a
subsidiary of Sunoco.

     Equistar's polymers facilities have the capacity to produce annually 3.2
billion pounds of high density polyethylene, 1.4 billion pounds of low density
polyethylene, 1.1 billion pounds linear low density polyethylene and 280 million
pounds of polypropylene. Equistar's polymers facilities also produce wire and
cable insulating resins and compounds, polymeric powders, polymers for
adhesives, sealants and coatings, and reactive polyolefins. These products are
enhanced grades of polyethylene. Equistar's capacity to produce these products
is included in the capacity figures for polyethylene, discussed above.

     The primary raw material for Equistar's polymers segment is ethylene. With
the exception of the Chocolate Bayou polyethylene plant, Equistar's polyethylene
and polypropylene production facilities can receive their ethylene directly from
Equistar's petrochemical facilities via Equistar's olefins pipeline system,
third party pipelines or Equistar's own on-site production. All of the ethylene
used in Equistar's polyethylene production is produced internally by Equistar's
petrochemicals segment. However, the polyethylene plants at Chocolate Bayou, La
Porte and Bayport, Texas are connected by pipeline to unrelated parties and
could receive ethylene via exchanges or purchases. The polypropylene facility at
Morris, Illinois receives propylene from Equistar's petrochemicals segment and
from unrelated parties.


                                       16




<PAGE>

     Equistar's polymers products are primarily sold to an extensive base of
established customers. Approximately 65% of Equistar's polymers products volumes
are sold to customers under term contracts, typically having a duration of one
to three years. The remainder is generally sold without contractual term
commitments. In either case, in most of the continuous supply relationships,
prices are subject to change upon mutual agreement between Equistar and its
customer. Equistar sells its polymers products in the United States and Canada
primarily through its own sales organization. It generally engages sales agents
to market its polymers products in the rest of the world. Polymers are
distributed primarily by railcar.

     The bases for competition in Equistar's polymers products are price,
product performance, product quality, product deliverability, reliability of
supply and customer service. Equistar competes with other large producers of
polymers, including Atofina, BP Solvay Polyethylene, Chevron Phillips, Dow,
Eastman, ExxonMobil, Formosa Plastics, Huntsman, NOVA Chemicals Corporation
("NOVA Chemicals"), and Westlake Polymers. Industry consolidation has
concentrated North American production capacity under the control of fewer,
although larger and stronger, competitors.

Management of Equistar; Agreements between Equistar, Lyondell and the Company

     Equistar is a Delaware limited partnership. The Company owns its 29.5%
interest in Equistar through two wholly-owned subsidiaries of Millennium
Petrochemicals, one of which serves as a general partner of Equistar and one of
which serves as a limited partner. The Equistar Partnership Agreement governs,
among other things, the ownership, cash distributions, capital contributions and
management of Equistar.

     The Equistar Partnership Agreement provides that Equistar is governed by a
Partnership Governance Committee consisting of six representatives, three
appointed by each general partner. Matters requiring agreement by the
representatives of Lyondell and the Company include changes in the scope of
Equistar's business, approval of the five-year Strategic Plan (and annual
updates thereof) (the "Strategic Plan"), the sale or purchase of assets or
capital expenditures of more than $30 million not contemplated by an approved
Strategic Plan, additional investments by Equistar's partners not contemplated
by an approved Strategic Plan or required to achieve or maintain compliance with
health, safety and environmental laws if the partners are required to contribute
more than a total of $100 million in a specific year or $300 million in a
five-year period, incurring or repaying debt under certain circumstances,
issuing or repurchasing partnership interests or other equity securities of
Equistar, making certain distributions, hiring and firing executive officers of
Equistar (other than Equistar's Chief Executive Officer), approving material
compensation and benefit plans for employees, commencing and settling material
lawsuits, selecting or changing accountants or accounting methods and merging or
combining with another business. All decisions of the Partnership Governance
Committee that do not require consent of the representatives of Lyondell and the
Company (including approval of Equistar's annual budget, which must be
consistent with the most recently approved Strategic Plan, and selection of
Equistar's Chief Executive Officer, who must be reasonably acceptable to the
Company) may be made by Lyondell's representatives alone. The day-to-day
operations of Equistar are managed by the executive officers of Equistar. Dan F.
Smith, the Chief Executive Officer of Lyondell, also serves as the Chief
Executive Officer of Equistar.

     Millennium Petrochemicals and Equistar entered into an agreement on
December 1, 1997 providing for the transfer of assets to Equistar. Among other
things, the agreement sets forth representations and warranties by Millennium
Petrochemicals with respect to the transferred assets and requires
indemnification by Millennium Petrochemicals with respect to such assets. The
agreement also provides for the assumption of certain liabilities by Equistar,
subject to specified limitations. Lyondell and Occidental entered into similar
agreements with Equistar with respect to the transfer of their respective assets
and Equistar's assumption of liabilities. Millennium Petrochemicals, Lyondell
and Occidental each remains liable under these indemnification arrangements to
the same extent following Lyondell's acquisition of Occidental's interest in
Equistar as it was before.

     Equistar is party to a number of agreements with Millennium Petrochemicals
for the provision of services, utilities and materials from one party to the
other at common locations, principally La Porte, Texas. In general, the goods
and services under these agreements, other than the purchase of ethylene by
Millennium Petrochemicals from Equistar and the purchase of VAM by Equistar from
Millennium Petrochemicals, are provided at cost. Millennium Petrochemicals
purchases its ethylene requirements at market-based prices from Equistar
pursuant to a long-term contract. Equistar purchases its VAM requirements from
Millennium Petrochemicals at a formula-based price pursuant to a long-term
contract. Equistar has provided notice to Millennium Petrochemicals that it will
terminate this contract on December 31, 2004. Lyondell also entered into
agreements with Equistar for the provision of services. Pursuant to the Equistar
Parent Agreement, the Company and Lyondell have agreed to guarantee the
obligations of their respective subsidiaries under each of the agreements
discussed above, including the Equistar Partnership Agreement and the
asset-transfer agreements.


                                       17




<PAGE>

     The Equistar Partnership Agreement and Equistar Parent Agreement contain
certain limitations on the ability of the partners and their affiliates to
transfer, directly or indirectly, their interests in Equistar. The following is
a summary of those limitations:

     Equistar Partnership Agreement: Without the consent of the general partners
of Equistar, no partner may transfer less than all of its interest in Equistar,
nor can any partner transfer its interest other than for cash. If one of the
limited partners and its affiliated general partner desire to transfer, via a
cash sale, all of their units, they must give written notice to Equistar and the
other partner and the non-selling partner shall have the option, exercisable by
delivering written acceptance notice of the exercise to the selling partner
within 45 days after receiving notice of the sale, to elect to purchase all of
the partnership interests of the selling partner on the terms described in the
initial notice. The notice of acceptance will set a date for closing the
purchase, which is not less than 30 nor more than 90 days after delivery of the
notice of acceptance, subject to extension. The purchase price for the selling
partners' partnership interests will be paid in cash.

     If the non-selling partner does not elect to purchase the selling partner's
partnership interests within 45 days after the receipt of initial notice of
sale, the selling partner will have a further 180 days during which it may
consummate the sale of its units to a third-party purchaser. The sale to a
third-party purchaser must be at a purchase price and on other terms that are no
more favorable to the purchaser than the terms offered to the non-selling
partner. If the sale is not completed within the 180-day period, the initial
notice will be deemed to have expired, and a new notice and offer shall be
required before the selling partner may make any transfer of its partnership
interests.

     Before the selling partner may consummate a transfer of its partnership
interests to a third party under the Equistar Partnership Agreement, the selling
partner must demonstrate that the person willing to serve as the proposed
purchaser's guarantor has outstanding indebtedness that is rated investment
grade by Moody's Investor's Services, Inc. ("Moody's") and Standard & Poor's
("S&P"). If the proposed guarantor has no rated indebtedness outstanding, it
shall provide an opinion from a nationally recognized investment banking firm
that it could be reasonably expected to obtain suitable ratings. In addition, a
partner may transfer its partnership interests only if, together with satisfying
all other requirements (1) the transferee executes an appropriate agreement to
be bound by the Equistar Partnership Agreement, (2) the transferor and/or the
transferee bears all reasonable costs incurred by Equistar in connection with
the transfer and (3) the guarantor of the transferee delivers an agreement to
the ultimate parent entity of the non-selling partner and to Equistar
substantially in the form of the Equistar Parent Agreement.

     Equistar Parent Agreement: Without the consent of Lyondell or the Company
(collectively, the "Parents") as the case may be, the other Parent may not
transfer less than all of its interests in the entities that hold its general
partnership and limited partnership interests in Equistar (the "Partner Sub
Stock") except in compliance with the following provisions.

     Each Parent may transfer all, but not less than all, of its Partner Sub
Stock, without the consent of the other Parent, if the transfer is in connection
with either (1) a merger, consolidation, conversion or share exchange of the
transferring Parent or (2) a sale or other disposition of (A) the Partner Sub
Stock, plus (B) other assets representing at least 50% of the book value of the
transferring Parent's assets excluding the Partner Sub Stock, as reflected on
its most recent audited consolidated or combined financial statements.

     The transferring Parent may be released from its guarantee obligations
under the Equistar Parent Agreement after the successor parent agrees to be
bound by the transferring Parent's obligations.

     Unless a transfer is permitted under the provisions described above, a
Parent desiring to transfer all of its Partner Sub Stock to any person,
including the other Parent or any affiliate of the other Parent, may only
transfer its Partner Sub Stock for cash consideration and must give a written
right of first option to Equistar and the other Parent. The offeree Parent will
then have the option to elect to purchase all of the Partner Sub Stock of the
selling Parent, on the terms described in the right of first offer. If the
offeree Parent does not elect to purchase all of the selling Parent's Partner
Sub Stock within 45 days after the receipt of the initial notice from the
selling Parent, the selling Parent will have a further 180 days during which it
may, subject to the provisions of the following paragraph, consummate the sale
of its Partner Sub Stock to a third-party purchaser at a purchase price and on
other terms that are no more favorable to the purchaser than the initial terms
offered to the offeree Parent. If the sale is not completed within the further
180-day period, the right of first offer will be deemed to have expired and a
new right of first offer is required.

     Before the selling Parent may consummate a transfer of its Partner Sub
Stock to a third party under the provisions described in the preceding
paragraph, the selling Parent must demonstrate to the other Parent that the
proposed purchaser, or the person willing to serve as its guarantor as
contemplated by the terms of the Equistar


                                       18




<PAGE>

Parent Agreement, has outstanding indebtedness that is rated investment grade by
either Moody's or S&P. If such proposed purchaser or the other person has no
rated indebtedness outstanding, that person shall provide an opinion from
Moody's, S&P or from a nationally recognized investment banking firm that it
could be reasonably expected to obtain a suitable rating. Moreover, a Parent may
transfer its Partner Sub Stock under the previous paragraph only if all of the
following occur: (A) the transfer is accomplished in a nonpublic offering in
compliance with, and exempt from, the registration and qualification
requirements of all federal and state securities laws and regulations; (B) the
transfer does not cause a default under any material contract which has been
approved unanimously by the Partnership Governance Committee and to which
Equistar is a party or by which Equistar or any of its properties is bound; (C)
the transferee executes an appropriate agreement to be bound by the Equistar
Parent Agreement; (D) the transferor and/or transferee bear all reasonable costs
incurred by Equistar in connection with the transfer; (E) the transferee, or the
guarantor of the obligations of the transferee, delivers an agreement to the
other Parent and Equistar substantially in the form of the Equistar Parent
Agreement; and (F) the transferor is not in default in the timely performance of
any of its material obligations to Equistar.

                            La Porte Methanol Company

     The La Porte Methanol Company is a Delaware limited partnership that owns a
methanol plant and certain related facilities in La Porte, Texas. The
partnership is owned 85% by the Company and 15% by Linde. Linde is also required
to purchase, under certain circumstances, an additional 5% interest in the
partnership. A wholly-owned subsidiary of the Company is the managing general
partner of the partnership. A wholly-owned subsidiary of Linde is responsible
for operating the methanol plant. The partnership commenced operations on
January 18, 1999 when the methanol plant and certain related facilities owned by
the Company were contributed to the partnership and Linde purchased its
partnership interest from the Company.

     La Porte Methanol Company's methanol plant had an annual production
capacity of 207 million gallons as of December 31, 2003. The plant employs a
process supplied by a major engineering and construction firm to produce
methanol.

     Methanol is used primarily as a feedstock to produce acetic acid, MTBE and
formaldehyde. The Company uses approximately 80 million gallons of La Porte
Methanol Company's annual methanol production for the manufacture of acetic acid
at the Company's La Porte, Texas acetic acid plant. The methanol produced by La
Porte Methanol Company not consumed by the Company or sold by Linde to a
customer of Linde is marketed by the Company on behalf of itself and Linde.
Methanol is sold under contracts that range in term from one to six years and on
a spot basis to large domestic customers. The product is shipped by barge and
pipeline.

     The principal feedstocks for the production of methanol are carbon monoxide
and hydrogen, collectively termed synthesis gas or syngas. These raw materials
are largely supplied to La Porte Methanol Company from Linde's syngas plant at
La Porte, Texas. La Porte Methanol Company also purchases relatively small
volumes of hydrogen from time to time from other parties.

     La Porte Methanol Company's principal competitors in the methanol business
are Methanex Company, Saudi Basic Industries Corporation, and Caribbean
Petrochemical Marketing Company Limited.

