<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, 1997

                                       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)
                            ------------------------

<TABLE>
<S>                                                    <C>               <C>
                      DELAWARE                                                        22-3436215
           (STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER IDENTIFICATION NO.)
           INCORPORATION OR ORGANIZATION)

                 230 HALF MILE ROAD                         07701              (PRIOR TO APRIL 1, 1998,
                    P.O. BOX 7015                        (ZIP CODE)          THE ADDRESS OF THE PRINCIPAL
                RED BANK, NEW JERSEY                                             EXECUTIVE OFFICE WAS:
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                   99 WOOD AVENUE SOUTH,
                                                                               ISELIN, NEW JERSEY 08830)
</TABLE>

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 732-933-5000
                            ------------------------

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                                                               NAME OF EACH EXCHANGE
        TITLE OF EACH CLASS                                     ON WHICH REGISTERED
------------------------------------                          ------------------------
<S>                                                           <C>
Common Stock, par value $0.01 per                              New York Stock Exchange
  share (including rights to purchase
  Series A Preferred Stock)
</TABLE>

          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 was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 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. [ ]

     The aggregate market value of voting stock held by non-affiliates as of
March 20, 1998 (based upon the closing price of $31.00 per common share as
quoted on the New York Stock Exchange) is approximately $2,283,000,000. For
purposes of this computation, the shares of voting stock held by directors,
officers and the registrant's employee benefit plans were deemed to be stock
held by affiliates. The number of shares of common stock outstanding at March
20, 1998 was 77,383,646 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1997, are incorporated by reference into Parts I and II of
this Annual Report on Form 10-K as indicated herein. Portions of the
Registrant's definitive Proxy Statement relating to the 1998 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 OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                                                          PAGE
----                                                                                                          ----
<C>    <S>                                                                                                    <C>
                                                      PART I
 1.    Business............................................................................................     3
 2.    Properties..........................................................................................    23
 3.    Legal Proceedings...................................................................................    24
 4.    Submission of Matters to a Vote of Security Holders.................................................    25

                                                     PART II
 5.    Market for the Registrant's Common Equity and Related Shareholder Matters...........................    26
 6.    Selected Financial Data.............................................................................    26
 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations...............    26
 8.    Financial Statements and Supplementary Data.........................................................    26
 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................    26

                                                     PART III
10.    Directors and Executive Officers of the Registrant..................................................    26
11.    Executive Compensation..............................................................................    27
12.    Security Ownership of Certain Beneficial Owners and Management......................................    27
13.    Certain Relationships and Related Transactions......................................................    27

                                                     PART IV
14.    Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................    27
</TABLE>

DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

     All statements, other than statements of historical fact, included in the
Annual Report to Shareholders for the year ended December 31, 1997, and in this
Annual Report on Form 10-K, including, without limitation, the statements under
'Business -- Strategy' included in this Annual Report on Form 10-K and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included in the Annual Report to Shareholders and incorporated by
reference in this Annual Report on Form 10-K, are, or may be deemed to be,
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 (the 'Exchange Act'). Important factors that could cause
actual results to differ materially from those discussed in such forward-looking
statements ('Cautionary Statements') include: material changes in the
relationship between industry production capacity and operating rates on the one
hand, and demand for the products of Millennium Chemicals Inc. (the 'Company')
and Equistar Chemicals, LP ('Equistar'), including ethylene, polyethylene and
titanium dioxide, on the other hand; the economic trends in the United States
and other countries which serve as the Company's and Equistar's marketplaces;
customer inventory levels; competitive pricing pressures; the cost and
availability of the Company's and Equistar's feedstocks and other raw materials,
including natural gas and ethylene; competitive technology positions; and
failure to achieve the Company's or Equistar's productivity improvement and
cost-reduction targets or to complete construction projects on schedule.

     Some of these Cautionary Statements are discussed in more detail under
'Business' in this Annual Report on Form 10-K and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' in the Annual Report
to Shareholders. 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 such Cautionary Statements.

                                       2




<PAGE>
ITEM 1. BUSINESS

     Millennium Chemicals Inc. (the 'Company') is a major international
chemicals company, with leading market positions in a broad range of commodity,
industrial, performance and specialty chemicals.

     The Company has three principal operating subsidiaries: Millennium
Inorganic Chemicals Inc. (collectively, with its non-U.S. affiliates,
'Millennium Inorganic Chemicals', formerly known as SCM Chemicals Inc.);
Millennium Petrochemicals Inc. ('Millennium Petrochemicals', formerly known as
Quantum Chemical Corporation); and Millennium Specialty Chemicals Inc.
('Millennium Specialty Chemicals', formerly known as Glidco Inc.) The Company
also owns a 43% interest in Equistar Chemicals, LP ('Equistar'), a joint venture
formed by the Company and Lyondell Petrochemical Company ('Lyondell') to jointly
own and operate the olefins and polymers businesses of the Company and Lyondell.
Equistar commenced operations on December 1, 1997. The Company accounts for its
43% interest in Equistar as an equity investment.

     The Company has leading market positions in the United States ('U.S.') and
the world:

           Millennium Inorganic Chemicals is the second-largest producer of
           titanium dioxide ('TiO2') in the world, with manufacturing facilities
           in the U.S., the United Kingdom ('U.K.'), France and Australia.
           Millennium Inorganic Chemicals is also the largest merchant producer
           of titanium tetrachloride ('TiCl4') in the U.S. and Europe;

           Millennium Petrochemicals is the second-largest producer of acetic
           acid and vinyl acetate monomer ('VAM') in the U.S. and the
           fifth-largest producer of methanol in the U.S.;

           Millennium Specialty Chemicals is the world's largest producer of
           terpene fragrance chemicals, the world's second-largest manufacturer
           of cadmium-based pigments and a major producer of silica gel; and

           Through its 43% interest in Equistar, the Company is a partner in the
           largest producer of ethylene and polyethylene in the U.S., and a
           leading producer of performance polymers, ethyl alcohol, aromatics
           and specialty chemicals.

     In addition, an indirect subsidiary of the Company serves as the general
partner of Suburban Propane Partners, L.P. ('Suburban Propane'), a
publicly-traded limited partnership which, through an operating partnership, is
the third-largest retail marketer of propane in the U.S. The Company owns a 2%
general partnership interest and a 24.4% subordinated limited partnership
interest, each on a combined basis, in these partnerships. The Company accounts
for its 26.4% interest in Suburban Propane as an equity investment.

DEVELOPMENT OF BUSINESS

     The Company has been an independent, publicly-owned company since its
demerger (i.e., spin-off) on October 1, 1996 (the 'Demerger') from Hanson PLC
('Hanson'). In connection with the Demerger, Hanson transferred its chemical
operations to the Company and the Company issued to Hanson's shareholders all of
the Company's then outstanding Common Stock, par value $.01 per share (the
'Common Stock'). For additional information concerning the Demerger, see Note 1
to the Company's Consolidated (Combined) Financial Statements included in the
Company's Annual Report to Shareholders.

     In July 1997, the Company and Lyondell announced an agreement to combine
their olefins and polyolefins businesses to form a joint venture. Following
approval by the shareholders of the Company and Lyondell, Equistar began
operations on December 1, 1997. The Company contributed to Equistar
substantially all of the assets comprising its polyethylene, alcohol and related
products business segment, which had been owned by Millennium Petrochemicals. In
exchange, the Company received a 43% interest in Equistar, Equistar repaid $750
million of debt due to the Company from its contributed businesses, the Company
retained $250 million of certain accounts receivable and Equistar assumed
certain liabilities from the Company. A subsidiary of the Company guaranteed
$750 million of Equistar's newly issued bank debt. The Company used the $750
million received from Equistar, together with collected proceeds of the retained
accounts receivable, to repay debt under its revolving credit

                                       3




<PAGE>
facility. Lyondell contributed to Equistar substantially all of the assets
comprising its petrochemicals and polymers business segments, as well as a $345
million note. In exchange, Lyondell received its 57% interest in Equistar, and
Equistar assumed $745 million of Lyondell's debt and certain liabilities from
Lyondell.

     On December 31, 1997, the Company completed the purchase of the shares of
Thann et Mulhouse S.A. ('Thann et Mulhouse'), the TiO2, TiCl4 and specialty
chemicals subsidiary of Rhone-Poulenc Chimie S.A. ('Rhone-Poulenc'), for $185
million, including assumed debt, establishing Millennium Inorganic Chemicals as
the world's second-largest producer of TiO2, based on reported production
capacities.

     On March 20, 1998, the Company, Lyondell and Occidental Petroleum
Corporation ('Occidental') announced the signing of a definitive agreement to
expand Equistar with the addition of the ethylene, propylene, ethylene oxide and
derivatives businesses of Occidental's chemical subsidiary. Occidental will
contribute the net assets of these businesses (including approximately $200
million of related debt) to Equistar. Equistar will borrow an additional $500
million, approximately $425 million of which will be distributed to Occidental
and $75 million of which will be distributed to the Company. The transaction,
which is subject to a number of conditions (including approval by Occidental's
Board of Directors, the receipt of certain regulatory approvals and the
amendment of Equistar's credit facility to provide an additional $500 million in
debt), is expected to close by mid-year 1998. Upon the completion of the
transaction, Equistar will be owned 41% by Lyondell, 29.5% by Occidental and
29.5% by the Company.

     For additional information concerning the Thann et Mulhouse acquisition and
Equistar, see Notes 2 and 13 to the Company's Consolidated (Combined) Financial
Statements included in the Company's Annual Report to Shareholders.