                                    Employees

     At December 31, 2003, the Company had approximately 3,600 full- and
part-time employees. Approximately 3,000 of the Company's employees were engaged
in manufacturing; 400 were engaged in sales, distribution and technology; and
200 were engaged in administrative, executive and support functions.
Approximately one-fourth of the Company's United States employees are
represented by various labor unions, and a significant percentage of the
Company's European and Brazilian employees are represented by various worker
associations. Of the Company's ten collective bargaining agreements or other
required labor negotiations, five must be renegotiated on an annual basis, two
were renegotiated in 2003, and three must be renegotiated in 2004. All required
annual renegotiations relate to units outside the United States. The Company
believes that the relations between its operating subsidiaries and their
respective employees, unions and worker associations are generally good.

                              Environmental Matters

     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,


                                       19




<PAGE>

"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. There
can be no assurance that significant costs or liabilities will not be incurred
with respect to the Company's operations and activities. 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's annual operating expenses relating to environmental matters
were approximately $55 million, $46 million and $46 million in 2003, 2002 and
2001, respectively. These amounts cover, among other things, the Company's cost
of complying with environmental regulations and permit conditions, as well as
managing and minimizing its waste. Capital expenditures for environmental
compliance and remediation were approximately $9 million, $17 million and $19
million in 2003, 2002 and 2001, respectively. In addition, capital expenditures
for projects in the normal course of operations and major expansions include
costs associated with the environmental impact of those projects that are
inseparable from the overall project cost. Capital expenditures and costs and
operating expenses relating to environmental matters for years after 2003 will
be subject to evolving regulatory requirements and will depend, to some extent,
on the amount of time required to obtain necessary permits and approvals.

     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 million and $200 million 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 million. 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 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.

     From time to time, various agencies may serve cease and desist orders or
notices of violation on an operating unit or deny its applications for certain
licenses or permits, in each case alleging that the practices of the operating
unit are not consistent with regulations or ordinances. In some cases, the
relevant operating unit may seek to meet with the agency to determine mutually
acceptable methods of modifying or eliminating the practice in question. The
Company believes that its operating units generally operate in compliance with
applicable regulations and ordinances in a manner that should not have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.

     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 or
previously owned, operated or used by the Company's current or former
subsidiaries or their predecessors, some of which are on the Superfund National
Priorities List of the EPA or similar state lists. These proceedings seek
cleanup costs, damages for personal injury or property damage, or both. Based
upon third-party technical reports, the projections of outside consultants or
outside counsel, or both, the Company has estimated its individual exposure at
these sites to range between $0.01 million for several small sites and $22
million 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. Originally commenced on December 2, 1987 in the
United States District Court for the Western District of Michigan as Kelly v.
Allied Paper, Inc. et al., the matter


                                       20




<PAGE>

was stayed and is being addressed under the Comprehensive Environmental
Response, Compensation and Liability Act. 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 and recommended a remedy involving the stabilization of several
miles of river bank and the long-term monitoring of river sediments at a total
collective cost of approximately $73 million. The five remedial options
considered in the Draft Study range from no action to total dredging of the
river and off-site disposal of the dredged materials. In February 2001, the
PRPs, at the request of the State of Michigan, also evaluated nine additional
potential remedies. The cost for these remedial options ranged from $0 to $2.5
billion; however, the Company strongly believes that the likelihood of the cost
being either $0 or $2.5 billion is remote. During 2001, additional sampling
activities were performed in discrete parts of the river. At the end of 2001,
the EPA took responsibility for the site at the request of the State. While the
State has submitted negative comments to the EPA on the Draft Study, the EPA has
yet to comment. The Company estimated its liability at this site based upon the
KRSG Draft Study's recommended remedy. 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 with any such evaluation and remediation,
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.

     In April 1997, the Illinois Attorney General filed a complaint in Circuit
Court in Grundy, Illinois alleging releases into the environment from Millennium
Petrochemical's former Morris, Illinois facility (which was contributed to
Equistar on December 1, 1997). Equistar has reached a tentative settlement with
the State of Illinois, which includes a civil penalty in the amount of $175,000,
and is finalizing the settlement decree with the State of Illinois. The Company
is responsible for paying this amount pursuant to the agreement under which
Equistar was formed on December 1, 1997.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. 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. For example,
the Company agreed as part of its Demerger to indemnify Hanson and certain of
its subsidiaries against certain of such contractual indemnification
obligations, and Millennium Petrochemicals agreed as part of the December 1,
1997 formation of Equistar to indemnify Equistar for certain liabilities related
to the assets contributed by Millennium Petrochemicals to Equistar in excess of
$7 million, which threshold was exceeded in 2001. 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 many factors and is not practicable to estimate.

     No assurance can be given that actual costs for environmental matters will
not exceed accrued amounts or that estimates made with respect to
indemnification obligations will be accurate. In addition, it is possible that
costs will be incurred with respect to contamination, indemnification
obligations or other environmental matters that currently are unknown or as to
which it is currently not possible to make an estimate.

                        Patents, Trademarks, and Licenses

     The Company's subsidiaries have numerous United States and foreign patents,
registered trademarks and trade names, together with applications. The Company
has licensed to others certain of its process technology for the manufacture of
VAM. The Company is also licensed by others in the application of certain
processes and equipment designs related to its Acetyls business segment. The
Company generally does not license its Titanium Dioxide and Related Products
business segment's proprietary processes to third parties or hold licenses from
others. While the patents and licenses of the Company's subsidiaries provide
certain competitive advantages and are considered important, particularly with
regard to processing technologies such as the Company's proprietary titanium
dioxide chloride production process, the Company's proprietary acetic acid
process and the Company's proprietary terpene chemistry process, the Company
does not consider its business, as a whole, to be materially dependent upon any
one particular patent or license.


                                       21




<PAGE>

                            Senior Executive Officers

     The following individuals serve as senior executive officers of the
Company:

<TABLE>
<CAPTION>
        Name                                      Position
---------------------   --------------------------------------------------------
<S>                     <C>
Robert E. Lee........   President and Chief Executive Officer

John E. Lushefski....   Executive Vice President and Chief Financial Officer

C. William Carmean...   Senior Vice President, General Counsel and Secretary

Timothy E. Dowdle....   Senior Vice President - Manufacturing, Supply Chain and
                           Research and Development

Marie S. Dreher......   Senior Vice President - Strategic and Corporate
                           Development

Myra J. Perkinson....   Senior Vice President - Human Resources
</TABLE>

     Mr. Lee, 47, has served as the President and Chief Executive Officer of the
Company since July 2003. He was the Executive Vice President - Growth and
Development of the Company from March 2001 to July 2003. He was President and
Chief Executive Officer of Millennium Inorganic Chemicals from June 1997 to
March 2001. From the Demerger to June 1997, he served as the President and Chief
Operating Officer of the Company. He has been a Director of the Company since
the Demerger. Mr. Lee was a Director and the Senior Vice President and Chief
Operating Officer of Hanson Industries from June 1995 until the Demerger, an
Associate Director of Hanson from 1992 until the Demerger, Vice President and
Chief Financial Officer of Hanson Industries from 1992 to June 1995, Vice
President and Treasurer of Hanson Industries from 1990 to 1992, and Treasurer of
Hanson Industries from 1987 to 1990. He joined Hanson Industries in 1982. Mr.
Lee is a member of the Equistar Partnership Governance Committee.

     Mr. Lushefski, 48, has served as Executive Vice President and Chief
Financial Officer of the Company since July 2003. He was Senior Vice President
and Chief Financial Officer of the Company from the Demerger in 1996 to July
2003. He was a Director and the Senior Vice President and Chief Financial
Officer of Hanson Industries from June 1995 until the Demerger. He was Vice
President and Chief Financial Officer of Peabody Holding Company, a Hanson
subsidiary that held Hanson's coal mining operations, from 1991 to May 1995 and
Vice President and Controller of Hanson Industries from 1990 to 1991. Mr.
Lushefski initially joined Hanson Industries in 1985. Mr. Lushefski is a member
of the Equistar Partnership Governance Committee.

     Mr. Carmean, 51, has served as Senior Vice President, General Counsel and
Secretary of the Company since January 2002. He was Vice President - Legal of
the Company from December 1997 to December 2001. He was Associate General
Counsel of the Company from the Demerger to December 1997, Associate General
Counsel of Hanson Industries from 1993 to the Demerger, and Corporate Counsel of
Quantum Chemical Corporation from 1990 until its acquisition by Hanson in 1993.
Mr. Carmean is a member of the Equistar Partnership Governance Committee.

     Mr. Dowdle, 52, has served as Senior Vice President - Manufacturing, Supply
Chain and Research and Development of the Company since July 2003. He was Senior
Vice President - Manufacturing, Operational Excellence Businesses of the Company
from March 2001 to July 2003. He served as Senior Vice President - Global
Manufacturing of Millennium Inorganic Chemicals from January 1999 to March 2001
and as Vice President - Manufacturing of Millennium Inorganic Chemicals from
September 1997 to January 1999. Mr. Dowdle served as General Manager of
Millennium Petrochemicals' Morris Complex from June 1993 to September 1997. He
joined Millennium Petrochemicals in 1980.

     Ms. Dreher, 45, has served as Senior Vice President - Strategic and
Corporate Development of the Company since July 2003. She was Senior Vice
President - Strategic Development of the Company from January 2003 to July 2003.
She was Vice President - Finance of the Company from March 2001 to December
2002. She served as Senior Vice President and Chief Financial Officer of
Millennium Inorganic Chemicals from August 2000 to March 2001. She was Vice
President - Corporate Controller of the Company from October 1996 to August
2000. Ms. Dreher joined Hanson Industries in 1994 as Assistant Corporate
Controller, and was appointed Director - Planning and Budgeting in 1995.


                                       22




<PAGE>

     Ms. Perkinson, 52, has served as Senior Vice President - Human Resources of
the Company since August 2002. Prior to re-joining the Company, she was Vice
President, People, Olefins & Polyolefins for NOVA Chemicals starting in April
2000. From 1997 to 1999, she was Vice President, Human Resources for Equistar.
Prior thereto, she was Vice President, Human Resources, for Millennium
Petrochemicals. Ms. Perkinson joined Millennium Petrochemicals in 1973.

Item 2. Properties

     Set forth below is a list of the Company's principal manufacturing
facilities (not including facilities of Equistar or of La Porte Methanol
Company) and its mineral sands mine, all of which are owned. The Company
leases warehouses, offices and its research facility in Baltimore, Maryland.
The Company believes that its properties are well maintained and are in good
operating condition.

<TABLE>
<CAPTION>
                     Location                                Products
----------------------------------------------   ------------------------------
<S>                                              <C>
Titanium Dioxide and Related Products

   Ashtabula, Ohio*...........................   TiO[u]2 and TiCl[u]4

   Baltimore, Maryland (Hawkins Point)*.......   TiO[u]2

   Baltimore, Maryland (St. Helena) ..........   Cadmium-based pigments and
                                                    silica gel

   Kemerton, Western Australia................   TiO[u]2

   Le Havre, France...........................   TiO[u]2

   Mataraca, Paraiba, Brazil**................   Ilmenite (generally consumed in
                                                    the Salvador TiO[u]2 plant),
                                                    zircon and natural rutile
                                                    titanium ore

   Rockingham, Western Australia..............   Zirconium-based compounds and
                                                    chemicals

   Salvador, Bahia, Brazil**..................   TiO[u]2

   Stallingborough, United Kingdom............   TiO[u]2

   Thann, France..............................   TiO[u]2, TiCl[u]4 and ultra-fine
                                                    TiO[u]2
Acetyls

   La Porte, Texas............................   VAM and acetic acid

Specialty Chemicals

   Brunswick, Georgia.........................   Fragrance and flavor chemicals

   Jacksonville, Florida......................   Fragrance and flavor chemicals
</TABLE>

----------
*    The Company has two manufacturing plants at Ashtabula, Ohio, both of which
     use the chloride process, and two manufacturing plants located in
     Baltimore, Maryland (Hawkins Point), one of which uses the chloride process
     for manufacturing TiO[u]2 and the other of which used the sulfate process
     but is currently idle.

**   Third-party equity investors hold a minority ownership interest in
     Millennium Brasil, which owns this facility.

Item 3. Legal Proceedings

     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) in
Texas, Illinois, and Indiana. Millennium Petrochemicals is responsible for these
premises-based cases as a result of its indemnification obligations under the
Company's


                                       23




<PAGE>

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 claims, 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 one state, 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 of pre-trial, post-trial and post-dismissal settings. These
legal proceedings are described below in groups pursuant to their particular
procedural posture. Pending legal proceedings relating to lead pigment or paint
in various pre-trial stages are as follows: The City of New York et al. v. Lead
Industries Association, Inc., et al., commenced in the Supreme Court of the
State of New York on June 8, 1989; Kayla Sabater et al., individually and on
behalf of all those similarly situated in the State of New York v. Lead
Industries Association, Inc., et al., commenced in the Supreme Court of New
York, Bronx County, on November 25, 1998; Jackson, et al. v. The Glidden Co., et
al., commenced in the Court of Common Pleas, Cuyahoga County, Ohio, on August
12, 1992; City of St. Louis v. Lead Industries Association, Inc., et al.,
commenced in the St. Louis, Missouri, Circuit Court on January 25, 2000; Mark
Ludwigsen Walters v. NL Industries, Inc., et al., commenced on July 18, 2002, in
the Supreme Court, County of Kings, New York; Mary Lewis, Tashswan Banks and
Jacqueline Nye v. Lead Industries Association, Inc., et al., filed on March 14,
2002, in the Circuit Court, Cook County, Illinois; William Russell, et al. v. NL
Industries, et al., commenced in the Circuit Court of LeFlore County,
Mississippi on December 30, 2002; Will T. Turner v. Sherwin-Williams Company, et
al., commenced in the Circuit Court of Jefferson County, Mississippi on December
30, 2002; and John Henry Sweeney v. The Sherwin Williams Co., et al., commenced
in the Circuit Court of Hinds County, Mississippi on December 30, 2002.

     One legal proceeding relating to lead pigment or paint was tried in 2002.
On October 29, 2002, after a trial in which the jury deadlocked, the court in
the State of Rhode Island v. Lead Industries Association, Inc., et al.,
commenced in the Superior Court of Providence, Rhode Island, on October 13,
1999, declared a mistrial. The sole issue before the jury was whether lead
pigment in paint in and on public and private Rhode Island buildings constituted
a "public nuisance." This case is tentatively set to be retried on April 6,
2005. An order is anticipated from the court specifying the additional issues to
be considered by the jury in the retrial beyond the public nuisance questions
considered by the jury in the first trial. Another legal proceeding is
tentatively set for trial on June 1, 2004; Herman Frederick Jackson, Billye Raye
Ishee, Gaiey Ducksworth, Jr. and Roy Lee Merrick v. Phillips Building Supply of
Laurel, et al., commenced in the Circuit Court of Jones County, Mississippi on
January 14, 2002. The complaint alleges that three former painters, two of whom
are living, have work histories of painting, sanding, and scraping paints,
including lead-containing paints. The complaint asserts three counts including
strict liability, negligence, and fraud/misrepresentation/conspiracy.

     Legal proceedings relating to lead pigment or paint dismissed after motions
to dismiss or for summary judgment were granted by the court in favor of the
defendants, but pending appeal are as follows: Steven Thomas, et al. v. Lead
Industries Association, Inc., et al., commenced in the Milwaukee County,
Wisconsin, Circuit Court on September 10, 1999; Reginald Smith, et al. v. Lead
Industries Association, Inc., et al. commenced in the Baltimore City, Maryland,
Circuit Court on September 29, 1999; and In Re Lead Paint Litigation,
consolidated on February 11, 2002, in the Superior Court of New Jersey, Law
Division: Middlesex County, Case Code 702. There are two cases in which the
court entered summary judgment on behalf of all defendants, and notices of
appeal have been filed: The County of Santa Clara, a political subdivision of
the State of California, individually and on behalf of all those similarly
situated v. Atlantic Richfield et al., commenced in the Santa Clara County,
California, Superior Court on March 23, 2000; and City of Chicago v. American
Cyanamid Company, et al., commenced on September 5, 2002, in the Circuit Court,
Cook County, Illinois. One case relating to lead pigment or paint was
voluntarily dismissed by the plaintiffs in 2003: Frederick Moore and Virginia
Moore v. The Glidden Company, et al., commenced on June 17, 2002 in the Court of
Common Pleas, Hamilton County, Ohio.


                                       24




<PAGE>

     Legal proceedings relating to lead pigment or paint that are pending but
have been abated under the laws of the State of Texas pending resolution of the
appeal of a decision granting summary judgment in favor of one lead pigment
defendant in Spring Branch Independent School District v. Lead Industries
Association, and for which no defense costs will be incurred during the
abatement period (expected to last one to two years), are as follows: Houston
Independent School District v. Lead Industries Association, et al., commenced in
the District Court of Harris County, Texas, on June 30, 2000; Harris County v.
Lead Industries Association, et al., commenced in the District Court of Harris
County, Texas, on April 23, 2001; Liberty Independent School District v. Lead
Industries Association, et al., commenced in the District Court of Liberty
County, Texas, on January 22, 2002; and Brownsville Independent School District
v. Lead Industries Association, Inc., et al., filed on May 28, 2002, in the
District Court, Cameron County, Texas.

     Legal proceedings relating to lead pigment or paint that have been filed
with a court, are pending, but have yet to be formally served on the Company,
any of its subsidiaries, or alleged predecessor companies, are as follows: Hall,
et al. v. Lead Industries Association, et al., commenced in the Baltimore City,
Maryland, Circuit Court on June 19, 2000; Hart, et al. v. Lead Industries
Association, et al., commenced in the Baltimore City, Maryland, Circuit Court on
June 26, 2000; Johnson, et al. v. Clinton, et al., commenced in the Baltimore
City, Maryland, Circuit Court on October 10, 2000; Randle, et al. v. Lead
Industries Association, et al., commenced in the Baltimore City, Maryland,
Circuit Court on August 10, 2000; Williams, et al. v. Lead Industries
Association, et al., commenced in the Baltimore City, Maryland, Circuit Court on
July 7, 2000; and Myreona Stewart, et al. v. NL Industries, et al., commenced in
the Circuit Court of LeFlore County, Mississippi on December 31, 2002.

     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 litigation. The
Company has insurance policies that potentially provide approximately $1 billion
in indemnity coverage for lead-based paint and lead pigment litigation. The
Company's ability to collect under the 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 the
two cases discussed below, 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.

     A current subsidiary and an alleged predecessor company are parties to the
only two remaining cases originally filed within the eight-year period following
the 1986 sale of the Glidden Paints business referred to above. In the first of
these cases, The City of New York et al. v. Lead Industries Association, Inc.,
et al., commenced in the Supreme Court of the State of New York on June 8, 1989,
the New York City Housing Authority brought an action relating to tens of
thousands of public housing units. All claims in that case have been dropped
except for those relating to two housing projects. The other remaining case,
Jackson, et al. v. The Glidden Co., et al., commenced in the Court of Common
Pleas, Cuyahoga County, Ohio, on August 12, 1992, includes five minors as
plaintiffs. Dispositive motions were filed in that case in late 2002 and have
yet to be ruled on by the court.

     The Company believes that it has valid defenses to all pending lead-based
paint and lead pigment proceedings and is vigorously defending them. However,
litigation is inherently subject to many uncertainties. There can be no
assurance that additional lead-based paint and lead pigment litigation will not
be filed against the Company or its subsidiaries in the future asserting similar
or different legal theories and seeking similar or different types of damages
and relief. In addition, from time to time, legislation and administrative
regulations have been enacted or proposed to impose obligations on present and
former manufacturers of lead-based paint and lead pigment


                                       25




<PAGE>

respecting asserted health concerns associated with such products or to overturn
successful court decisions. Due to the uncertainties involved, the Company is
unable to predict the outcome of lead-based paint and lead pigment litigation,
the number or nature of possible future claims and proceedings, or the effect
that any legislation and/or administrative regulations may have on the Company
or its subsidiaries. In addition, management cannot reasonably estimate the
scope or amount of the costs and potential liabilities related to such
litigation, or any such legislation and regulations. Accordingly, the Company
has not accrued any amounts for such litigation. 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 it has valid defenses to the legal proceedings
described above and intends to defend these legal proceedings vigorously. The
Company also has indemnity rights for some of these proceedings to reimburse the
Company for certain legal expenses and to offset certain amounts deemed to be
owed in the event of an unfavorable litigation outcome. An unfavorable outcome
in one or more of these proceedings could have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
For additional information, see "Environmental and Litigation Matters" in Item 7
and Note 15 to the Consolidated Financial Statements included in this Annual
Report.

     For information concerning the Company's environmental proceedings, see
"Environmental Matters" in Item 1 of this Annual Report, which is incorporated
in this Item 3 by reference.

Item 4.   Submission of Matters to a Vote of Security Holders

     Not applicable.


                                       26




<PAGE>

                                    PART II

Item 5. Market for the Registrant's Common Equity and Related Shareholder
        Matters

     The Company's par value $0.01 per share common stock (the "Common Stock")
is traded on the New York Stock Exchange under the symbol "MCH". The following
table sets forth the high and low trading prices per share of Common Stock in
each quarter of 2003 and 2002:

<TABLE>
<CAPTION>
                                                                  High      Low
                                                                 ------   ------
<S>                                                              <C>      <C>
2003
First quarter.................................................   $12.09   $ 8.70
Second quarter................................................    14.00     9.41
Third quarter.................................................    11.70     9.00
Fourth quarter................................................    13.14     9.02
2002
First quarter.................................................   $15.25   $11.28
Second quarter................................................    15.80    12.49
Third quarter.................................................    14.15     9.76
Fourth quarter................................................    11.26     7.79
</TABLE>

     The Company suspended payment of dividends on its Common Stock in July
2003. The Company paid a dividend of $0.135 per share of Common Stock in each of
the first two quarters of 2003. The Company paid a dividend of $0.135 per share
of Common Stock in each quarter of 2002. The indenture under which the 9.25%
Senior Notes due June 15, 2008 (the "9.25% Senior Notes") were issued contains
certain restrictions on the ability of the Company to pay dividends on its
Common Stock. For a description of those restrictions, please see "Financing and
Capital Structure" in Item 7 and Note 8 to the Company's Consolidated Financial
Statements.

     As of March 5, 2004, there were approximately 17,000 record holders of
the Company's Common Stock.

     No Common Stock of the Company was repurchased by the Company during the
fourth quarter of 2003.

Item 6. Selected Financial Data

     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
Annual Report.

                                       27




<PAGE>

Selected Financial Data

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                         -------------------------------------------------------
                                                          2003        2002        2001         2000        1999
                                                         ------      ------      ------       ------      ------
                                                                    (Millions, except per share data)
<S>                                                      <C>         <C>         <C>          <C>         <C>
Income Statement Data
   Net sales..........................................   $1,687      $1,554      $1,590       $1,793      $1,589
   Operating (loss) income............................      (51)(1)      80 (5)      14  (8)     201(11)     139(13)
   (Loss) earnings on Equistar investment.............     (100)(2)     (73)        (83) (9)      45 (9)      (7)(9)
   (Loss) income from continuing operations
      before cumulative effect of accounting change...     (183)(3)     (28)(6)     (54)(10)     111(12)    (549)(14)
   Cumulative effect of accounting change.............       (1)(4)    (305)(7)      --           --          --
   Net (loss) income from continuing operations.......     (184)(3)    (333)(6)     (54)(10)     111(12)    (549)(14)
   Basic (loss) earnings per share from continuing
      operations before cumulative effect of
      accounting change...............................    (2.86)(3)   (0.44)(6)   (0.85)(10)    1.73(12)   (7.93)(14)
   Basic (loss) earnings per share from continuing
     operations.......................................    (2.88)(3)   (5.24)(6)   (0.85)(10)    1.73(12)   (7.93)(14)
   Dividends declared per share.......................     0.27        0.54        0.54         0.54        0.54
Balance Sheet Data (at period end)
   Total assets.......................................   $2,398      $2,396      $2,965       $3,259      $3,286
   Total liabilities..................................    2,444       2,412       2,454        2,631       2,621
   Minority interest..................................       27          19          21           22          16
   Shareholders' (deficit) equity.....................      (73)        (35)        490          606         649
Other Data (with respect to continuing operations)
   Depreciation and amortization......................   $  113      $  102      $  110       $  113      $  105
   Capital expenditures...............................       48          71          97          110         109
</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.

(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 Annual Report.

(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.


                                       28




<PAGE>

(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 Annual Report.

(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.

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 Annual Report), 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 Annual Report.) 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 Annual Report.

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.


                                       29




<PAGE>

     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.

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.


                                       30




<PAGE>

     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 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


                                       31




<PAGE>

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.

     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 this Annual
Report.


                                       32




<PAGE>

     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 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.


                                       33




<PAGE>

     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
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 Annual Report 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.


                                       34




<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.


                                       35




<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,


                                       36




<PAGE>

     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 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


                                       37




<PAGE>

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, 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.


                                       38




<PAGE>

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 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


                                       39




<PAGE>

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.

     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 included in Item 1 of this Annual Report. 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.


                                       40




<PAGE>

     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.

     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


                                       41




<PAGE>

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).

     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 Annual Report.

Specialty Chemicals

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


                                       42




<PAGE>

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).

     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.


                                       43




<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 petrochemicals 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


                                       44




<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.


                                       45




<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


                                       46




<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


                                       47




<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.


                                       48




<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


                                       49




<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
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 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


                                       50




<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 $287 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
     Annual Report).

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.


                                       51




<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 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. 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
this Annual Report.

                                    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 TiO[u]2 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.


                                       52




<PAGE>

Derivative Instruments and Hedging Activities

     As more fully described in Note 9 to the Consolidated Financial Statements
included in this Annual Report, 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 credit worthy 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.


                                       53




<PAGE>

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

                       Foreign Currency Forward Contracts

<TABLE>
<CAPTION>

                                                            Unrealized     Weighted Average
                                        Notional Amount   Gain/(Loss)(1)   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
---------------                                                             Pay $5.37/mmbtu,
                                                                            receive  NYMEX
Natural Gas Swap Contracts...........          $1               $--         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
---------                                                                  Pay six months LIBOR
Interest Rate Swap Contracts.........         $225              $3         plus 3.22%, receive 7%
</TABLE>

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


                                       54




<PAGE>

       Non-Derivative Financial Instruments and Other Market-Related Risks

     See Note 10 to the Consolidated Financial Statements included in this
Annual Report.