     The Company was incorporated in Delaware on April 18, 1996. The Company's
U.K. office is located at LaPorte Road, Stallingborough, Grimsby, North East
Lincolnshire, DN40 2PR, England. Its U.K. telephone number is 0345-662663. The
Company's principal executive offices in the U.S. are located at 230 Half Mile
Road, P.O. Box 7015, Red Bank, New Jersey 07701. Its U.S. telephone number is
(732) 933-5000.

     In this Annual Report: (i) references to the Company are to the Company and
its consolidated subsidiaries, except as the context otherwise requires; (ii)
references to the activities of, and financial information with respect to, the
Company prior to October 1, 1996, are to the historical activities and combined
historical financial information of the businesses that were transferred to the
Company by Hanson in connection with the Demerger; (iii) references to 'tonnes'
are to metric tons, equal to 1,000 kilograms or 2,204.6 pounds, and references
to 'tpa' are to tonnes per annum; and, (iv) references to the Company's and
Equistar's annual rated capacity and annual production capacity are based upon
engineering assessments made by the Company and Equistar, respectively. Actual
production may vary depending on a number of factors including feedstocks,
product mix, unscheduled maintenance and demand.

                                    STRATEGY

     The Company's strategy is to maximize long-term cash flow, and thereby
create value, through improved efficiency at existing operations, disciplined
capital expenditures, selective dispositions, selective acquisitions of
intermediate and specialty chemical businesses, and the reduction of leverage.
In addition to building upon its leading market positions in its existing lines
of business, the Company will seek to increase efficiency and reduce costs at
its existing businesses, including Equistar, focus its production on more
profitable value-added products, expand its operations worldwide and increase
the proportion of its business that is less cyclical in nature. The Company
emphasizes stock ownership by management and links a significant portion of
management's compensation to the achievement of performance targets, including
targets based on economic value creation and the Company's performance relative
to its industry peers.

     The following are key elements of the Company's strategy:

     Expand Existing Businesses and Increase the Proportion of Business that is
Less Cyclical. The Company seeks to capitalize upon the leading market positions
of Millennium Inorganic Chemicals,

                                       4




<PAGE>
Millennium Petrochemicals and Millennium Specialty Chemicals by expanding in
domestic and international markets through capital expenditures and, as
opportunities permit, selective acquisitions. On December 31, 1997, the Company
completed its acquisition of the TiO2 assets and certain specialty and
intermediate chemical operations of Rhone-Poulenc's Thann et Mulhouse
subsidiary, establishing the Company as the world's second-largest producer of
TiO2, based on reported production capacities. In addition, Millennium Inorganic
Chemicals' expansion project in Stallingborough, U.K., is on target to be
completed at the end of 1998, with production ramping up in early 1999. This
expansion project will add 41,000 tpa to Millennium Inorganic Chemicals'
capacity, thus increasing its total global capacity to 652,000 tpa. The
formation of Equistar by the Company and Lyondell on December 1, 1997, reduced
the Company's exposure to the cyclical ethylene and polyethylene business by
approximately 28%. Due to the conversion of Millennium Petrochemicals' syngas
plant in late 1996 from residuum (heavy oil) to natural gas feedstock, methanol
capacity increased from 140 million gallons to 207 million gallons per year and
methanol production costs were reduced substantially.

     Maintain Low-Cost Position in Commodity, Industrial and Performance
Chemicals. The Company seeks to increase the competitiveness of its commodity,
industrial and performance chemicals businesses by improving the efficiency of
existing operations through ongoing investment in technology, new processes and
equipment. Millennium Inorganic Chemicals' program to remove at least $200 per
metric ton of costs from its TiO2 production compared to 1996 levels is well
under way, with more than half of that goal achieved by the end of 1997. The
Company has instituted a $48 million global SAP software-supported business
improvement project which is scheduled for completion in July 1999. This project
is designed to make the Company a more efficient, globally-integrated operation.
Millennium Petrochemicals' syngas plant conversion in 1996 reduced its methanol
production costs significantly. The Company believes that Equistar will generate
incremental synergistic benefits exceeding $150 million per annum by 2000, and
over $275 million with the addition of Occidental's operations.

     Increase Production and Marketing of Value-Added Products. The Company
seeks to expand its position as a supplier of less cyclical, value-added
intermediate and specialty chemicals, which historically command higher margins
than commodity chemicals. Millennium Inorganic Chemicals will commence
construction in 1998 of a new $18 million technical center near Baltimore,
Maryland. The new center should help foster innovations and allow better
products to be brought to market in a shorter time frame. Millennium Specialty
Chemical's expansion project, launched in 1995, was successfully completed in
1997, resulting in a cumulative increase of approximately 80% in its capacity
for producing linalool and geraniol, two major fragrance chemicals. Millennium
Specialty Chemicals is now rolling out the next phase of its expansion and
cost-reduction projects, with 1998 capital expenditures forecast to reach $27
million, and is currently studying an expansion of its silica gel production
capacity. In addition, the Company's acquisition of Thann et Mulhouse included
certain intermediate and specialty chemical businesses, including TiCl4 and
zirconium-based compounds.

     Emphasize Management Stock Ownership and Performance-Based Compensation. In
order to align the interests of the Company's management and shareholders, the
Company has established guidelines for significant investment by management in
Common Stock. The Company's top 28 executive officers and senior managers owned
shares of Common Stock with a market value of over $10.8 million at March 20,
1998 (including shares purchased under the Company's Salary and Bonus Deferral
Plan, some of which are subject to forfeiture, but not including restricted
Common Stock awarded under the Company's Long Term Stock Incentive Plan). In
addition, management's long-term incentive compensation (including the vesting
of 75% of the awards of restricted stock) is dependent upon the achievement of
performance goals based on value creation targets and the Company's performance
relative to industry peers. Information relating to these guidelines and plans
is presented under the heading 'Executive Compensation' in the Company's Proxy
Statement for its 1998 Annual Meeting of Shareholders.

     Provide a Safe and Ethical Workplace. The Company seeks to provide a safe
and ethical workplace environment that encourages open communication, personal
development, teamwork and reward for positive contribution to the achievement of
its goals. As a member of the Chemical Manufacturers Association, the Company is
committed to support a continuing effort to improve the industry's responsible
management of chemicals. To that end, the Company has formed a Responsible
Care'r'

                                       5




<PAGE>
committee to promote the principles and practices of Responsible Care to all our
sites, to ensure that the Company is a leader in Responsible Care health, safety
and environmental performance, and to set safety performance goals, share best
practices and focus on ways to implement Responsible Care initiatives.

                               BUSINESS SEGMENTS

     The Company's principal operations are grouped into four business segments:
'titanium dioxide and related products,' which are produced by Millennium
Inorganic Chemicals; 'acetyls,' which are produced by Millennium Petrochemicals;
'specialty chemicals,' which are produced by Millennium Specialty Chemicals and
Millennium Inorganic Chemicals; and 'polyethylene, alcohol and related
products,' which were produced by Millennium Petrochemicals prior to December 1,
1997. On December 1, 1997, the Company contributed the businesses comprising the
polyethylene, alcohol and related products segment to Equistar. Results of these
businesses for the eleven months ended November 30, 1997, prior to such
contribution, are included in the Company's Consolidated (Combined) Financial
Statements. Since December 1, 1997, the Company's 43% interest in Equistar is
accounted for as an equity investment. The Company's 26.4% interest in Suburban
Propane is also accounted for as an equity investment. (See Note 12 of the
Company's Consolidated (Combined) Financial Statements included in the Company's
Annual Report to Shareholders for financial information about the Company's
business segments. See the Financial Statements of Equistar included in this
Annual Report on Form 10-K for financial information about Equistar.)

                               PRINCIPAL PRODUCTS

     The following is a description of the Company's principal products at
December 31, 1997:

<TABLE>
<CAPTION>
                   PRODUCT                                                    USES
---------------------------------------------  ------------------------------------------------------------------
<S>                                            <C>
Titanium dioxide and related products:
     Titanium dioxide ('TiO2')...............  A non-hazardous white pigment used to provide whiteness,
                                               brightness and opacity in a variety of consumer and industrial
                                               products, including paints and coatings, plastics, paper and
                                               rubber.
     Titanium tetrachloride ('TiCl4')........  The intermediate product in making TiO2. TiCl4 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.
Acetyls:
     Vinyl acetate monomer ('VAM')...........  A petrochemical product used to produce adhesives, water-based
                                               paints, textile coatings, paper coatings and a variety of polymer
                                               products.
     Acetic acid.............................  A feedstock used to produce VAM, terephthalic acid (used to
                                               produce polyester for textiles and plastic bottles) and industrial
                                               solvents.
     Methanol................................  A feedstock used to produce: acetic acid; methyl tertiary butyl
                                               ether ('MTBE'), a gasoline additive; and formaldehyde.
Specialty chemicals:
     Terpene fragrance chemicals.............  Components blended together to make fragrances and flavors used in
                                               detergents, soaps, personal care items, perfumes and food
                                               products.
</TABLE>

                                                  (table continued on next page)

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(table continued from previous page)

<TABLE>
<CAPTION>
                   PRODUCT                                                    USES
---------------------------------------------  ------------------------------------------------------------------
<S>                                            <C>
     Cadmium-based pigments..................  Inorganic colors used in engineered plastics, artist's colors,
                                               ceramics, inks, automotive refinish coatings, coil and extrusion
                                               coatings, aerospace coatings and specialty industrial finishes.
     Silica gel..............................  Inorganic product used to reduce gloss and to control flow in
                                               coatings. Also used to stabilize and extend the shelf life of
                                               beer, plastic films, powdered food products and pharmaceuticals.
     Zirconium-based compounds...............  Chemicals used to enhance optics, in coloring for ceramics and in
                                               pigment surface treatment.
     Specialty TiO2..........................  Micropure and ultra-fine products for optical, electronic, and
                                               ultra-violet absorption applications.
</TABLE>

                         MILLENNIUM INORGANIC CHEMICALS

TITANIUM DIOXIDE

     Millennium Inorganic Chemicals is the second-largest producer of TiO2 in
the world, based on reported production capacities. TiO2 is a white pigment used
for imparting whiteness, brightness and opacity in a wide range of products,
including paints and coatings, plastics, paper and elastomers.