                         Recent Accounting Developments

     See the discussion under the caption "Recent Accounting Developments" in
Note 1 to the Consolidated Financial Statements included in this Annual Report.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     See Note 9 to the Consolidated Financial Statements included in this Annual
Report for discussion of the Company's management of foreign currency exposure,
commodity price risk and interest rate risk through its use of derivative
instruments and hedging activities and "Derivative Instruments and Hedging
Activities" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Annual Report.


                                       55




<PAGE>

Item 8. Financial Statements and Supplementary Data

                         REPORT OF INDEPENDENT AUDITORS

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, of cash flows, and of 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)(2) on page 102 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 auditing standards
generally accepted in the United States of America, which 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".


/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP
Florham Park, NJ
March 8, 2004


                                       56




<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    As of December 31,
                                                                                    ------------------
                                                                                       2003     2002
                                                                                      ------   ------
<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............................................................        287      315
Other liabilities................................................................        325      410
                                                                                      ------   ------
      Total liabilities..........................................................      2,444    2,412
                                                                                      ------   ------
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...........................................................       (977)    (776)
   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................................................        (73)     (35)
                                                                                      ------   ------
         Total liabilities and shareholders' deficit.............................     $2,398   $2,396
                                                                                      ======   ======
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       57




<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.


                                       58




<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.


                                       59




<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 ........        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 ........        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 ........        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 ........        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 ........      $(322)        $(25)         $(107)      $ 606
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 ........       (408)          --           (136)        490
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 ........       (776)          --           (299)        (35)
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 ........      $(977)        $ (1)         $(141)      $ (73)
                                           =====         ====          =====       =====
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       60




<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.


                                       61




<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>


                                       62




<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


                                       63




<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


                                       64




<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.


                                       65




<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.


                                       66




<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


                                       67




<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,


                                       68




<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 this Annual Report.

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 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


                                       69




<PAGE>

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

Note 5 -- European Receivables Securitization Program - Continued

$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>


                                       70




<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>


                                       71




<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
                                                                        ----   ----
<S>                                                                     <C>    <C>
Deferred tax assets
   Environmental and legal obligations...............................   $ 20   $ 27
   Other postretirement benefits and pension.........................     65     82
   Net operating loss carryforwards..................................    246    196
   Capital loss carryforwards........................................      3      3
   AMT credits.......................................................     97     97
   Other accruals....................................................      8     14
                                                                        ----   ----
                                                                         439    419
   Valuation allowance...............................................    (97)   (35)
                                                                        ----   ----
      Total deferred tax assets......................................    342    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...........    410    456
   Reserve for unremitted earnings of foreign subsidiaries...........     19     --
   Reserve for income taxes..........................................     94     94
   Other.............................................................     38     43
                                                                        ----   ----
      Total deferred tax liabilities.................................    629    699
                                                                        ----   ----
         Net deferred tax liabilities................................   $287   $315
                                                                        ====   ====
</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.

     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


                                       72




<PAGE>

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

Note 7 -- Income Taxes - Continued

("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.


                                       73




<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


                                       74




<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


                                       75




<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


                                       76




<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.


                                       77




<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>


                                       78




<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.


                                       79




<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.


                                       80




<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.


                                       81




<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>


                                       82




<PAGE>

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

Note 11 -- Pension and Other Postretirement Benefits - Continued

     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>

     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>


                                       83




<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 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>

     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.


                                       84




<PAGE>

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

Note 11 -- Pension and Other Postretirement Benefits - Continued

     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 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.


                                       85




<PAGE>

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

Note 12 -- Stock-Based Compensation Plans - Continued

     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,
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.


                                       86




<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 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

     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
---------------   ---------   --------------------   ----------------   -------   ----------------
<S>               <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; 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'


                                       87




<PAGE>

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

Note 12 -- Stock-Based Compensation Plans - Continued

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 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.


                                       88




<PAGE>

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

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 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.


                                       89




<PAGE>

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

Note 15 -- Commitments and Contingencies - Continued

     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 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


                                       90




<PAGE>

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

Note 15 -- Commitments and Contingencies - Continued

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:

<TABLE>
<CAPTION>
                      Ore    Other    Total
                     ----   ------   ------
<S>                  <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.


                                       91




<PAGE>

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

Note 15 -- Commitments and Contingencies - Continued

     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.

     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.


                                       92




<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

          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.

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


                                       93




<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

          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>


                                       94




<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.


                                       95




<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.


                                       96




<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
               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 .............         354             80                --            (434)             --
Other assets ...........................          12              3                36              --              51
Goodwill ...............................          --             --               104              --             104
Due from parent and affiliates, net ....         733             --                --            (733)             --
                                              ------           ----            ------         -------          ------
   Total assets ........................      $1,123           $ 84            $2,358         $(1,167)         $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 ..................          --             --               287              --             287
Other liabilities ......................          --             --               325              --             325
Due to parent and affiliates, net ......          --              6               727            (733)             --
                                              ------           ----            ------         -------          ------
   Total liabilities ...................       1,304            157             1,716            (733)          2,444
Minority interest ......................          --             --                27              --              27
Shareholders' (deficit) equity .........        (181)           (73)              615            (434)            (73)
                                              ------           ----            ------         -------          ------
   Total liabilities and shareholders'
      (deficit) equity .................      $1,123           $ 84            $2,358         $(1,167)         $2,398
                                              ======           ====            ======         =======          ======
2002
               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 .............         349             95                --            (444)             --
Other assets ...........................          15             --                31              --              46
Goodwill ...............................          --             --               106              --             106
Due from parent and affiliates, net ....         638             --                --            (638)             --
                                              ------           ----            ------         -------          ------
   Total assets ........................      $1,012           $ 95            $2,371         $(1,082)         $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 ..................          --             --               315              --             315
Other liabilities ......................          --             --               410              --             410
Due to parent and affiliates, net ......          --            130               508            (638)             --
                                              ------           ----            ------         -------          ------
   Total liabilities ...................       1,207            130             1,713            (638)          2,412
Minority interest ......................          --             --                19              --              19
Shareholders' (deficit) equity .........        (195)           (35)              639            (444)            (35)
                                              ------           ----            ------         -------          ------
   Total liabilities and shareholders'
      (deficit) equity .................      $1,012           $ 95            $2,371         $(1,082)         $2,396
                                              ======           ====            ======         =======          ======
</TABLE>


                                       97




<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>


                                       98




<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>


                                       99




<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>

     Item 9. Changes in and Disagreements With Accountants on Accounting and
             Financial Disclosure

     None.

     Item 9A. Controls and Procedures

(a)  The Company maintains disclosure controls and procedures that are designed
     to ensure 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. 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.

     The Company carried out an evaluation as of the end of the year covered by
     this annual report on Form 10-K under the supervision and with the
     participation of the Company's management, including the Company's
     principal executive officer and the Company's principal financial officer,
     of the effectiveness of the design and operation of the Company's
     disclosure controls and procedures. Based on the evaluation, the Company's
     principal executive officer and principal financial officer concluded that
     the Company's disclosure controls and procedures are effective as of the
     end of the year.

(b)  In light of the restatements described in "Management's Discussion
     and Analysis of Financial Condition and Results of Operations --
     Introduction -- Restatement of Financial Statements" in Item 7 included in
     this Annual Report, the Company considered whether any changes to enhance
     the Company's internal control processes and procedures were warranted.
     As a result of this consideration, the Company added personnel in its
     accounting department who are specifically devoted to internal control
     processes and procedures, instituted procedures for working more closely
     with the Company's outside actuary and continued a previously-initiated
     process to improve documentation of the bases for changes in the Company's
     reserves for legal and environmental matters. Except as noted in the
     preceding sentence, there were no significant 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.


                                      100




<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     A definitive proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act prior to the Company's Annual Meeting of
Stockholders to be held May 21, 2004. Therefore, information required under this
part, unless set forth below or set forth in "Executive Officers" in Item 1 of
this Annual Report, is incorporated herein by reference from such definitive
proxy statement.

Code of Ethics

     The Company has adopted a 'code of ethics', as defined in Item 406(b) of
Regulation S-K. The Company's code of ethics is known as its Code of Business
Conduct, applies to all directors, officers and employees of the Company,
including the Company's principal executive officer, its principal financial
officer and principal accounting officer, and its controller. The Company has
posted its Code of Business Conduct on its website, www.millenniumchem.com, and
the Code of Business Conduct is also available in print to any requesting
shareholder. In addition, the Company intends to satisfy the disclosure
requirements of Item 10 of Form 8-K regarding any amendment to, or waiver from,
a provision of the Code of Business Conduct that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller and relates to any element of the definition of code of
ethics set forth in Item 406(b) of Regulation S-K, by posting such information
on its website, www.millenniumchem.com.

Item 11. Executive Compensation

     A definitive proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act prior to the Company's Annual Meeting of
Stockholders to be held May 21, 2004. Therefore, information required under this
part is incorporated herein by reference from such definitive proxy statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     A definitive proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act prior to the Company's Annual Meeting of
Stockholders to be held May 21, 2004. Therefore, information required under this
part is incorporated herein by reference from such definitive proxy statement.

Item 13. Certain Relationships and Related Transactions

     A definitive proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act prior to the Company's Annual Meeting of
Stockholders to be held May 21, 2004. Therefore, information required under this
part is incorporated herein by reference from such definitive proxy statement.

Item 14. Principal Accountant Fees and Services

     A definitive proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act prior to the Company's Annual Meeting of
Stockholders to be held May 21, 2004. Therefore, information required under this
part is incorporated herein by reference from such definitive proxy statement.


                                      101




<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.   Supplemental Financial Information.

       The Supplemental Financial Information relating to Equistar consists of
the following:

<TABLE>
<CAPTION>
                                                                                       Page of
                                                                                     This Report
                                                                                     -----------
<S>                                                                                  <C>
Financial Statements of Equistar:
   Report of PricewaterhouseCoopers LLP...........................................       F-1
   Consolidated Statements of Income -- Years Ended December 31, 2003, 2002, and
      2001........................................................................       F-2
   Consolidated Balance Sheets -- December 31, 2003 and 2002......................       F-3
   Consolidated Statements of Cash Flows -- Years Ended December 31, 2003, 2002
     and 2001.....................................................................       F-4
   Consolidated Statements of Partners' Capital -- Years Ended December 31, 2003,
      2002 and 2001...............................................................       F-5
   Notes to Consolidated Financial Statements.....................................   F-6 to F-23
</TABLE>

2.   Financial Statement Schedule.

     Financial Statement Schedule II -- Valuation and Qualifying Accounts,
     located on page S-1 of this Annual Report, should be read in conjunction
     with the Financial Statements included in Item 8 of this Annual Report.
     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.

3.   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>


                                      102




<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number    Description
--------   -----------
<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>


                                      103




<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number    Description
--------   -----------
<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'

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'

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'

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'

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'

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'

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'
</TABLE>


                                      104




<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number    Description
--------   -----------
<S>        <C>
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'

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'

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)*

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)*
</TABLE>


                                      105




<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number    Description
--------   -----------
<S>        <C>
21.1       Subsidiaries of the Company**

23.1       Consent of PricewaterhouseCoopers LLP**

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 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 the date hereof.


                                      106




<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

March 12, 2004

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, and on the date set forth above.

<TABLE>
<CAPTION>
          Signature                                 Title
          ---------                                 -----
<S>                              <C>


      /s/ ROBERT E. LEE          President, Chief Executive Officer and Director
------------------------------   (principal executive officer)
       (Robert E. Lee)


   /s/ WORLEY H. CLARK, JR.      Chairman of the Board and Director
------------------------------
    (Worley H. Clark, Jr.)


    /s/ JOHN E. LUSHEFSKI        Executive Vice President and Chief Financial Officer
------------------------------   (principal financial and accounting officer)
     (John E. Lushefski)


        /s/ LORD BAKER           Director
------------------------------
  (The Rt. Hon. Lord Baker)


       /s/ MARY K. BUSH          Director
------------------------------
        (Mary K. Bush)


     /s/ IRVIN F. DIAMOND        Director
------------------------------
      (Irvin F. Diamond)


     /s/ LORD GLENARTHUR         Director
------------------------------
(The Rt. Hon. Lord Glenarthur)


     /s/ DAVID J.P. MEACHIN      Director
------------------------------
      (David J.P. Meachin)


    /s/ DANIEL S. VAN RIPER      Director
------------------------------
     (Daniel S. Van Riper)
</TABLE>


                                      107




<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Partnership Governance Committee
of Equistar Chemicals, LP

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of partners' capital and of cash flows
present fairly, in all material respects, the financial position of Equistar
Chemicals, LP (the "Partnership") and its subsidiaries 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. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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 2 to the consolidated financial statements, effective
January 1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 142, "Accounting for Goodwill and Other Intangible Assets."