     The following table sets forth Millennium Inorganic Chemicals' TiO2 annual
production capacity, as of December 31, 1997, using the chloride process and the
sulfate process discussed below, and the approximate percentage of its total
production capacity represented by each such process.

                 MILLENNIUM INORGANIC CHEMICALS RATED CAPACITY
                         METRIC TONS PER ANNUM ('TPA')

<TABLE>
<CAPTION>
PROCESS                                                              CAPACITY
------------------------------------------------------------------   --------

<S>                                                                  <C>         <C>
Chloride..........................................................    429,000     (70%)
Sulfate(*)........................................................    182,000     (30%)
     Total........................................................    611,000    (100%)
</TABLE>

------------

* Includes 138,000 tpa of sulfate-process capacity in France that was acquired
  from Rhone-Poulenc on December 31, 1997.

     TiO2 is produced in two crystalline forms: rutile and anatase. Rutile TiO2
is a more tightly packed crystal that has a higher refractive index than anatase
TiO2 and, therefore, better opacification and tinting strength in many
applications. Some rutile TiO2 products also provide better resistance to the
harmful effects of weather. Rutile TiO2 is the preferred form for use in
coatings, ink and plastics. Anatase TiO2 has a bluer undertone and is less
abrasive than rutile TiO2. It is often preferred for use in paper, ceramics,
rubber and man-made fibers.

     TiO2 producers process titaniferous ores that range from brown to black in
color 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 TiO2, 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 TiO2 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 TiO2 pigment has been
produced by either the chloride or sulfate process, it is 'finished' into a
product with specific

                                       7




<PAGE>
performance characteristics for particular end-use applications through
proprietary processes involving surface treatment with various chemicals and
combinations of milling and micronizing.

     Due to customer preferences, as well as economic and environmental factors,
the TiO2 industry's worldwide chloride-process capacity has increased
significantly relative to sulfate-process capacity during the last twenty years
and currently represents just over half of total industry capacity. Millennium
Inorganic Chemicals is the world's second-largest producer of TiO2 by the
chloride production process, with approximately 70% of its year-end worldwide
production capacity based on proprietary chloride-process technology.

     Millennium Inorganic Chemicals' eight TiO2 plants are located in the three
major world markets for TiO2: North America, Western Europe and the Asia/Pacific
region. Its North American plants, consisting of two in Baltimore, Maryland, and
two in Ashtabula, Ohio, have aggregate production capacities of 241,000 tpa
using the chloride process and 44,000 tpa using the sulfate process. Its
Stallingborough, U.K., plant has chloride-process production capacity of 109,000
tpa. Millennium Inorganic Chemicals will spend approximately $50 million in 1998
to complete its Stallingborough chloride-process plant expansion. Construction
will be completed in late 1998 and production will ramp up in early 1999,
increasing TiO2 capacity at this plant by 41,000 tpa. Such expenditures will be
funded by the Company's internally generated cash and borrowings under its
credit facilities. The newly-acquired plants in France at Le Havre, Normandy,
and Thann, Alsace, have sulfate-process capacities of 105,000 tpa and 33,000
tpa, respectively. The Kemerton plant in Western Australia has chloride-process
production capacity of 79,000 tpa. Approximately 47% of Millennium Inorganic
Chemicals' current TiO2 production capacity is located in the North American
market, approximately 40% in the Western European market and approximately 13%
in the Asia/Pacific market.

     Excluding the recently-acquired plants in France, Millennium Inorganic
Chemicals' plants operated at an average of 97% of installed capacity during
1997, 88% during 1996 and 96% during 1995.

     Titanium-bearing ores used in the TiO2 extraction process (ilmenite,
natural rutile and leucoxene) occur as mineral sands and hard rock in many parts
of the world. Mining companies increasingly treat these natural ores to extract
iron and other minerals and produce slags or synthetic rutiles with higher TiO2
concentrations, resulting in lower rates of waste by-products during the TiO2
production process. Ores are shipped by bulk carriers from terminals in the
country of origin to TiO2 production plants, usually located near port
facilities. Millennium Inorganic Chemicals obtains ores from a number of
suppliers in South Africa, Australia, Canada and Norway, generally pursuant to
three-to-eight-year term supply contracts. Rio Tinto Iron & Titanium Inc.
(through its affiliates Richards Bay Iron & Titanium (Proprietary) Limited and
QIT-Fer et Titane Inc.) and RGC Mineral Sands Limited are the world's largest
producers of titanium ores and upgraded titaniferous raw materials and accounted
for approximately 86% of the titanium ores and upgraded titaniferous raw
materials purchased by Millennium Inorganic Chemicals in 1997.

     Other major raw materials used in the production of TiO2 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 Millennium Inorganic
Chemicals' Australian plant, chlorine and caustic soda are obtained exclusively
from one supplier under a long-term supply agreement. Millennium Inorganic
Chemicals has experienced tightness in various raw material markets, but not to
an extent requiring curtailed production. There are certain risks related to the
utilization of raw materials sourced from less-developed or developing
countries. At the present time, the feedstock market is beginning to loosen due
to additional new synthetic titanium ore capacity. A number of Millennium
Inorganic Chemicals' raw materials 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,
Millennium Inorganic Chemicals could suffer reduced supplies and/or be forced to
incur increased prices for its raw materials. Such an event could have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.

     Of the total 466,000 metric tons of TiO2 sold by Millennium Inorganic
Chemicals in 1997 (not including TiO2 sold by Thann et Mulhouse, which was
acquired on December 31, 1997), approximately 62% was sold to customers in the
paint and coatings industry, approximately 19% to customers in the

                                       8




<PAGE>
plastics industry, approximately 14% to customers in the paper industry and
approximately 5% to other customers. Millennium Inorganic Chemicals' ten largest
customers accounted for approximately 35% of its TiO2 sales in 1997. Millennium
Inorganic Chemicals experiences some seasonality in its sales because its
customers' sales of paints and coatings are greatest in the spring and summer
months.

     TiO2 is sold either directly by Millennium Inorganic Chemicals to its
customers or, to a lesser extent, through agents or distributors. It is
distributed by rail, truck and ocean carrier in either dry or slurry form.

     The global markets in which the Company's TiO2 business operates are all
highly competitive. Millennium Inorganic Chemicals competes primarily on the
basis of price, product quality and service. Certain of Millennium Inorganic
Chemicals' competitors are partially vertically integrated, producing
titanium-bearing ores as well as TiO2. Millennium Inorganic Chemicals' major
competitors are E.I. du Pont de Nemours and Company ('Dupont'), Tioxide Group
Limited (a unit of Imperial Chemical Industries PLC) ('Tioxide'), Kronos, Inc.
(a unit of NL Industries Inc.) ('Kronos'), Kemira Pigments Oy (a unit of Kemira
Oy) ('Kemira'), and Kerr-McGee Chemical Corporation (both directly and through
various joint ventures) ('Kerr-McGee Chemicals'), a unit of Kerr-McGee
Corporation. DuPont, Tioxide, Millennium Inorganic Chemicals, Kronos, Kemira and
Kerr-McGee Chemicals, collectively, account for approximately 70% of the world's
production capacity. DuPont has announced that it has agreed to buy a majority
of the TiO2 business of Tioxide. Kerr-McGee Chemicals and Bayer AG Group
('Bayer') have announced their intention to form a joint venture to operate
Bayer's European TiO2 business. Such joint venture would be owned 80% by
Kerr-McGee Chemicals and 20% by Bayer.

     TiO2 competes with other whitening agents which are generally less
effective but less expensive. Paper manufacturers have, in recent years,
developed alternative technologies which reduce the amount of TiO2 used in
paper. For example, kaolin and precipitated calcium carbonate are used
extensively as fillers by paper manufacturers in medium and lower-priced
products.

     New plant capacity additions in the TiO2 industry are slow to develop
because of the substantial capital expenditure and the significant lead time
(3-5 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.

RELATED PRODUCTS

     Titanium Tetrachloride. Millennium Inorganic Chemicals manufactures a
metallurgical grade of TiCl4 at its Ashtabula, Ohio, plant, primarily for sale
to U.S. titanium metal producers. TiCl4 is produced at Ashtabula as an
intermediate product in the chloride process used for manufacturing TiO2.
Millennium Inorganic Chemicals also manufactures TiCl4 at its newly acquired
Thann, Alsace, France, facility, primarily for sales to third parties in Europe
for use in catalysts and pharmaceuticals and for use by Millennium Inorganic
Chemicals and others in the sulfate-process manufacturing of TiO2 in Europe. The
Company is the largest merchant seller of TiCl4 in the U.S. and, management
believes, the world.