/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 8, 2004


                                      F-1




<PAGE>

                             EQUISTAR CHEMICALS, LP

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                     For the year ended December 31,
                                                     -------------------------------
Millions of dollars                                      2003      2002     2001
-------------------                                     ------   -------   ------
<S>                                                     <C>      <C>       <C>
Sales and other operating revenues:
   Trade                                                $4,920   $ 4,295   $4,583
   Related parties                                       1,625     1,242    1,326
                                                        ------   -------   ------
                                                         6,545     5,537    5,909
                                                        ------   -------   ------

Operating costs and expenses:
   Cost of sales                                         6,387     5,388    5,755
   Selling, general and administrative expenses            182       155      181
   Research and development expenses                        38        38       39
   Losses on asset dispositions                             27        --       --
   Amortization of goodwill                                 --        --       33
                                                        ------   -------   ------
                                                         6,634     5,581    6,008
                                                        ------   -------   ------

   Operating loss                                          (89)      (44)     (99)

Interest expense                                          (215)     (205)    (192)
Interest income                                              8         1        3
Other income (expense), net                                (43)        2        5
                                                        ------   -------   ------

Loss before cumulative effect of accounting change        (339)     (246)    (283)

Cumulative effect of accounting change                      --    (1,053)      --
                                                        ------   -------   ------

Net loss                                                $ (339)  $(1,299)  $ (283)
                                                        ======   =======   ======
</TABLE>

               See Notes to the Consolidated Financial Statements.


                                      F-2




<PAGE>

                             EQUISTAR CHEMICALS, LP

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                 December 31,
                                               ---------------
Millions of dollars                             2003     2002
                                               ------   ------
<S>                                            <C>      <C>
ASSETS
Current assets:
   Cash and cash equivalents                   $  199   $   27
   Accounts receivable:
      Trade, net                                  471      490
      Related parties                             137      135
   Inventories                                    408      424
   Prepaid expenses and other current assets       46       50
                                               ------   ------
      Total current assets                      1,261    1,126

Property, plant and equipment, net              3,334    3,565
Investments                                        60       65
Other assets, net                                 373      296
                                               ------   ------

Total assets                                   $5,028   $5,052
                                               ======   ======

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
   Accounts payable:
      Trade                                    $  462   $  421
      Related parties                              51       38
   Current maturities of long-term debt            --       32
   Accrued liabilities                            241      223
                                               ------   ------
      Total current liabilities                   754      714

Long-term debt                                  2,314    2,196
Other liabilities and deferred revenues           359      221
Commitments and contingencies
Partners' capital:
   Partners' accounts                           1,619    1,958
   Accumulated other comprehensive loss           (18)     (37)
                                               ------   ------
      Total partners' capital                   1,601    1,921
                                               ------   ------

Total liabilities and partners' capital        $5,028   $5,052
                                               ======   ======
</TABLE>

               See Notes to the Consolidated Financial Statements.


                                      F-3




<PAGE>

                             EQUISTAR CHEMICALS, LP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  For the year ended December 31,
                                                                  ------------------------------
Millions of dollars                                                    2003     2002     2001
-------------------                                                   -----   -------   -----
<S>                                                                   <C>     <C>       <C>
Cash flows from operating activities:
   Net loss                                                           $(339)  $(1,299)  $(283)
   Adjustments to reconcile net loss to cash provided by
    operating activities:
      Cumulative effect of accounting change                             --     1,053      --
      Depreciation and amortization                                     307       298     319
      Deferred maintenance turnaround expenditures                      (97)      (49)    (15)
      Debt prepayment premiums and charges                               30        --       3
      Net losses (gains)  on asset dispositions                          27        --      (3)
   Changes in assets and liabilities that provided (used) cash:
      Accounts receivable                                                26       (54)    222
      Inventories                                                         4        24      61
      Accounts payable                                                   40        99    (129)
      Deferred revenues                                                 147        23      --
      Other assets and liabilities, net                                  19       (40)     55
                                                                      -----   -------   -----
         Cash provided by operating activities                          164        55     230
                                                                      -----   -------   -----

Cash flows from investing activities:
   Expenditures for property, plant and equipment                      (106)     (118)   (110)
   Proceeds from sales of assets                                         69        --      10
   Other                                                                 --        (6)     (7)
                                                                      -----   -------   -----
         Cash used in investing activities                              (37)     (124)   (107)
                                                                      -----   -------   -----

Cash flows from financing activities:
     Issuance of long-term debt                                         695        --     981
     Repayment of long-term debt                                       (642)     (104)    (91)
     Net repayment under lines of credit                                 --        --    (820)
     Other                                                               (8)       (2)     (9)
                                                                      -----   -------   -----
         Cash provided by (used in) financing activities                 45      (106)     61
                                                                      -----   -------   -----

Increase (decrease) in cash and cash equivalents                        172      (175)    184
Cash and cash equivalents at beginning of period                         27       202      18
                                                                      -----   -------   -----
Cash and cash equivalents at end of period                            $ 199   $    27   $ 202
                                                                      =====   =======   =====
</TABLE>

               See Notes to the Consolidated Financial Statements.


                                      F-4




<PAGE>

                             EQUISTAR CHEMICALS, LP

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                              Partners' Accounts                     Other
                                  --------------------------------------------   Comprehensive   Comprehensive
Millions of dollars               Lyondell   Millennium   Occidental    Total    Income (Loss)   Income (Loss)
-------------------               --------   ----------   ----------   -------   -------------   -------------
<S>                                <C>         <C>          <C>        <C>            <C>          <C>
Balance at January 1, 2001         $  476      $1,517       $ 1,547    $ 3,540        $ --

   Net loss                          (115)        (84)          (84)      (283)         --         $  (283)
   Other comprehensive income -
     Minimum pension liability         --          --            --         --         (19)            (19)
     Other                             --          --            --         --          (1)             (1)
                                   ------      ------       -------    -------        ----         -------

   Comprehensive loss                                                                              $  (303)
                                                                                                   =======

Balance at December 31, 2001       $  361      $1,433       $ 1,463    $ 3,257        $(20)

   Net loss                          (569)       (383)         (347)    (1,299)         --         $(1,299)
   Lyondell purchase of
      Occidental interest           1,116          --        (1,116)        --          --
   Other comprehensive income -
      minimum pension liability        --          --            --         --         (17)            (17)
                                   ------      ------       -------    -------        ----         -------

   Comprehensive loss                                                                              $(1,316)
                                                                                                   =======

Balance at December 31, 2002       $  908      $1,050       $    --    $ 1,958        $(37)

   Net loss                          (239)       (100)           --       (339)         --         $  (339)
   Other comprehensive income -
      minimum pension liability        --          --            --         --          16              16
      Other                            --          --            --         --           3               3
                                   ------      ------       -------    -------        ----         -------

   Comprehensive loss                                                                              $  (320)
                                                                                                   =======

Balance at December 31, 2003       $  669      $  950       $    --    $ 1,619        $(18)
                                   ======      ======       =======    =======        ====
</TABLE>

               See Notes to the Consolidated Financial Statements.


                                       F-5




<PAGE>

                             EQUISTAR CHEMICALS, LP

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.   Formation of the Partnership and Operations

Equistar Chemicals, LP ("Equistar" or "the Partnership"), a Delaware limited
partnership which commenced operations on December 1, 1997, was formed by
Lyondell Chemical Company and subsidiaries ("Lyondell") and Millennium Chemicals
Inc. and subsidiaries ("Millennium"). On May 15, 1998, Equistar was expanded
with the contribution of certain assets from Occidental Petroleum Corporation
and subsidiaries ("Occidental"). Until August 22, 2002, Equistar was owned 41%
by Lyondell, 29.5% by Millennium and 29.5% by Occidental. On August 22, 2002,
Lyondell purchased Occidental's interest in Equistar and, as a result,
Lyondell's ownership interest in Equistar increased to 70.5%.

Equistar owns and operates the petrochemicals and polymers businesses originally
contributed by Lyondell, Millennium and Occidental. The petrochemicals segment
manufactures and markets olefins, oxygenated products, aromatics and specialty
products. Olefins include ethylene, propylene and butadiene, and oxygenated
products include ethylene oxide, ethylene glycol, ethanol and methyl tertiary
butyl ether ("MTBE"). The petrochemicals segment also includes the production
and sale of aromatics, including benzene and toluene. The polymers segment
manufactures and markets polyolefins, including high-density polyethylene
("HDPE"), low-density polyethylene ("LDPE"), linear low-density polyethylene
("LLDPE"), polypropylene and performance polymers, all of which are used in the
production of a wide variety of consumer and industrial products. The
performance polymers include enhanced grades of polyethylene, including wire and
cable insulating resins, and polymeric powders.

Equistar is governed by a Partnership Governance Committee consisting of six
representatives, three appointed by each general partner. Most of the
significant decisions of the Partnership Governance Committee require unanimous
consent, including approval of the Partnership's strategic plan, capital
expenditures and annual budget, issuance of additional debt and the appointment
of executive management of the Partnership. Distributions are made to the
partners based upon their percentage ownership of Equistar. Additional cash
contributions required by the Partnership are also based upon the partners'
percentage ownership of Equistar.

2.   Summary of Significant Accounting Policies

Basis of Presentation--The consolidated financial statements include the
accounts of Equistar and its wholly owned subsidiaries.

Revenue Recognition--Revenue from product sales is recognized as risk and title
to the product transfer to the customer, which usually occurs when shipment is
made.

Cash and Cash Equivalents--Cash equivalents consist of highly liquid debt
instruments such as certificates of deposit, commercial paper and money market
accounts purchased with maturities of three months or less when acquired. Cash
equivalents are stated at cost, which approximates fair value. Equistar's policy
is to invest cash in conservative, highly rated instruments and to limit the
amount of credit exposure to any one institution.

Equistar has no requirements for compensating balances in a specific amount at a
specific point in time. The Partnership does maintain compensating balances for
some of its banking services and products. Such balances are maintained on an
average basis and are solely at Equistar's discretion. As a result, none of
Equistar's cash is restricted.

Inventories--Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method, except for materials
and supplies, which are valued using the average cost method.

Inventory exchange transactions, which involve fungible commodities and do not
involve the payment or receipt of cash, are not accounted for as purchases and
sales. Any resulting volumetric exchange balances are accounted for as inventory
in accordance with the normal LIFO valuation policy.


                                      F-6




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property, Plant and Equipment--Property, plant and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the estimated
useful asset lives, generally 25 years for major manufacturing equipment, 30
years for buildings, 10 to 15 years for light equipment and instrumentation, 15
years for office furniture and 3 to 5 years for information systems equipment.
Upon retirement or sale, Equistar removes the cost of the assets and the related
accumulated depreciation from the accounts and reflects any resulting gains or
losses in the Consolidated Statements of Income. Equistar's policy is to
capitalize interest cost incurred on debt during the construction of major
projects exceeding one year.

Long-Lived Asset Impairment--Equistar evaluates long-lived assets, including
identifiable intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When it is probable that undiscounted future cash flows will not be
sufficient to recover an asset's carrying amount, the asset is written down to
its estimated fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or estimated fair value less costs to sell the
assets.

Investments--Equistar's investments primarily consist of a 50% interest in a
joint venture that owns an ethylene glycol facility in Beaumont, Texas ("PD
Glycol"). The investment in PD Glycol is accounted for using the equity method
of accounting.

Turnaround Maintenance and Repair Costs--Costs of maintenance and repairs
exceeding $5 million incurred in connection with turnarounds of major units at
Equistar's manufacturing facilities are deferred and amortized using the
straight-line method over the period until the next planned turnaround,
generally 5 to 7 years. These costs are necessary to maintain, extend and
improve the operating capacity and efficiency rates of the production units.

Identifiable Intangible Assets--Costs to purchase and to develop software for
internal use are deferred and amortized on a straight-line basis over periods of
3 to 10 years.

Other intangible assets are carried at amortized cost and primarily consist of
deferred debt issuance costs, licensed technology and other long-term processing
rights and costs. These assets are amortized using the straight-line method over
their estimated useful lives or the term of the related agreement, if shorter.

Environmental Remediation Costs--Anticipated expenditures related to
investigation and remediation of contaminated sites, which include operating
facilities and waste disposal sites, are accrued when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated. Estimated expenditures have not been discounted to present value.

Income Taxes--The Partnership is not subject to federal income taxes as income
is reportable directly by the individual partners; therefore, there is no
provision for income taxes in the accompanying financial statements.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Accounting and Reporting Changes--Effective January 1, 2003, Equistar
implemented Statement of Financial Accounting Standards ("SFAS") No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections. The primary impact of the statement on Equistar
is the classification of gains or losses that result from the early
extinguishment of debt as an element of income before extraordinary items.
Previously, such gains and losses were classified as extraordinary items. The
Consolidated Statements of Income reflect these changes for all periods
presented. Equistar incurred a loss of $3 million on the early
extinguishment of debt in the year ended December 31, 2001.


                                      F-7




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132 (Revised 2003), Employers' Disclosures about Pensions and Other
Postretirement Benefits, effective December 31, 2003, and requiring more details
about pension plan assets, benefit obligations, cash flows, benefit costs and
related information. SFAS No. 132 (Revised 2003) also requires Equistar to
disclose pension and postretirement benefit costs in interim-period financial
statements beginning in 2004. Equistar increased its pension disclosure to
comply with SFAS No. 132 (Revised 2003). See Note 12.

In January 2004, the FASB issued FASB Staff Position ("FSP") FAS 106-1,
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. The FSP permits a sponsor of a
retiree health benefit plan to make a one-time election to defer recognition of
the effects of the new Medicare legislation in accounting for its plans under
SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, or in making disclosures related to its plans required by SFAS No. 132
(Revised 2003), until the FASB develops and issues authoritative guidance on
accounting for subsidies provided by the Act. Such FASB guidance could require a
change in currently reported information. Equistar elected to make the one-time
deferral and is currently evaluating the effect of the FSP FAS 106-1.

Effective January 1, 2003, Equistar adopted SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses obligations associated with the
retirement of tangible long-lived assets, and SFAS No. 146, Accounting for Exit
or Disposal Activities, which addresses the recognition, measurement, and
reporting of costs associated with exit and disposal activities, including
restructuring activities and facility closings. Equistar's adoption of the
provisions of SFAS No. 143 and SFAS No. 146 had no material impact on its
financial statements.

In December 2003, the FASB issued FASB Interpretation No. 46 (Revised December
2003), Consolidation of Variable Interest Entities ("FIN 46R"), primarily to
clarify the required accounting for interests in variable interest entities
("VIEs"). This standard replaces FIN 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. Equistar's application of FIN 46R has no material
impact on its consolidated financial statements.

Effective January 1, 2002, Equistar implemented SFAS No. 142, Goodwill and Other
Intangible Assets. Upon implementation of SFAS No. 142, Equistar reviewed
goodwill for impairment and concluded that the entire balance of goodwill was
impaired, resulting in a $1.1 billion charge to earnings that was reported as
the cumulative effect of an accounting change as of January 1, 2002. The
conclusion was based on a comparison to Equistar's indicated fair value, using
multiples of EBITDA (earnings before interest, taxes, depreciation and
amortization) for comparable companies as an indicator of fair value.

As a result of implementing SFAS No. 142, income in 2002 and subsequent years is
favorably affected by $33 million annually because of the elimination of
goodwill amortization. The following table presents Equistar's results of
operations for all periods presented as adjusted to eliminate goodwill
amortization.

<TABLE>
<CAPTION>
                                            For the year ended December 31,
                                            -------------------------------
Millions of dollars                           2003        2002        2001
-------------------                         --------   ----------   -------
<S>                                          <C>         <C>         <C>
Reported income (loss) before
   cumulative effect of accounting change    $(339)      $  (246)    $(283)
Add back: goodwill amortization                 --            --        33
                                             -----       -------     -----
Adjusted income (loss) before
   cumulative effect of accounting change    $(339)      $  (246)    $(250)
                                             =====       =======     =====

Reported net income (loss)                   $(339)      $(1,299)    $(283)
Add back: goodwill amortization                 --            --        33
                                             -----       -------     -----
Adjusted net income (loss)                   $(339)      $(1,299)    $(250)
                                             =====       =======     =====
</TABLE>


                                      F-8




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reclassifications--Certain previously reported amounts have been reclassified to
conform to classifications adopted in 2003.

3.   Related Party Transactions

As a result of Lyondell's August 2002 purchase of Occidental's interest in
Equistar (see Note 1), Occidental has two representatives on Lyondell's board of
directors and, as of December 31, 2003, Occidental owned approximately 22% of
Lyondell. In view of Occidental's representation on Lyondell's Board of
Directors and its ownership position with Lyondell, which owns 70.5% of
Equistar, Occidental's transactions with Equistar subsequent to August 22, 2002
will continue to be reported as related party transactions in Equistar's
Consolidated Statements of Income and Consolidated Balance Sheets.

Product Transactions with Lyondell--Lyondell purchases ethylene, propylene and
benzene at market-related prices from Equistar under various agreements expiring
in 2013 and 2014. With the exception of one pre-existing third-party product
supply agreement expiring in 2015, Lyondell is required, under the agreements,
to purchase 100% of its ethylene, propylene and benzene requirements for its
Channelview and Bayport, Texas facilities from Equistar. Lyondell licenses MTBE
technology to Equistar, and purchases a significant portion of the MTBE produced
by Equistar at one of its two Channelview units at market-related prices.
Lyondell also purchases natural gas used in its methanol facility from Equistar.

Through December 31, 2003, Equistar acted as sales agent for the methanol
products of Lyondell. Equistar also provides operating and other services for
Lyondell, including the lease to Lyondell by Equistar of the real property on
which the methanol plant is located. Pursuant to the terms of those agreements,
Lyondell paid Equistar a management fee and reimbursed certain expenses of
Equistar at cost.

Product Transactions with Millennium--Equistar sells ethylene to Millennium at
market-related prices pursuant to an agreement entered into in connection with
the formation of Equistar. Under this agreement, Millennium is required to
purchase 100% of its ethylene requirements for its LaPorte, Texas facility from
Equistar. The initial term of the contract expired December 31, 2000. It
continues thereafter for one-year periods unless either party serves notice
twelve months in advance. The contract will continue, at a minimum, through
December 31, 2005.

Also, under an agreement entered into in connection with the formation of
Equistar, Equistar is required to purchase 100% of its vinyl acetate monomer raw
material requirements at market-related prices from Millennium for the
production of ethylene vinyl acetate products at its LaPorte, Texas; Clinton,
Iowa and Morris, Illinois plants. This contract expired December 31, 2000 and
renews annually. Equistar has provided notice to Millennium to terminate the
vinyl acetate monomer agreement, effective December 31, 2004.

Product Transactions with Occidental--In connection with the contribution of
Occidental assets to Equistar, Equistar and Occidental entered into a long-term
agreement for Equistar to supply substantially all of the ethylene requirements
for Occidental's U.S. manufacturing plants at market-related prices. The
ethylene is exclusively for internal use in production at these plants, less a
specified quantity per year tolled in accordance with the provisions of the
agreement. Either party has the option to "phase down" volumes over time.
However, a "phase down" cannot begin until January 1, 2009 and the annual
required minimum cannot decline to zero prior to December 31, 2013, unless
certain specified force majeure events occur. In addition to ethylene, Equistar
sells methanol, ethers and glycols to Occidental. Equistar also purchases
various other products from Occidental at market-related prices.

Product Transactions with Oxy Vinyls, LP--During 2003, Equistar sold ethylene to
Oxy Vinyls, LP ("Oxy Vinyls"), a joint venture partnership between Occidental
and an unaffiliated party, for Oxy Vinyls' LaPorte, Texas facility at
market-related prices pursuant to an agreement that expired December 31, 2003.


                                      F-9




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Transactions with LYONDELL-CITGO Refining LP--Equistar has product sales and raw
material purchase agreements with LYONDELL-CITGO Refining LP ("LCR"), a joint
venture investment of Lyondell. Certain olefins by-products are sold by Equistar
to LCR for processing into gasoline and certain refinery products are sold by
LCR to Equistar as raw materials. Equistar also has processing and storage
arrangements with LCR and provides certain marketing services for LCR. All of
the agreements between LCR and Equistar are on terms generally representative of
prevailing market prices.

Shared Services Agreement with Lyondell--Under a shared services agreement,
Lyondell provides office space and various services to Equistar including
information technology, human resources, sales and marketing, raw material
supply, supply chain, health, safety and environmental, engineering, research
and development, facility services, legal, accounting, treasury, internal audit
and tax. Lyondell charges Equistar for Equistar's share of the cost of such
services. Direct costs, incurred exclusively for Equistar, also are charged to
Equistar. Costs related to a limited number of shared services, primarily
engineering, continue to be incurred by Equistar. In such cases, Equistar
charges Lyondell for its share of such costs.

Shared Services and Shared-Site Agreements with Millennium--Equistar and
Millennium have agreements under which Equistar provides utilities and fuel
streams to Millennium. In addition, Millennium provides Equistar with certain
operational services, including utilities, as well as barge dock access and
related services.

Lease Agreements with Occidental--Equistar subleases certain railcars from
Occidental. In addition, Equistar leases its Lake Charles facility and the land
related thereto from Occidental - see "Leased Facility" section of Note 13.

Related party transactions are summarized as follows:

<TABLE>
<CAPTION>
                                                       For the year ended December 31,
                                                       -------------------------------
Millions of dollars                                      2003       2002        2001
-------------------                                    --------   --------   ---------
<S>                                                      <C>        <C>         <C>
Equistar billed related parties for:
   Sales of products and processing services:
      Lyondell                                           $610       $459        $405
      Occidental                                          448        358         441
      LCR                                                 467        340         377
      Millennium                                           46         43          55
      Oxy Vinyls                                           55         42          48

   Shared services and shared site agreements:
      LCR                                                   3          4           3
      Lyondell                                             18         16          18
      Millennium                                            8          9          17

   Natural gas purchased for Lyondell                      98         76          86

Related parties billed Equistar for:
   Purchases of products:
      LCR                                                $227       $218        $203
      Millennium                                           10         10          15
      Lyondell                                              5          1           4
      Occidental                                            1          1           1

   Shared services, transition and lease agreements:
      Lyondell                                            154        134         135
      Millennium                                           15         16          19
      Occidental                                            7          7           6
      LCR                                                  --          1           2
</TABLE>


                                      F-10




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4.   Accounts Receivable

Equistar sells its products primarily to other chemical manufacturers in the
petrochemicals and polymers industries. Equistar performs ongoing credit
evaluations of its customers' financial condition and, in certain circumstances,
requires letters of credit from them. The Partnership's allowance for doubtful
accounts, which is reflected in the accompanying Consolidated Balance Sheets as
a reduction of accounts receivable, totaled $12 million and $16 million at
December 31, 2003 and 2002, respectively.

In December 2003, Equistar entered into a new $450 million, four-year, accounts
receivable sales facility to replace Equistar's previous $100 million accounts
receivable sales facility. Pursuant to the facility, Equistar sells, through a
wholly owned bankruptcy remote subidiary, on an ongoing basis and without
recourse, an interest in a pool of accounts receivable to financial institutions
participating in the facility. Equistar is responsible for servicing the
receivables.

At December 31, 2003 and 2002, the balance of Equistar's accounts receivable
sold under the facilities was $102 million and $81 million, respectively.
Accounts receivable in the Consolidated Balance Sheets are reduced by the
sales of interests in the pool. Upon termination of the facility, cash
collections related to accounts receivable then in the pool would first be
applied to the outstanding interest sold. Increases and decreases in the amount
sold are reflected in operating activities in the Consolidated Statements of
Cash Flows. Fees related to the sales are included in "Other income (expense),
net" in the Consolidated Statements of Income. The new accounts receivable sales
facility is subject to substantially the same minimum unused availability
requirements and covenant requirements as the new inventory-based revolving
credit facility, which is secured by a pledge of accounts receivable. See
Note 9. The new facility does not contain ratings triggers.

5.   Inventories

Inventories consisted of the following components at December 31:

<TABLE>
<CAPTION>
Millions of dollars      2003   2002
-------------------      ----   ----
<S>                      <C>    <C>
Finished goods           $223   $233
Work-in-process            12     12
Raw materials              83     85
Materials and supplies     90     94
                         ----   ----
   Total inventories     $408   $424
                         ====   ====
</TABLE>

The excess of the current cost of inventories over book value was approximately
$101 million at December 31, 2003. In December 2003, Equistar entered into a
$250 million, four-year, inventory-based revolving credit facility. See Note 9.


                                      F-11




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6.   Property, Plant and Equipment and Other Assets

The components of property, plant and equipment, at cost, and the related
accumulated depreciation were as follows at December 31:

<TABLE>
<CAPTION>
Millions of dollars                        2003      2002
-------------------                      -------   -------
<S>                                      <C>       <C>
Land                                     $    76   $    80
Manufacturing facilities and equipment     6,015     6,037
Construction in progress                      63        60
                                         -------   -------
   Total property, plant and equipment     6,154     6,177
Less accumulated depreciation             (2,820)   (2,612)
                                         -------   -------
   Property, plant and equipment, net    $ 3,334   $ 3,565
                                         =======   =======
</TABLE>

During 2003, Equistar refocused certain polymer research and development ("R&D")
programs, resulting in a charge of $11 million to write off the net book value
of certain R&D facilities at Equistar's Morris, Illinois plant that was shutdown
at the end of 2003. Also in 2003, Equistar sold a polypropylene production
facility in Pasadena, Texas for a loss of $12 million. The effects of these
transactions were included in "Losses on asset dispositions" in the Consolidated
Statements of Income.

Equistar did not capitalize any interest during 2003, 2002 and 2001 with respect
to construction projects.

The components of other assets, at cost, and the related accumulated
amortization were as follows at December 31:

<TABLE>
<CAPTION>
                                     2003                         2002
                          --------------------------   --------------------------
                                  Accumulated                  Accumulated
Millions of dollars       Cost   Amortization    Net   Cost   Amortization    Net
-------------------       ----   ------------   ----   ----   ------------   ----
<S>                       <C>        <C>        <C>    <C>        <C>        <C>
Intangible assets:
   Turnaround costs       $249       $ (77)     $172   $193       $ (94)     $ 99
   Software costs          153         (85)       68    150         (66)       84
   Debt issuance costs      45         (11)       34     43         (13)       30
   Catalyst costs           34         (20)       14     23         (11)       12
   Other                    70         (16)       54     58         (17)       41
                          ----       -----      ----   ----       -----      ----
Total intangible assets   $551       $(209)      342   $467       $(201)      266
                          ====       =====             ====       =====
Pension asset                                     18                           21
Other                                             13                            9
                                                ----                         ----
Total other assets                              $373                         $296
                                                ====                         ====
</TABLE>

Scheduled amortization of these intangible assets for the next five years is
estimated to be $58 million in 2004, $53 million in 2005, $49 million in 2006,
$39 million in 2007 and $29 million in 2008.