     The majority of the Company's TiCl4 sales are of metallurgical grade sold
to titanium sponge producers who convert the product into titanium metal. Other
customers use TiCl4 to produce catalysts for chemical processes and pearlescent
pigments for metallic coatings and cosmetics. Sales are almost exclusively to
customers in the U.S. and Europe. TiCl4 is distributed by rail and truck as
anhydrous TiCl4 and as titanium oxychloride (an aqueous solution of TiCl4).

                                       9




<PAGE>
                           MILLENNIUM PETROCHEMICALS

     The following table sets forth information concerning the annual production
capacity, as of December 31, 1997, of Millennium Petrochemicals' principal
products:

                    MILLENNIUM PETROCHEMICALS RATED CAPACITY
              (MILLIONS OF POUNDS PER ANNUM, EXCEPT AS INDICATED)

<TABLE>
<CAPTION>
                            PRODUCT                                CAPACITY
----------------------------------------------------------------   --------
<S>                                                                <C>
Acetic Acid.....................................................      900
VAM.............................................................      800
Methanol........................................................      207*
</TABLE>

------------

* Millions of gallons per annum

     Millennium Petrochemicals operates its acetic acid, VAM and methanol
businesses as an integrated acetyls chain. The following chart illustrates
Millennium Petrochemicals' acetyls manufacturing chain:

             MILLENNIUM PETROCHEMICALS' ACETYLS MANUFACTURING CHAIN

                                  [CHART]

     Millennium Petrochemicals is the only U.S. producer that is fully
integrated to convert natural gas feedstock through the entire manufacturing
chain to produce VAM.

METHANOL

     Millennium Petrochemicals' methanol plant is located in La Porte, Texas,
and has an annual production capacity, as of December 31, 1997, of 207 million
gallons. It employs a process supplied to the Company by a major engineering and
construction firm to produce methanol. Millennium Petrochemicals uses
approximately 75 million gallons of its annual production for the manufacture of
acetic acid in a downstream operation.

     The principal raw materials for the production of methanol are carbon
monoxide and hydrogen, collectively termed synthesis gas ('syngas'). These raw
materials are largely supplied from Millennium Petrochemicals' syngas plant at
La Porte, Texas, with the exception of periodic purchases of relatively small
volumes of hydrogen. Syngas is formed by the partial oxidation of natural gas,
which is primarily composed of methane. Oxygen to support this operation is
purchased under a long-term supply contract. As a result of the syngas plant
being converted from a residuum (heavy oil) feedstock to natural gas feedstock
in late 1996, methanol capacity has been increased from 140 million gallons to
207 million gallons per year, and methanol production costs have been reduced
substantially.

     The methanol which is not consumed internally by Millennium Petrochemicals
is sold under contract to large domestic customers. These contracts range in
term from one to four years. The product is shipped by barge.

     Millennium Petrochemicals' principal competitors in the methanol business
are Methanex Company, Saudi Basic Industries Corporation, Lyondell Methanol
Company, L.P., Borden, Inc. and

                                       10




<PAGE>
Caribbean Petrochemical Marketing Company Limited. The methanol produced by
Lyondell Methanol Company L.P. is marketed by Equistar.

ACETIC ACID

     Millennium Petrochemicals is the second-largest U.S. producer of acetic
acid, and third-largest producer worldwide, based on reported production
capacities. Its acetic acid plant is located at La Porte, Texas, and has an
annual production capacity as of December 31, 1997, of 900 million pounds.
Millennium Petrochemicals is conducting de-bottlenecking projects utilizing
low-water technology which are expected to expand its annual acetic acid
production capacity to 1.0 billion pounds by the end of 1998. Millennium
Petrochemicals uses approximately two-thirds of its acetic acid production
internally to produce VAM at La Porte.

     The principal raw materials for the production of acetic acid are carbon
monoxide and methanol, both of which are produced and wholly-supplied by
Millennium Petrochemicals at La Porte. Carbon monoxide is obtained by separating
syngas using membrane and cryogenic processes.

     The process used by Millennium Petrochemicals to produce acetic acid was
originally licensed from Monsanto Company, and is now owned by British Petroleum
Company P.L.C. ('British Petroleum'). Since inception of the license, Millennium
Petrochemicals has developed and implemented technological changes to expand
production capacity by approximately 50%.

     Acetic acid not consumed internally by Millennium Petrochemicals is sold
predominately under contract. These contracts range in term from one year to
four years. Export sales constitute approximately 15% of total sales. Acetic
acid is shipped by ocean-going vessel, barge, tank car and tank truck.

     Millennium Petrochemicals' principal competitors in the acetic acid
business are Hoechst-Celanese, a unit of Hoechst Aktiengesellschaft
('Hoechst-Celanese'); British Petroleum; Kyodo Sakusan and Pardies Acetiques
('Acetex').

VAM

     Millennium Petrochemicals is the second-largest U.S. producer of VAM, and
the third-largest producer worldwide, based on reported production capacities.
Its VAM plant is located at La Porte, Texas, and has an annual production
capacity of 800 million pounds as of December 31, 1997.

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

     The process used by Millennium Petrochemicals to produce VAM is proprietary
to the Company.

     Millennium Petrochemicals sells VAM under contracts that range in term from
one to four years, as well as on a spot basis. Millennium Petrochemicals also
sells VAM to Equistar pursuant to a long-term contract at a formula-based price.
The majority of sales are completed under contract. Millennium Petrochemicals
ships this product by barge, ocean-going vessel, pipeline, tank car and tank
truck. Export sales represent approximately 30% of total sales. Millennium
Petrochemicals has bulk storage arrangements for VAM in the Netherlands, the
U.K., Italy, Turkey, South Africa, Indonesia, Singapore and Korea, to better
serve its customers' requirements in those regions.

     Millennium Petrochemicals' principal competitors in the VAM business are
Hoechst-Celanese, British Petroleum, Union Carbide Corporation, Gantrade
Corporation, Acetex and Dairen Chemical Corporation.

                         MILLENNIUM SPECIALTY CHEMICALS

     Terpene Fragrance Chemicals. Millennium Specialty Chemicals is one of the
world's leading producers of chemicals derived from crude sulfate turpentine
('CST'), a by-product of the kraft process of papermaking, and is the largest
purchaser and distiller of CST in the world. Millennium Specialty Chemicals'
primary turpentine-based products are intermediate fragrance chemicals, such as
linalool

                                       11




<PAGE>
and geraniol, which provide the starting point for the production of a number of
other fragrance ingredients. In addition, Millennium Specialty Chemicals
supplies materials for use as flavors and some specialty products for a number
of industrial applications.

     Millennium Specialty Chemicals operates manufacturing facilities for its
fragrance chemicals in Jacksonville, Florida, and Brunswick, Georgia. The
Jacksonville site has facilities for the fractionation of turpentine into alpha
and beta-pinene, sophisticated equipment to further upgrade fragrance-chemical
products, as well as manufacturing facilities for synthetic pine oil, anethole,
methyl chavicol and a number of other fragrance and flavor chemicals. The
Brunswick site produces linalool and geraniol from the alpha-pinene component of
CST, utilizing a proprietary and, the Company believes, unique technology. The
Company believes that this technology provides Millennium Specialty Chemicals
with a significant advantage in raw material availability and quality. The
Company's technology also has significant environmental advantages. Linalool and
geraniol produced at the Brunswick site are further processed at the
Jacksonville site to produce fragrance chemicals, including citral, citronellol
and pseudoionone. In addition, in 1996, in order to meet the growing worldwide
demand for dihydromyrcenol, Millennium Specialty Chemicals began operating the
world's largest dihydromyrcenol facility at Brunswick, with a rated annual
capacity of over four million pounds.

     Millennium Specialty Chemicals is in the process of upgrading and expanding
its manufacturing facilities in an effort to expand further its production
capacity and to insure continued compliance with environmental regulations.
Millennium Specialty Chemicals invested approximately $10 million on such
improvements in 1997, and in addition, expects to spend $27 million in 1998.

     CST, which is Millennium Specialty Chemicals' key raw material for
producing fragrance chemicals, is a by-product of the kraft pulping process.
Millennium Specialty Chemicals purchases CST from approximately 50 pulp mills in
North America. Additionally, Millennium Specialty Chemicals purchases quantities
of crude turpentine or its derivatives from Asia, Europe and South America, as
business conditions dictate.

     Millennium Specialty Chemicals has experienced tightness in CST supply from
time to time, together with corresponding price increases. Generally, Millennium
Specialty Chemicals seeks to enter into long-term supply contracts with pulp
mills in order to ensure a stable supply of CST. The sale of CST generates
relatively insignificant revenues and profits for the pulp mills that serve as
Millennium Specialty Chemicals' principal suppliers. Accordingly, Millennium
Specialty Chemicals attempts to work closely and cooperatively with its
suppliers and provide them with incentives to produce more CST. For example,
Millennium Specialty Chemicals employs two full-time employees whose sole
responsibility is to work with pulp mills to recover CST more efficiently and
economically.

     The major use of fragrance chemicals is the production of perfumes and the
major consumers of perfumes worldwide are soap and detergent manufacturers.
Millennium Specialty Chemicals sells directly worldwide to major soap, detergent
and fabric conditioner manufacturers and fragrance compounders and, to a lesser
extent, producers of cosmetics and toiletries. Approximately 80% of Millennium
Specialty Chemicals' terpene fragrance chemical sales are to the fragrance
chemicals market, with additional sales to the pine oil cleaners and
disinfectant markets. Approximately 62% of Millennium Specialty Chemicals' 1997
terpene fragrance chemical sales were outside the U.S., to approximately 70
different countries. Sales are primarily made through Millennium Specialty
Chemicals' 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 Millennium Specialty Chemicals' terpene fragrance
business competes are highly competitive. Millennium Specialty Chemicals
competes primarily on the basis of quality, service and the ability to conform
its products to the technical and qualitative requirements of its customers.
Millennium Specialty Chemicals works closely with many of its customers in
developing products to satisfy their specific requirements. Millennium Specialty
Chemicals' supply agreements with customers are typically short-term in duration
(up to one year). Therefore, its business is substantially dependent on
long-term customer relationships based upon quality, innovation and customer
service. Customers from time to time change the formulations of an end product
in which one of Millennium Specialty Chemicals' fragrance chemicals is used,
which may affect demand for such fragrance chemicals. Millennium Specialty
Chemicals' ten largest terpene fragrance chemical customers accounted for

                                       12




<PAGE>
approximately 54% of its total sales in 1997. Millennium Specialty Chemicals'
major competitors are BASF AG, Hoffman-LaRoche Inc., Kuraray Co. LTD and Bush
Boake Allen.

     Silica Gel. Millennium Specialty Chemicals 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 is used in coatings
as a flatting or matting (gloss reduction) agent and to provide mar-resistance.
SiLCRON'r' is also used in foods and creams, lotions and pastes. SiL-PROOF'r'
grades of fine-particle silica gel are chill-proofing agents used to stabilize
chilled beer and prevent clouding. They are especially important in countries
that prohibit the use of chemical additives in beer. Fine-particle silica is
distributed in dry form in palletized bags by truck and ocean carrier.

     Cadmium-based Pigments. Millennium Specialty Chemicals manufactures a line
of cadmium-selenium based colored pigments at the St. Helena, Maryland, plant
and markets them internationally. In addition to their brilliance, cadmium
colors are light stable, heat stable and insoluble. 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, Millennium
Specialty Chemicals has introduced low-leaching cadmium-based pigments that meet
all U.S. government requirements for landfill disposal of non-hazardous waste.
Colored pigments are distributed in dry form in drums by truck and ocean
carrier.

     Thann Specialty Products: Specialty products produced at the Company's
newly-acquired plant in France at Thann, Alsace, include zirconium-based
compounds and specialty TiO2 products. These products are marketed globally for
various applications. Specialty TiO2 products are used in environmental
applications to eliminate nitrogen oxides from power plant emissions and for
sulfur removal in diesel engine exhaust. Micropure TiO2 is used in the treatment
of glass, primarily to enhance the optical properties of spectacles. Electronic
applications make use of these material's ultra-purity to miniaturize components
in automotive, telephone and television applications. Zirconium-based compounds
are used to enhance optics, as a coloring agent for ceramics and as a pigment
for surface treatment.

                            RESEARCH AND DEVELOPMENT

     The Company's expenditures for research and development totaled $28
million, $39 million and $42 million in 1997, 1996 and 1995, respectively.
Research and development expenditures should decrease by approximately $16
million in 1998 from 1997 levels as a result of the transfer of the
polyethylene, alcohol and related products segment to Equistar on December 1,
1997. The Company has research facilities in Baltimore, Maryland;
Stallingborough, U.K.; and, Bunbury, Western Australia (Millennium Inorganic
Chemicals); and, in Jacksonville, Florida (Millennium Specialty Chemicals).
Millennium Petrochemicals leases laboratory space from Equistar in Cincinnati,
Ohio. Millennium Inorganic Chemicals plans to build a new $18 million technical
center near Baltimore, Maryland, which is scheduled to be completed in 1999. 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., U.S.
dollar-denominated sales outside the U.S. by domestic operations), as well as
revenue from the Company's operations conducted outside the U.S. Export sales,
which are made to over 70 countries, amounted to approximately 9%, 9% and 10% of
total revenues in 1997, 1996 and 1995, respectively. Revenue from non-U.S.
operations amounted to approximately 13%, 12% and 10% of total revenues in 1997,
1996 and 1995, respectively, principally reflecting the operations of Millennium
Inorganic Chemicals in the U.K. and Western Australia. Identifiable assets of
the non-U.S. operations represented 17% and 15% of total identifiable assets at
December 31, 1997, and 1996, respectively, principally reflecting the assets of
these operations. The above percentages, other than the December 31, 1997
identifiable assets percentage, do not reflect the

                                       13




<PAGE>
Thann et Mulhouse acquisition. In addition, the Company obtains a portion of its
principal raw materials from sources outside the U.S. Millennium Inorganic
Chemicals obtains ores used in the production of TiO2 under long-term contracts
from a number of suppliers in South Africa, Australia, Canada and Norway.
Millennium Specialty Chemicals obtains a portion of its requirements of CST,
crude turpentine and their derivatives from suppliers in Indonesia and other
Asian countries, Europe and South America.

     The Company's export sales and its non-U.S. manufacturing and sourcing are
subject to the usual 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 the risks associated with doing
business abroad will increase as the Company expands its worldwide operations.
From time to time, the Company utilizes financial derivative instruments to
hedge the impact of currency fluctuations in its purchases and sales.

     The functional currency of each of the Company's non-U.S. operations is the
local currency. Historically, the net impact of currency translation has not
been material to the Company's results of operations or financial position.

                          EQUITY INTEREST IN EQUISTAR

     Equistar is the Company's joint venture with Lyondell. Equistar is the
largest producer of ethylene and polyethylene in the U.S., and a leading
producer of performance polymers, ethyl alcohol, aromatics and specialty
chemicals. Equistar commenced operations on December 1, 1997, when the Company
contributed substantially all of the assets comprising its polyethylene, alcohol
and related products segment to Equistar and Lyondell contributed substantially
all the assets comprising its petrochemicals and polymers business segments to
Equistar.

     Equistar is functionally divided into two business units, petrochemicals
and polymers. The products manufactured by Equistar's petrochemicals business
unit, which include olefins, MTBE, aromatics and specialty chemicals, are used
primarily in the manufacture of other chemicals and products, including the
production of polymers by Equistar and its customers. Equistar's primary olefins
products are ethylene, propylene and butadiene, which are used to produce
polyethylene, polypropylene, rubber and many other chemical and polymer
products. Its aromatics products include benzene, which is used in the
production of nylon and polystyrene plastics, and toluene, which is used as a
component in gasoline and as a feedstock for producing benzene. Equistar's
specialty chemicals products include isoprene, resin oil and piperylenes, which
are used to make adhesives, sealants and inks; and ethyl alcohol, which is used
in the cosmetics, drug, toiletries and perfume industries.

     Equistar's polymers business unit manufactures polyolefins, including
polyethylene, polypropylene and performance polymers, all of which are used in
the production of a wide variety of consumer and industrial products. Equistar
produces high density polyethylene ('HDPE'), low density polyethylene ('LDPE'),
linear low density polyethylene ('LLDPE') and polypropylene. Equistar's
performance polymers include enhanced grades of polypropylene and polyethylene,
including wire and cable resins, concentrates and compounds and polymeric
powders.

MANAGEMENT OF EQUISTAR; AGREEMENTS BETWEEN EQUISTAR, LYONDELL AND THE COMPANY

     Equistar was organized as a Delaware limited partnership and is a
pass-through entity for federal income tax purposes. Millennium Petrochemicals
owns its 43% interest in Equistar through two wholly-owned subsidiaries, one of
which serves as a general partner of Equistar and one of which serves as a
limited partner. Similarly, Lyondell owns its 57% interest in Equistar through
two wholly-owned subsidiaries, one a general partner and one a limited partner.

     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 both 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 sale or purchase of assets or capital
expenditures of more than $30 million not contemplated by an approved Strategic
Plan, additional investments by

                                       14




<PAGE>
Equistar's partners not contemplated by an approved Strategic Plan 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 (except in specific
circumstances set forth under the Equistar Partnership Agreement), borrowing
money under certain circumstances, issuing or repurchasing equity securities of
Equistar, 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 unanimity between 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, such 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. Such
agreement also provides for the assumption of certain liabilities by Equistar,
subject to specified limitations. Lyondell entered into a similar agreement with
Equistar with respect to the transfer of its assets and assumption of
liabilities.

     Equistar is party to a number of agreements with Millennium Petrochemicals
and Lyondell for the provision of services, utilities and materials from one
party to the other at common locations, principally La Porte, Texas, and
Cincinnati, Ohio. 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 has a long-term agreement with Equistar to
purchase its ethylene requirements at market-based prices. 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.

AGREEMENT WITH OCCIDENTAL

     On March 20, 1998, the Company, Lyondell and Occidental announced the
signing of a definitive agreement to expand Equistar with the addition of the
ethylene, propylene, ethylene oxide and derivatives businesses of Occidental's
chemical subsidiary. Occidental will contribute the net assets of these
businesses (including approximately $200 million of related debt) to Equistar.
Equistar will borrow an additional $500 million, approximately $425 million of
which will be distributed to Occidental and $75 million of which will be
distributed to the Company. The transaction, which is subject to a number of
conditions (including approval by Occidental's Board of Directors, the receipt
of certain regulatory approvals and the amendment of Equistar's credit facility
to provide an additional $500 million in debt), is expected to close by mid-year
1998. Upon the completion of the transaction, Equistar will be owned 41% by
Lyondell, 29.5% by Occidental and 29.5% by the Company.