                                      F-12




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Depreciation and amortization expense is summarized as follows:

<TABLE>
<CAPTION>
                                                              For the year ended
                                                                 December 31,
                                                              ------------------
Millions of dollars                                           2003   2002   2001
-------------------                                           ----   ----   ----
<S>                                                           <C>    <C>    <C>
Property, plant and equipment                                 $246   $242   $237
Goodwill                                                        --     --     33
Turnaround costs                                                30     24     20
Software costs                                                  16     15     12
Other                                                           15     17     17
                                                              ----   ----   ----
  Total depreciation and amortization                         $307   $298   $319
                                                              ====   ====   ====
</TABLE>

In addition, amortization of debt issuance costs of $7 million, $7 million and
$2 million in 2003, 2002 and 2001, respectively, is included in interest expense
in the Consolidated Statements of Income.

7.   Accrued Liabilities

Accrued liabilities consisted of the following components at December 31:

<TABLE>
<CAPTION>
Millions of dollars                                                  2003   2002
-------------------                                                  ----   ----
<S>                                                                  <C>    <C>
Taxes other than income                                              $ 74   $ 65
Interest                                                               64     65
Contractual obligations                                                30     34
Payroll and benefits                                                   27     42
Deferred revenues                                                      14     --
Other                                                                  32     17
                                                                     ----   ----
   Total accrued liabilities                                         $241   $223
                                                                     ====   ====
</TABLE>

8.   Deferred Revenues

In March 2003, Equistar received an advance of $159 million, representing a
partial prepayment for product to be delivered under a long-term product supply
arrangement, primarily at cost-based prices. Equistar will recognize this
deferred revenue over 15 years, as the associated product is delivered.

In December 2002, Equistar received a $25 million initial advance from a
customer in connection with a long-term product supply agreement under which
Equistar is obligated to deliver product at cost-based prices. Equistar will
recognize this deferred revenue as the product is delivered, which is expected
to be over 9 years.

Trade sales and other operating revenues included $12 million in 2003 and $2
million in 2002 representing deferred revenue earned in those periods.


                                      F-13




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9.   Long-Term Debt

Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
Millions of dollars                                             2003      2002
-------------------                                            ------   -------
<S>                                                            <C>      <C>
Bank credit facility:
   Inventory-based revolving credit facility                   $   --   $   --
   Revolving credit facility                                       --       --
   Term loan due 2007                                              --      296
Other debt obligations:
   Medium-term notes due 2003-2005                                  1       30
   Senior Notes due 2004, 8.50%                                    --      300
   Notes due 2006, 6.50%                                          150      150
   Senior Notes due 2008, 10.125%                                 700      700
   Senior Notes due 2009, 8.75%                                   600      600
   Senior Notes due 2011, 10.625%                                 700       --
   Debentures due 2026, 7.55%                                     150      150
   Other                                                            3        3
   Unamortized premium (discount), net                             10       (1)
                                                               ------   ------
      Total                                                     2,314    2,228
Less current maturities                                            --       32
                                                               ------   ------
      Total long-term debt                                     $2,314   $2,196
                                                               ======   ======
</TABLE>

The term loan due 2007, which was paid in full in 2003, had a weighted-average
interest rate of 4.80%, 5.25% and 6.26% during 2003, 2002 and 2001,
respectively. The medium-term notes had a weighted-average interest rate of
9.51% at December 31, 2003 and 9.75% at December 31, 2002 and 2001.

The 6.5% notes and the 7.55% debentures were assumed by Equistar from Lyondell
when Equistar was formed in 1997. As between Equistar and Lyondell, Equistar is
primarily liable for this debt. Lyondell is a guarantor of the 6.5% notes and
the 7.55% debentures. The consolidated financial statements of Lyondell are
filed as an exhibit to Equistar's Annual Report on Form 10-K for the year ended
December 31, 2003.

Aggregate maturities of long-term debt during the next five years are $1 million
in 2005; $150 million in 2006; $700 million in 2008 and $1.5 billion thereafter.
There are no scheduled maturities of long-term debt in 2004 and 2007.

In December 2003, Equistar entered into a new $250 million, four-year,
inventory-based revolving credit facility which replaced Equistar's previous
$354 million revolving credit facility. The total amount available at December
31, 2003 under both the new $250 million inventory-based revolving credit
facility and the new $450 million accounts receivable sales facility (see Note
4) was approximately $430 million, which gives effect to the borrowing base less
a $75 million unused availability requirement and is net of the $102 million
sold under the accounts receivable facility and $18 million of outstanding
letters of credit under the revolving credit facility. The borrowing base is
determined using a formula applied to accounts receivable and inventory
balances. The new revolving credit facility requires that the unused available
amounts under that facility and the $450 million accounts receivable sales
facility equal or exceed $75 million through March 30, 2005 and $50 million
thereafter or $100 million thereafter if the interest coverage ratio, as
defined, is less than 2:1. At December 31, 2003, the interest rate under the new
inventory-based revolving credit facility was LIBOR plus 2.5%. The new revolving
credit facility is secured by a lien on all inventory and certain personal
property, including a pledge of accounts receivable. There was no borrowing
under the new revolving credit facility at December 31, 2003.


                                      F-14




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In November 2003, Equistar issued $250 million of 10.625% senior unsecured notes
due in 2011. The proceeds, net of related fees, were used to prepay in full $173
million of the outstanding term loan under Equistar's previous credit facility
and to repay borrowing under Equistar's previous $354 million revolving credit
facility. In September 2003, $29 million of Equistar's medium term notes matured
and were repaid using funds borrowed under Equistar's revolving credit facility.
In April 2003, Equistar issued $450 million of 10.625% senior unsecured notes
due in 2011. The proceeds, net of related fees, were used to prepay $300 million
of 8.5% notes due in the first quarter 2004, approximately $122 million of term
loans under Equistar's credit facility and prepayment premiums of approximately
$17 million.

In March 2003 and 2002, Equistar obtained amendments to its previous $354
million revolving credit facility that provided additional financial flexibility
by generally making certain financial ratio requirements less restrictive.

During October 2002, Equistar entered into an agreement to sell certain accounts
receivable and received cash proceeds of $100 million. See Note 4. Equistar used
the $100 million proceeds to reduce borrowing under the previous $354 million
revolving credit facility and for general corporate purposes.

The new $250 million revolving credit facility and the indentures governing
Equistar's senior unsecured notes contain covenants that, subject to certain
exceptions, restrict lien incurrence, debt incurrence, sales of assets,
investments, capital expenditures, certain payments, and mergers. The new credit
facility does not require Equistar to maintain specified financial ratios. The
breach of these covenants would permit the lenders or noteholders to declare any
outstanding debt immediately payable, and would permit the lenders under
Equistar's credit facility to terminate future lending commitments. Equistar was
in compliance with all such covenants as of December 31, 2003.

10.  Lease Commitments

Equistar leases various facilities and equipment under noncancelable operating
lease arrangements for various periods. Operating leases include leases of
railcars used in the distribution of products in Equistar's business.

At December 31, 2003, future minimum lease payments relating to noncancelable
operating leases with lease terms in excess of one year were as follows:

<TABLE>
<CAPTION>
                                                                         Minimum
                                                                         Lease
Millions of dollars                                                     Payments
-------------------                                                     --------
<S>                                                                       <C>
2004                                                                      $ 76
2005                                                                        60
2006                                                                        51
2007                                                                        43
2008                                                                        41
Thereafter                                                                 314
                                                                          ----
   Total minimum lease payments                                           $585
                                                                          ====
</TABLE>

Operating lease net rental expense was $106 million, $125 million and $110
million for the years ending December 31, 2003, 2002 and 2001, respectively. Net
rental expense in 2002 included $21 million of amortization of lease prepayments
related to certain railcar leases that were terminated as of December 31, 2003.


                                      F-15




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11.  Financial Instruments and Derivatives

The fair value of all nonderivative financial instruments included in current
assets and current liabilities, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, approximated their
carrying value due to their short maturity. Based on the borrowing rates
currently available to Equistar for debt with terms and average maturities
similar to Equistar's debt portfolio, the fair value of Equistar's long-term
debt, including amounts due within one year, was approximately $2,459 million
and $2,031 million at December 31, 2003 and 2002, respectively.

Equistar is exposed to credit risk with respect to accounts receivable. Equistar
performs ongoing credit evaluations of its customers and, in certain
circumstances, requires letters of credit from the customers. See Note 4.

12.  Pension and Other Postretirement Benefits

All full-time regular employees are covered by defined benefit pension plans
sponsored by Equistar. In connection with the formation of Equistar, no pension
assets or obligations were contributed to Equistar, with the exception of union
represented plans contributed by Occidental and Millennium.

Retirement benefits are based upon years of service and the employee's highest
three consecutive years of compensation during the last ten years of service.
Equistar funds the plans through periodic contributions to pension trust funds.
Equistar also has unfunded supplemental nonqualified retirement plans, which
provide pension benefits for certain employees in excess of the U.S.
tax-qualified plans' limits. In addition, Equistar sponsors unfunded
postretirement benefit plans other than pensions, which provide medical and life
insurance benefits. The postretirement medical plans are contributory while the
life insurance plans are, generally, noncontributory. The life insurance
benefits are provided to employees who retired before July 1, 2002. The
measurement date for Equistar's pension and other postretirement benefit plans
is December 31, 2003.


                                      F-16




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table provides a reconciliation of benefit obligations, plan
assets and the funded status of these plans:

<TABLE>
<CAPTION>
                                                                  Other
                                                  Pension     Postretirement
                                                  Benefits       Benefits
                                                ----------------------------
Millions of dollars                             2003   2002    2003    2002
-------------------                             ----   ----   -----   ------
<S>                                             <C>    <C>    <C>     <C>
Change in benefit obligation:
   Benefit obligation, January 1                $170   $147   $ 108   $ 112
   Service cost                                   17     16       3       2
   Interest cost                                  10     11       7       7
   Plan amendments                                --     (2)     --     (13)
   Actuarial loss (gain)                           1      8       5       2
   Benefits paid                                  (8)   (10)     (4)     (2)
                                                ----   ----   -----   -----
   Benefit obligation, December 31               190    170     119     108
                                                ----   ----   -----   -----
Change in plan assets:
   Fair value of plan assets, January 1          102    107
   Actual return on plan assets                   23    (13)
   Partnership contributions                      15     18
   Benefits paid                                  (8)   (10)
                                                ----   ----
   Fair value of plan assets, December 31        132    102
                                                ----   ----

   Funded status                                 (58)   (68)   (119)   (108)
   Unrecognized actuarial and investment loss     56     76      12       7
   Unrecognized prior service cost                (2)    (2)     12      14
                                                ----   ----   -----   -----
   Net amount recognized                        $ (4)  $  6   $ (95)  $ (87)
                                                ====   ====   =====   =====
Amounts recognized in the
   Consolidated Balance Sheet consist of:
   Prepaid benefit cost                         $ 18   $ 21   $  --   $  --
   Accrued benefit liability                     (42)   (51)    (95)    (87)
   Accumulated other comprehensive income         20     36      --      --
                                                ----   ----   -----   -----
   Net amount recognized                        $ (4)  $  6   $ (95)  $ (87)
                                                ====   ====   =====   =====
Additional Information:
Accumulated benefit obligation
   for defined benefit plans, December 31       $158   $142
Increase (decrease) in minimum liability
   included in other comprehensive loss          (16)    17
</TABLE>

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

<TABLE>
<CAPTION>
Millions of dollars                                                  2003   2002
-------------------                                                  ----   ----
<S>                                                                  <C>    <C>
Projected benefit obligation                                         $171   $150
Accumulated benefit obligations                                       139    123
Fair value of assets                                                  109     81
</TABLE>


                                      F-17




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net periodic pension and other postretirement benefit costs included the
following components:

<TABLE>
<CAPTION>
                                                            Other Postretirement
                                        Pension Benefits          Benefits
                                       ------------------   --------------------
Millions of dollars                    2003   2002   2001    2003   2002   2001
-------------------                    ----   ----   ----    ----   ----   ----
<S>                                    <C>    <C>    <C>      <C>    <C>    <C>
Components of net periodic
 benefit cost:
   Service cost                        $ 17   $ 16   $ 16     $ 3    $ 2    $ 2
   Interest cost                         10     11     10       7      7      6

   Actual (gain) loss on plan assets    (23)    13      6      --     --     --
   Less-unrecognized gain (loss)         15    (24)   (17)     --     --     --
                                       ----   ----   ----     ---    ---    ---
   Recognized gain on plan assets        (8)   (11)   (11)     --     --     --

   Amortization of actuarial and
      investment loss                     7      4      2      --     --     --
   Prior service cost                    --     --     --       2      2     --
   Net effect of curtailments,
      settlements and special
      termination benefits               --     --      3      --     --      2
                                       ----   ----   ----     ---    ---    ---
   Net periodic benefit cost           $ 26   $ 20   $ 20     $12    $11    $10
                                       ====   ====   ====     ===    ===    ===
</TABLE>

The assumptions used in determining the net benefit liability were as follows at
December 31:

<TABLE>
<CAPTION>
                                                        Other Postretirement
                                     Pension Benefits         Benefits
                                     ----------------   --------------------
                                        2003   2002          2003   2002
                                        ----   ----          ----   ----
<S>                                     <C>    <C>           <C>    <C>
Weighted-average assumptions as of
 December 31:
   Discount rate                        6.25%  6.50%         6.25%  6.50%
   Rate of compensation increase        4.50%  4.50%
</TABLE>

The assumptions used in determining net benefit cost were as follows at December
31:

<TABLE>
<CAPTION>
                                                         Other Postretirement
                                     Pension Benefits          Benefits
                                    ------------------   --------------------
                                    2003   2002   2001    2003   2002   2001
                                    ----   ----   ----    ----   ----   ----
<S>                                 <C>    <C>    <C>     <C>    <C>    <C>
Weighted-average assumptions
 for the year:
   Discount rate                    6.50%  7.00%  7.50%   6.50%  7.00%  7.50%
   Expected return on plan assets   8.00%  9.50%  9.50%
   Rate of compensation increase    4.50%  4.50%  4.50%
</TABLE>

Management's goal is to manage pension investments over the long term to achieve
optimal returns with an acceptable level of risk and volatility. Targeted asset
allocations of 55% U.S. equity securities, 15% non-U.S. equity securities, and
30% fixed income securities were adopted in 2003 for the plans based on
recommendations by its independent pension investment advisor. Investment
policies prohibit investments in securities issued by Equistar or an affiliate,
such as Lyondell or Millennium, or investment in speculative derivative
instruments. The investments are marketable securities that provide sufficient
liquidity to meet expected benefit obligation payments.