EQUISTAR'S PETROCHEMICALS BUSINESS UNIT

     Equistar produces petrochemicals at seven facilities located in five
states. The Channelview, Texas, facility includes two large olefins plants and
related processing units that produce ethylene, propylene, butadiene, butylenes,
benzene, toluene, hydrogen and certain specialty products. The La Porte, Texas,
Morris, Illinois, and Clinton, Iowa, complexes each include one large olefins
plant that primarily produces ethylene, substantially all of which is consumed
internally by Equistar's polymers operations. Feedstocks for the Channelview and
La Porte facilities and ethylene and propylene products are stored at Equistar's
Mont Belvieu, Texas, storage facility and terminals on the Houston Ship Channel.
A comprehensive pipeline system connects the two plants with major olefins
customers. The feedstock for Equistar's Morris, Illinois, and Clinton, Iowa,
facilities are shipped by pipeline. Equistar produces synthetic ethyl alcohol at
its Tuscola, Illinois, plant and denatured ethyl alcohol at its plants in
Newark, New Jersey, and Anaheim, California.

                                       15




<PAGE>
     The following table outlines Equistar's primary petrochemical products,
annual rated capacity at January 1, 1998, and the primary uses for such
products.

<TABLE>
<CAPTION>
                                  RATED
       PRODUCT                  CAPACITY                                   PRIMARY USES
---------------------   -------------------------  ------------------------------------------------------------
<S>                     <C>   <C>                  <C>
Olefins:
     Ethylene........   7.7   billion pounds       Ethylene is used as a feedstock to manufacture polyethylene,
                                                   which is used in products such as trash bags, packaging
                                                   film, toys, housewares and milk containers. Ethylene also is
                                                   used to produce ethylene oxide, ethylene dichloride,
                                                   ethylbenzene, VAM and alpha olefins.
     Propylene.......   3.4   billion              Propylene is used to produce polypropylene, acrylonitrile
                              pounds(*)            and propylene oxide.
     Butadiene.......   840   million pounds       Butadiene is used to manufacture styrene butadiene rubber
                                                   and polybutadiene rubber.
Aromatics:
     Benzene.........   117   million gallons      Benzene is used in the production of nylon and polystyrene
                                                   plastics.
     Toluene.........    40   million gallons      Toluene is used as a gasoline component and as a chemical
                                                   feedstock for benzene production.
Oxygenated products:
     MTBE............   199   million gallons      MTBE is an octane enhancer and clean fuel additive in
                                                   reformulated gasoline.
Specialty chemicals:
                        100   million pounds       A component of inks, adhesives and polyester resins.
  Dicyclopentadiene..
     Isoprene........   105   million pounds       A component of premium tires, adhesive sealants and other
                                                   rubber products.
     Resin oil.......   120   million pounds       Used in the production of key components of hot melt
                                                   adhesives, inks, sealants, paints and varnishes.
     Piperylenes.....   100   million pounds       Used in the production of adhesives, inks and sealants.
     Hydrogen........    80   million cubic        Required by refineries to remove sulfur from process gas in
                              feet/day             heavy crude oil.
     Alkylate........   19,000 barrels/day         Premium blending component used by refiners to meet Clean
                                                   Air Act standards for reformulated gasoline.
     Ethyl alcohol...    50   million gallons      Used in the production of solvents, in household, medicinal
                                                   and personal care products and as a chemical intermediate
                                                   for applications such as vinegar.
     Diethyl ether...     5   million gallons      Used in laboratory reagents, gasoline and diesel engine
                                                   starting fluid, liniments, analgesics and smokeless gun
                                                   powder.
</TABLE>

------------

* Does not include refinery-grade material or production from the
  product-flexibility unit at the Channelview facility, which has a rated
  capacity of one billion pounds per year of propylene.

     FEEDSTOCKS. Feedstock cost is generally the largest component of total cost
for the petrochemicals business. The primary feedstocks used in the production
of olefins are natural gas liquids, including ethane, propane and butane
(collectively 'NGLs'), and naphtha, condensates and gas oils (collectively
'Petroleum Liquids'). The Channelview facility is unusually flexible in that it
can process 100% Petroleum Liquids or up to 90% NGL feedstocks. Petroleum
Liquids have had an historical variable margin advantage over ethane and
propane. Equistar's three other olefins facilities currently process only NGLs.
Equistar purchases Petroleum Liquids and NGLs from a wide variety of sources,
including the Lyondell-CITGO Refining Company, Ltd., a partnership between
Lyondell and CITGO Petroleum Corporation.

                                       16




<PAGE>
     MARKETING, SALES AND DISTRIBUTION. The ethylene produced by the La Porte,
Morris and Clinton facilities is consumed as feedstock by Equistar's polymers
operations at those sites, except for the ethylene produced at La Porte which is
sold to Millennium Petrochemicals for its VAM production. The Channelview
facility supplies significant amounts of ethylene to Equistar's Pasadena, Texas,
facility via pipeline and to the Victoria and Matagorda, Texas, polymers
facilities via exchange arrangements. Overall, approximately 75 percent of
Equistar's current sales of ethylene and propylene are to its polymers business
unit. Sales between Equistar's two business units are made at prices based on
current market prices. Sales to third parties generally are made pursuant to
written agreements which typically provide for monthly negotiation of prices.

     Most of the ethylene and propylene production of the Channelview facility
is shipped or exchanged via extensive pipeline systems with connections to
numerous Gulf Coast ethylene and propylene consumers. Equistar has exchange
agreements with other olefins producers which allow access to customers who are
not directly connected to the pipeline system. Some propylene is shipped by
ocean-going vessel. Butadiene, aromatics and other petrochemicals are
distributed by pipeline, railcar, truck, barge or ocean-going vessel.

EQUISTAR'S POLYMERS BUSINESS UNIT

     Through twelve facilities located in four states, Equistar's polymers
business unit manufactures a wide variety of polyolefins, including various
polyethylenes, polypropylenes and performance polymers. Equistar currently
manufactures polyethylene at six facilities in Texas (Chocolate Bayou, La Porte,
Matagorda, Pasadena, Port Arthur and Victoria), and at its Morris, Illinois, and
Clinton, Iowa, facilities. The Morris and Clinton facilities are the only
petrochemical industry polyethylene facilities located in the Midwest and enjoy
a freight-cost advantage over Gulf Coast producers in delivering products to
customers in the Midwest and on the East Coast of the U.S.

     Equistar also produces performance polymers products, which include
enhanced grades of polyethylene and polypropylene, at several of its polymers
facilities. The Company believes that, over a business cycle, average selling
prices and profit margins for performance polymers tend to be higher than
selling prices and profit margins for higher-volume commodity polyethylenes.
Equistar produces concentrates and compounds at its facilities in Crockett,
Texas, Fairport Harbor and Heath, Ohio. It produces synthetic ethyl alcohol at
its Tuscola, Illinois, plant and denatured ethyl alcohol at its plants in
Newark, New Jersey, and Anaheim, California.

     The following table outlines Equistar's polymers and performance polymers
products, annual rated capacity, the primary uses for such products and
Equistar's brand names:

<TABLE>
<CAPTION>
                                         RATED                         PRIMARY
            PRODUCT                     CAPACITY                         USES                      BRAND NAMES
--------------------------------  --------------------  --------------------------------------  -----------------
<S>                               <C>                   <C>                                     <C>
Polyethylene and Related
  Products:
     LDPE.......................  1.7  billion pounds   Plastic films for packaging meats and   Petrothene'r'
                                                        produce, household wraps, toys,
                                                        housewares, coatings for paper, milk
                                                        and juice cartons and plastic bottles
                                                        for packaging, food and medicines.
     HDPE.......................  3.4  billion pounds   Blow-molded bottles for milk, juices    Alathon'r'
                                                        and detergents, industrial drums,       Petrothene'r'
                                                        injection-molded household goods and
                                                        toys, consumer packaging, housing
                                                        insulation and safety equipment.
     LLDPE......................  1.1  billion pounds   Heavy-duty bags, stretch wrap,          Petrothene'r'
                                                        container lids, trash and merchandise
                                                        bags and toys.
</TABLE>

                                                  (table continued on next page)

                                       17




<PAGE>
(table continued from previous page)

<TABLE>
<CAPTION>
                                         RATED                         PRIMARY
            PRODUCT                     CAPACITY                         USES                      BRAND NAMES
--------------------------------  --------------------  --------------------------------------  -----------------
<S>                               <C>                   <C>                                     <C>
     Polypropylene..............  680 million pounds    Battery cases, automotive components,   KromaLon'r'
                                                        packaging materials, luggage,           Petrofil'r'
                                                        housewares, appliance parts, fibers     Petrothene'r'
                                                        for carpets and upholstery, plastic     KromaLux'r'
                                                        cups and seals for consumer items such  KromaTex'r'
                                                        as shampoo and household cleaners.      Flexathene'r'
Performance Polymers:
     Concentrates and
       compounds................           *            Components that provide color in film,  Spectratech'r'
                                                        bottles and foam sheet; the 'slip'
                                                        that keeps film from sticking
                                                        together; flame retardancy; resistance
                                                        to ultra-violet radiation; and the
                                                        'gas bubbles' to make foamed plastic
                                                        products.
     Wire and cable resins and
       compounds................           *            Insulation for automotive, power and    Petrothene'r'
                                                        communication cables.
     Polymers for adhesives,
       sealants and coatings....           *            Components in hot-metal adhesive        Petrothene'r'
                                                        formulations                            Ultrathene'r'
     Microfine polyolefin
       powders..................           *            Component product in structural and     Microthene'r'
                                                        bulk-molding compounds, parting agents
                                                        and filters.
     Reactive polyolefins.......           *            Functionalized polymers used to bond    Plexar'r'
                                                        non-polar and polar substrates in
                                                        barrier food packaging and other
                                                        applications.
     Liquid polyolefins.........           *            Diesel fuel additive to inhibit         Vynathene-L'r'
                                                        freezing.
</TABLE>

------------

* These are enhanced grades of polyethylene and are included in the capacity
  figures for LDPE, HDPE and LLDPE above, as appropriate.

     FEEDSTOCKS. The polymers operations at the Morris, Clinton and La Porte
facilities receive their primary supply of ethylene and, in the case of Morris,
propylene, from the upstream petrochemicals facilities located at those sites.
The ethylene and propylene converted at the Pasadena facility are supplied by
the Channelview facility either directly or via exchange arrangements. Equistar
supplies the majority of the ethylene consumed by the Victoria and Matagorda
facilities via exchange arrangements. Equistar's Port Arthur, Texas, facility
receives its ethylene via pipeline from Equistar and third parties. Equistar
purchases VAM from the Company pursuant to a long-term contract at formula-based
prices.

     MARKETING, SALES AND DISTRIBUTION. Equistar's polymer products are sold
primarily to an extensive base of established customers, mainly 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 the customer.

                                       18




<PAGE>
     Polymers are primarily distributed via railcar. Equistar owns or leases,
pursuant to long-term lease arrangements, approximately 10,000 railcars for use
in its polymers business. Equistar sells its polymers products in the U.S.
primarily through its own sales organization. It generally engages export sales
agents to market its products in the rest of the world.

                      EQUITY INTEREST IN SUBURBAN PROPANE

     An indirect subsidiary of the Company serves as general partner of Suburban
Propane, a Delaware limited partnership whose common units trade on the New York
Stock Exchange under the symbol 'SPH.' In March 1996, in connection with its
initial public offering, Suburban Propane acquired, through an operating
partnership, the propane business and assets of Millennium Petrochemicals'
former Suburban Propane division.

     Suburban Propane is the third-largest retail marketer of propane in the
U.S., serving more than 700,000 active residential, commercial, industrial and
agricultural customers from more than 350 customer service centers in more than
40 states. Suburban Propane's operations are concentrated in the east and west
coast regions of the U.S. The retail propane sales volume of Suburban Propane
was approximately 541 million gallons during its fiscal year ended September 27,
1997. Based on industry statistics, Suburban Propane believes that its retail
propane sales volume constitutes approximately 6% of the U.S. retail market for
propane. For its fiscal year ended September 27, 1997, Suburban Propane reported
total revenues of approximately $771.1 million and net income of approximately
$13.6 million. At September 27, 1997, Suburban Propane reported total assets of
approximately $776.4 million. For the three months ended December 27, 1997,
Suburban Propane reported total revenues of $204.9 million and net income of
$26.9 million.

     The Company has a 2% general partnership interest and a 24.4% subordinated
limited partnership interest, each on a combined basis, in Suburban Propane and
the operating partnership. The Company has agreed, subject to certain
limitations, to contribute up to $43.6 million, on a revolving basis, to
Suburban Propane to enhance its ability to make quarterly cash distributions to
the limited partners through the quarter ending March 31, 2001. To date, the
Company has contributed $22.0 million of the aforementioned $43.6 million to
support distribution payments to the limited partners of Suburban Propane.
Suburban Propane paid a distribution of $0.50 per common unit for the quarter
ended June 29, 1996, and for each quarter thereafter, but, commencing with the
quarter ended December 28, 1996, has not paid a distribution with respect to the
subordinated limited partnership units held by the Company. Under the
partnership agreement governing Suburban Propane, Suburban Propane is managed
by, or under the direction of, a seven-member Board of Supervisors. Two of the
supervisors are appointed by the general partner; the holders of the limited
partnership interests and subordinated limited partnership interests, voting as
a class, elect three of the supervisors; and these five supervisors elect two
executive officers of Suburban Propane as the remaining two supervisors.

                                   EMPLOYEES

     At December 31, 1997, excluding employees of Equistar and Suburban Propane,
the Company had approximately 4,200 full and part-time employees and contractors
(including approximately 800 employees of Thann et Mulhouse, which was acquired
by the Company on December 31, 1997). Approximately 3,400 of the Company's
employees were engaged in manufacturing; 500 were engaged in sales, distribution
and technology; and 300 had corporate and administrative responsibilities.
Approximately 11% of the Company's employees are represented by various labor
unions. Of the Company's nine collective bargaining agreements or other required
labor negotiations, four expire in 1998 and three expire in 1999. The Company
believes that the relations of its operating subsidiaries with employees and
unions 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

                                       19




<PAGE>
wastes and other materials and the remediation of environmental pollution caused
by releases of wastes and other materials ('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
material costs or liabilities will not be incurred with respect to such
operations and activities. In particular, the production of methanol, TiO2 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. Potentially significant expenditures could
be required in connection with the repair or upgrade of facilities in order to
meet existing or new requirements under Environmental Laws as well as in
connection with the investigation and remediation of threatened or actual
pollution.

     The Company's costs and operating expenses relating to environmental
matters were approximately $57 million, $62 million and $67 million in 1997,
1996 and 1995, 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 $13 million, $22
million and $22 million in 1997, 1996 and 1995, 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 which are inseparable from the overall project cost. Capital
expenditures and costs and operating expenses relating to environmental matters
for years after 1997 will be subject to evolving regulatory requirements and
will depend on the amount of time required to obtain necessary permits and
approvals.

     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 the 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 should be able to achieve compliance
with the applicable regulations and ordinances in a manner which should not have
a material adverse effect on its business or results of operations. A citation
previously issued by the U.S. Occupational Safety and Health Administration
('OSHA') against Millennium Petrochemicals with proposed penalties of
approximately $154,000 for alleged violation of OSHA regulations in connection
with a fire at the La Porte, Texas, complex in which two workers were injured,
was settled in October 1997 for $50,000. OSHA agreed that the injuries were not
related to the alleged violations. In April 1997, the Illinois Attorney
General's Office filed a complaint seeking monetary sanctions for releases into
the environment at Millennium Petrochemicals' Morris, Illinois, plant (which was
contributed to Equistar) in alleged violation of state regulations, and a civil
penalty in excess of $100,000 could result. Equistar has agreed to indemnify
Millennium Petrochemicals for such third party claims, subject to an aggregate
limitation of $7 million on the indemnification of certain third party claims
contained in the Asset Contribution Agreement between Equistar and the Company.

     Certain Company subsidiaries have been named as defendants, potentially
responsible parties ('PRPs'), or both, in a number of environmental proceedings
associated with waste disposal sites and facilities currently or previously
owned, operated or used by the Company's subsidiaries or their predecessors,
some of which disposal sites or facilities are on the Superfund National
Priorities List of the U.S. Environmental Protection Agency ('EPA') or similar
state lists. These proceedings seek cleanup costs, damages for personal injury
or property damage, or both. Certain of these proceedings involve claims for
substantial amounts, individually ranging in estimates from less than $300,000
to $45 million. The Company believes that the range of potential liability for
environmental and other legal contingencies, collectively, which primarily
relate to environmental remediation activities and other environmental
proceedings, is between $150 million and $184 million and has accrued $184
million as of December 31, 1997. One potentially significant matter in which a
Company subsidiary is a PRP concerns alleged PCB contamination of a section of
the Kalamazoo River from Kalamazoo, Michigan, to Lake Michigan for which a
remedial investigation/feasibility study is currently being undertaken.
Potential remediation costs related to this matter that are reasonably probable
have been included in the collective range of potential liability referred to
above, as well as in the accrual for environmental

                                       20




<PAGE>
matters on the Company's balance sheet. The accrual also reflects the fact that
certain Company subsidiaries have contractual obligations to indemnify the
purchasers of certain discontinued operations against certain environmental
liabilities and that the Company agreed as part of the Demerger transactions to
indemnify Hanson and certain of its subsidiaries against certain of such
contractual indemnification obligations. No assurance can be given that actual
costs will not exceed accrued amounts for the sites and indemnification
obligations for which estimates have been made and no assurance can be given
that costs will not be incurred with respect to sites and indemnification
obligations which are unknown or as to which no estimate presently can be made.

     Several Company subsidiaries have asserted claims and/or instituted
litigation against their insurance carriers alleging that all or a portion of
the past and future costs of investigating, monitoring and conducting response
actions at previously or currently owned and/or operated properties and off-site
landfills are the subject of coverage under various insurance policies. During
1995, a Company subsidiary entered settlement agreements in one such case with a
number of insurance carriers relating to coverage for environmental
contamination at present and former plant and landfill sites in the aggregate
amount of approximately $60 million, of which $52 million has been received,
with the balance of such payments being made over time. In addition, several
Company subsidiaries have asserted claims and/or instituted litigation against
various entities alleging that they are responsible for all or a portion of such
costs. Management is unable to predict the outcome of such claims and
litigation. Accordingly, for purposes of financial reporting and establishing
provisions, the Company has not assumed any such recoveries, except where
payment has been received or the amount of liability or contribution by such
other parties has been agreed.