The expected rate of return on plan assets is a longer term rate, and is
expected to change less frequently than the current assumed discount rate,
reflecting long-term market expectations, rather than current fluctuations in
market conditions. Prior to 2003, Equistar's expected long-term rate of return
on plan assets of 9.5% had been based on the


                                      F-18




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

average level of earnings that its independent pension investment advisor had
advised could be expected to be earned over time, using the expected returns for
the above-noted asset allocations that had been recommended by the advisor, and
had been adopted for the plans. Over the three-year period ended December 31,
2003, Equistar's actual return on plan assets was a gain averaging 0.9% per
year. In 2003, Equistar reviewed its asset allocation and expected long-term
rate of return assumptions, and obtained an updated asset allocation study from
the independent pension investment advisor, including updated expectations for
long-term market earnings rates for various classes of investments. Based on
this review, Equistar reduced its expected long-term rate of return on plan
assets to 8%, and did not significantly change its plan asset allocations.

Equistar's pension plan weighted-average asset allocations by asset category
were as follows at December 31:

<TABLE>
<CAPTION>
                                                       2003 Policy   2003   2002
                                                       -----------   ----   ----
<S>                                                        <C>        <C>    <C>
Asset Category:
U.S. equity securities                                      55%        53%    48%
Non-U.S. equity securities                                  15%        18%    20%
Fixed income securities                                     30%        29%    32%
                                                           ---        ---    ---
   Total                                                   100%       100%   100%
                                                           ===        ===    ===
</TABLE>

Equistar expects to contribute approximately $17 million to its pension plan in
2004.

As of December 31, 2003, future expected benefit payments, which reflect
expected future service, as appropriate, were as follows:

<TABLE>
<CAPTION>
                                                              Pension     Other
Millions of dollars                                          Benefits   Benefits
-------------------                                          --------   --------
<C>                                                             <C>        <C>
2004                                                            $10        $ 6
2005                                                             12          7
2006                                                             13          7
2007                                                             14          8
2008                                                             15          8
2009 through 2013                                                92         47
</TABLE>

The assumed annual rate of increase in the per capita cost of covered health
care benefits as of December 31, 2003 was 10.0% for 2004, 7.0% for 2005 through
2007 and 5.0% thereafter. The health care cost trend rate assumption does not
have a significant effect on the amounts reported due to limits on Equistar's
maximum contribution level under the medical plan. To illustrate, increasing or
decreasing the assumed health care cost trend rates by one percentage point in
each year would change the accumulated postretirement benefit liability as of
December 31, 2003 by less than $1 million and would not have a material effect
on the aggregate service and interest cost components of the net periodic
postretirement benefit cost for the year then ended.

Equistar also maintains voluntary defined contribution savings plans for
eligible employees. Contributions to the plans by Equistar were $12 million, $13
million and $16 million for the years ended December 31, 2003, 2002 and 2001,
respectively.

13. Commitments and Contingencies

Commitments--Equistar has various purchase commitments for materials, supplies
and services incident to the ordinary conduct of business, generally for
quantities required for Equistar's businesses and at prevailing market prices.
See also Note 3, describing related party commitments.


                                      F-19




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Equistar is party to various unconditional purchase obligation contracts as a
purchaser for products and services, principally for steam and power. At
December 31, 2003, future minimum payments under those contracts with
noncancelable contract terms in excess of one year and fixed minimum payments
were as follows:

<TABLE>
<CAPTION>
Millions of dollars
-------------------
<S>                                                                       <C>
 2004                                                                     $  230
 2005                                                                        231
 2006                                                                        227
 2007                                                                        218
 2008                                                                        199
 Thereafter through 2023                                                   2,416
                                                                          ------
   Total minimum contract payments                                        $3,521
                                                                          ======
</TABLE>

Equistar's total purchases under these agreements were $244 million and $230
million for the years ended December 31, 2003 and 2002, respectively.

Leased Facility--Equistar's Lake Charles facility has been idled since the first
quarter of 2001, pending sustained improvement in market conditions. The
facility and land, which are included in property, plant and equipment at a net
book value of $152 million, are leased from Occidental. In May 2003, Equistar
and Occidental entered into a new one-year lease, which has renewal provisions
for two additional one-year periods at either party's option.

Indemnification Arrangements--Lyondell, Millennium and Occidental have each
agreed to provide certain indemnifications or guarantees thereof to Equistar
with respect to the petrochemicals and polymers businesses they each
contributed. In addition, Equistar has agreed to assume third party claims that
are related to certain contingent liabilities arising prior to the contribution
transactions that are filed prior to December 1, 2004 as to Lyondell and
Millennium, and May 15, 2005 as to Occidental, to the extent the aggregate
thereof does not exceed $7 million for each entity, subject to certain terms
of the respective asset contribution agreements. From formation through December
31, 2003, Equistar had incurred a total of $20 million for these claims and
liabilities. Lyondell, Millennium, Occidental and Equistar remain liable under
these indemnification or guarantee arrangements to the same extent as they were
before Lyondell's August 2002 acquisition of Occidental's interest in Equistar.

Environmental Remediation--Equistar's accrued liability for environmental
matters as of December 31, 2003 was $1 million and primarily related to the Port
Arthur facility, which was permanently shut down in February 2001. In the
opinion of management, there is currently no material estimable range of
possible loss in excess of the liability recorded for environmental remediation.

Clean Air Act--The eight-county Houston/Galveston region has been designated a
severe non-attainment area under the one-hour ozone standard by the U.S.
Environmental Protection Agency ("EPA"). As a result, in December 2000, the
Texas Commission on Environmental Quality ("TCEQ") submitted a plan to the EPA
to reach and demonstrate compliance with the ozone standard by November 2007.
Ozone is a product of the reaction between volatile organic compounds and
nitrogen oxides ("NOx") in the presence of sunlight, and is a principal
component of smog. Emission reduction controls for NOx must be installed at each
of Equistar's six plants located in the Houston/Galveston region during the next
several years. Revised rules adopted by the TCEQ in December 2002 changed the
required NOx emission reduction levels from 90% to 80% while requiring new
controls on emissions of HRVOCs, such as ethylene, propylene, butadiene and
butylenes. The TCEQ plans to make a final review of these rules, with final rule
revisions to be adopted by October 2004. These rules also still require approval
by the EPA. Under the revised 80% standard, Equistar estimates that the
incremental capital expenditures would range between $165 million and $200
million. Of these amounts, Equistar's spending through December 31, 2003 totaled
$69 million. However, the above estimate could be affected by increased costs
for stricter proposed controls over HRVOCs. The timing and amount of these
expenditures are subject to regulatory and other uncertainties, as well as
obtaining the necessary permits and approvals. Equistar is still assessing the
impact of the new HRVOC control


                                      F-20




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

requirements. There can be no guarantee as to the ultimate cost of implementing
any final plan developed to ensure ozone attainment by the 2007 deadline.

General--Equistar is involved in various lawsuits and proceedings. Subject to
the uncertainty inherent in all litigation, management believes the resolution
of these proceedings will not have a material adverse effect on the financial
position, liquidity or results of operations of Equistar.

14. Supplemental Cash Flow Information

Supplemental cash flow information is summarized as follows for the periods
presented:

<TABLE>
<CAPTION>
                                                 For the year ended December 31,
                                                 -------------------------------
Millions of dollars                                     2003   2002   2001
-------------------                                     ----   ----   ----
<S>                                                     <C>    <C>    <C>
Cash paid for interest                                  $208   $200   $171
                                                        ====   ====   ====
</TABLE>

15. Segment Information and Related Information

Equistar operates in two reportable segments, petrochemicals and polymers (see
Note 1). The accounting policies of the segments are the same as those described
in "Summary of Significant Accounting Policies" (see Note 2). No customer
accounted for 10% or more of sales during any year in the three-year period
ended December 31, 2003.


                                      F-21




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summarized financial information concerning Equistar's reportable segments is
shown in the following table. Intersegment sales between the petrochemicals and
polymers segments were based on current market prices.

<TABLE>
<CAPTION>
Millions of dollars                     Petrochemicals   Polymers   Unallocated   Eliminations   Consolidated
-------------------                     --------------   --------   -----------   ------------   ------------
<S>                                         <C>           <C>          <C>          <C>             <C>
For the year ended December 31, 2003:
Sales and other operating revenues:
   Customers                                $4,522        $2,023       $   --       $   --          $6,545
   Intersegment                              1,514            --           --        (1,514)            --
                                            ------        ------       ------       -------         -------
                                             6,036         2,023           --        (1,514)         6,545

Operating income (loss)                        124           (78)        (135)           --            (89)
Total assets                                 3,388         1,283          357            --          5,028
Capital expenditures                            74            32           --            --            106
Depreciation and
   amortization expense                        228            57           22            --            307

For the year ended December 31, 2002:
Sales and other operating revenues:
   Customers                                $3,669        $1,868       $   --       $    --         $5,537
   Intersegment                              1,288            --           --        (1,288)            --
                                            ------        ------       ------       -------         ------
                                             4,957         1,868           --        (1,288)         5,537

Operating income (loss)                        146           (74)        (116)           --            (44)
Total assets                                 3,410         1,438          204            --          5,052
Capital expenditures                            58            59            1            --            118
Depreciation and
   amortization expense                        217            58           23            --            298

For the year ended December 31, 2001:
Sales and other operating revenues:
   Customers                                $3,929        $1,980       $   --       $    --          $5,909
   Intersegment                              1,455            --           --        (1,455)             --
                                            ------        ------       ------       -------          ------
                                             5,384         1,980           --        (1,455)          5,909

Operating income (loss)                        275          (186)        (188)           --             (99)
Total assets                                 3,474         1,400        1,464            --           6,338
Capital expenditures                            84            24            2            --             110
Depreciation and
   amortization expense                        204            58           57            --             319
</TABLE>

The following table presents the details of "Operating income (loss)" as
presented above in the "Unallocated" column for the years ended December 31,
2003, 2002 and 2001.

<TABLE>
<CAPTION>
Millions of dollars                                    2003    2002    2001
-------------------                                   -----   -----   -----
<S>                                                   <C>     <C>     <C>
Items not allocated to petrochemicals and polymers:
   Principally general and administrative expenses    $(135)  $(116)  $(166)
   Other                                                 --     --      (22)
                                                      -----   -----   -----
      Operating income (loss)                         $(135)  $(116)  $(188)
                                                      =====   =====   =====
</TABLE>


                                      F-22




<PAGE>

                             EQUISTAR CHEMICALS, LP

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table presents the details of "Total assets" as presented above in
the "Unallocated" column as of December 31, for the years indicated:

<TABLE>
<CAPTION>
Millions of dollars                              2003   2002    2001
-------------------                              ----   ----   ------
<S>                                              <C>    <C>    <C>
Cash and cash equivalents                        $199   $ 27   $  202
Accounts receivable--trade and related parties      2     --       17
Prepaid expenses and other current assets          17     22       20
Property, plant and equipment, net                 13     18       23
Goodwill, net                                      --     --    1,053
Other assets, net                                 126    137      149
                                                 ----   ----   ------
   Total assets                                  $357   $204   $1,464
                                                 ====   ====   ======
</TABLE>


                                      F-23




<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.


                                      S-1




<PAGE>

                                  Exhibit Index

<TABLE>
<CAPTION>
Exhibit
 Number                         Description of Document
-------                         -----------------------
<S>        <C>
10.7(e)    Amendment dated as of November, 2002, to the Millennium Chemicals
           Inc. Long Term Stock Incentive Plan'D'

10.9(b)    Amendment dated as of November, 2002, to the Millennium Chemicals
           Grandfathered Supplemental Executive Retirement Plan'D'

10.10(b)   Amendment dated as of November, 2002, to the Millennium
           Petrochemicals Grandfathered Supplemental Executive Retirement Plan'D'

10.11(b)   Amendment dated as of November, 2002, to the Millennium Inorganic
           Chemicals Inc. Grandfathered Supplemental Executive Retirement Plan'D'

10.12(b)   Amendment dated as of November, 2002, to the Millennium Specialty
           Chemicals Inc. Grandfathered Supplemental Executive Retirement Plan'D'

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 Incentive Plan'D'

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

10.20(d)   Amendment dated as of November, 2002, to the Millennium Chemicals
           Inc. 2001 Omnibus Incentive Compensation Plan'D'

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'

21.1       Subsidiaries of the Company

23.1       Consent of PricewaterhouseCoopers LLP

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 Principle 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 Principle 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>

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


                           STATEMENT OF DIFFERENCES

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