     The Company cannot predict whether future developments in laws and
regulations concerning environmental protection will affect its earnings or cash
flow in a materially adverse manner or whether its operating units will be
successful in meeting future demands of regulatory agencies in a manner which
will not materially adversely affect the Company's combined financial condition,
results of operations or liquidity.

                        PATENTS, TRADEMARKS AND LICENSES

     The Company's subsidiaries have numerous U.S. and foreign patents,
registered trademarks and trade names, together with applications and licenses
therefor. Millennium Petrochemicals has entered into a number of licensing
arrangements with respect to the manufacture of VAM. Millennium Petrochemicals
is also licensed by others in the application of certain processes and equipment
designs. Significant licenses held by Millennium Petrochemicals are British
Petroleum's process for the production of acetic acid and the Texaco Development
Corporation process for the partial oxidation of hydrocarbon feeds to synthesis
gas. Generally, upon expiration of the licenses, the licensee continues to be
entitled to use the technology without payment of a royalty. Millennium
Inorganic Chemicals generally does not license its proprietary processes to
third parties or hold licenses from others. While the patents, licenses,
proprietary technologies and trademarks of the Company's subsidiaries provide
certain competitive advantages and are considered important, particularly with
regard to processing technologies such as Millennium Inorganic Chemicals'
proprietary chloride-production process and Millennium Specialty Chemicals'
proprietary terpene chemistry process, the Company does not consider its
business, as a whole, to be materially dependent upon any one particular patent,
license, proprietary technology or trademark.

                               EXECUTIVE OFFICERS

     The following individuals serve as executive officers of the Company:

<TABLE>
<CAPTION>
                NAME                                         POSITION
------------------------------------  -------------------------------------------------------
<S>                                   <C>
William M. Landuyt..................  Chairman of the Board, President and Chief Executive
                                        Officer
Robert E. Lee.......................  President and Chief Executive Officer of Millennium
                                        Inorganic Chemicals
</TABLE>

                                       21




<PAGE>

<TABLE>
<CAPTION>
                NAME                                         POSITION
------------------------------------  -------------------------------------------------------
<S>                                   <C>
George W. Robbins...................  President and Chief Executive Officer of Millennium
                                        Specialty Chemicals
Peter P. Hanik......................  President and Chief Executive Officer of Millennium
                                        Petrochemicals
George H. Hempstead, III............  Senior Vice President -- Law and Administration and
                                        Secretary
John E. Lushefski...................  Senior Vice President and Chief Financial Officer
C. William Carmean..................  Vice President -- Legal
Marie S. Dreher.....................  Vice President -- Corporate Controller
A. Mickey Foster....................  Vice President -- Investor Relations
Richard A. Lamond...................  Vice President -- Human Resources
Francis V. Lloyd....................  Vice President -- Tax
James A. Lofredo....................  Vice President -- Corporate Development
Christine F. Wubbolding.............  Vice President and Treasurer
</TABLE>

     Mr. Landuyt, 42, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. He has served as the President of the
Company since June 1997. Mr. Landuyt was Director, President and Chief Executive
Officer of Hanson Industries (which managed the U.S. operations of Hanson until
the Demerger) from June 1995 until the Demerger, a Director of Hanson from 1992
until September 29, 1996, Finance Director of Hanson from 1992 to May 1995, and
Vice President and Chief Financial Officer of Hanson Industries from 1988 to
1992. He joined Hanson Industries in 1983. He is a member and Co-Chairman of the
Partnership Governance Committee of Equistar.

     Mr. Lee, 41, has served as President and Chief Executive Officer of
Millennium Inorganic Chemicals since June 1997. 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. Robbins, 57, has served as President and Chief Executive Officer of
Millennium Specialty Chemicals since 1986. He was an Associate Director of
Hanson from May 1995 until the Demerger and a Director of Hanson Industries from
June 1995 until the Demerger. Mr. Robbins joined SCM Corporation in 1982 as Vice
President and General Manager of the SCM Organic Chemicals Division. He has been
associated with the plastic and chemical industries for almost 30 years. He is a
member of the Partnership Governance Committee of Equistar.

     Mr. Hanik, 51, has served as President and Chief Executive Officer of
Millennium Petrochemicals since March 1998. Prior to that time, he was Vice
President, Chemicals and Supply Chain, where he was responsible for the
Company's acetyls business. Mr. Hanik joined Millennium Petrochemicals in 1974
and has been associated with the plastic and chemical industries for 30 years.

     Mr. Hempstead, 54, has served as Senior Vice President -- Law and
Administration and Secretary of the Company since the Demerger. He was Senior
Vice President -- Law and Administration of Hanson Industries from June 1995
until the Demerger, an Associate Director of Hanson from 1990 until the
Demerger, and a Director of Hanson Industries from 1986 until the Demerger. Mr.
Hempstead was Senior Vice President and General Counsel of Hanson Industries
from 1993 to June 1995 and Vice President and General Counsel of Hanson
Industries from 1982 to 1993. He initially joined Hanson Industries in 1976. Mr.
Hempstead is a member of the Board of Supervisors of Suburban Propane.

     Mr. Lushefski, 42, has served as Senior Vice President and Chief Financial
Officer of the Company since the Demerger. 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

                                       22




<PAGE>
Officer of Peabody Holding Company, a Hanson subsidiary which 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 and the Board of Supervisors of Suburban Propane.

     Mr. Carmean, 45, has served as Vice President -- Legal of the Company since
December 1997. 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 Company from 1990 until
its acquisition by Hanson in 1993. Prior to 1990, he was Associate General
Counsel of Squibb Corporation.

     Ms. Dreher, 39, has served as Corporate Controller of the Company since the
Demerger and was elected a Vice President in October 1996. She was Director of
Planning and Budgeting of Hanson Industries from November 1995 until the
Demerger. She joined Hanson Industries in January 1994 as Assistant Corporate
Controller with principal responsibilities focused on tax, environmental and
financial compliance matters. She is a certified public accountant. Prior to
joining Hanson Industries, she was a Senior Manager at Ernst & Young LLP.

     Mr. Foster, 42, has served as Vice President -- Investor Relations of the
Company since the Demerger. He was Vice President -- Investor Relations of
Hanson Industries from August 1992 until the Demerger. Mr. Foster held investor
relation positions with ARCO and Pacific Enterprises from 1983 to 1992. He is a
past Chairman of the National Investor Relations Institute.

     Mr. Lamond, 51, has served as Vice President -- Human Resources of the
Company since November 1997. He served as Vice President -- Human Resources for
Millennium Inorganic Chemicals from March 1997 to November 1997 and as Vice
President -- Human Resources for Grove Worldwide, a subsidiary of Hanson, from
September 1994 to March 1997. He served as the Director -- Organization
Development and Compensation and Benefits of Millennium Inorganic Chemicals for
the balance of the past five years.

     Mr. Lloyd, 58, has served as Vice President -- Tax of the Company since the
Demerger. He was Vice President -- Tax of Hanson Industries from 1993 until the
Demerger. Mr. Lloyd joined Hanson Industries in 1987 and was Senior Director of
Tax of Hanson Industries from 1987 to 1993. Prior thereto, he was Vice President
and Director of Tax of Kidde, Inc., which was acquired by Hanson in 1987.

     Mr. Lofredo, 42, has served as the Company's Director of Corporate
Development since the Demerger and was elected a Vice President in October 1996.
He was Director of Corporate Development of Hanson Industries from March 1993
until the Demerger, with his principal responsibilities focused on acquisitions
and divestitures. He joined Hanson Industries in June 1992 as Assistant
Corporate Controller.

     Ms. Wubbolding, 45, has served as Vice President and Treasurer of the
Company since the Demerger. She served as Vice President of Hanson Industries
from January 1996 until the Demerger and as Treasurer of Hanson Industries from
June 1994 until the Demerger. She joined Hanson Industries in 1976 and held
various financial positions, primarily in the treasury area, prior to 1994.

ITEM 2. PROPERTIES

     Set forth below is a list of the Company's principal manufacturing
facilities (other than those of Equistar), all of which are owned. The Company's
operating subsidiaries also lease warehouses and offices, none of which are
material to the Company's business or operations.

                                       23




<PAGE>

<TABLE>
<CAPTION>
                        LOCATION                                                  PRODUCTS
--------------------------------------------------------  --------------------------------------------------------
<S>                                                       <C>
Millennium Inorganic Chemicals
     Ashtabula, Ohio....................................  TiO2 and TiCl4
     Baltimore, Maryland (Hawkins Point)................  TiO2
     Kemerton, Western Australia........................  TiO2
     Le Havre, Normandy, France.........................  TiO2
     Stallingborough, U.K...............................  TiO2
     Thann, Alsace, France..............................  TiO2, TiCl4, specialty TiO2 and zirconium-based
                                                          compounds
Millennium Petrochemicals
     La Porte, Texas....................................  VAM; methanol and acetic acid
Millennium Specialty Chemicals
     Baltimore, Maryland (St. Helena)...................  Cadmium-based pigments and silica gel
     Brunswick, Georgia.................................  Fragrance and flavor chemicals
     Jacksonville, Florida..............................  Fragrance and flavor chemicals
</TABLE>

     The Company believes that its properties are well maintained and are in
good operating condition.

ITEM 3. LEGAL PROCEEDINGS

     The Company and various Company subsidiaries are defendants in a number of
pending legal proceedings incidental to present and former operations. These
include several proceedings alleging injurious exposure of the plaintiffs to
various chemicals and other materials manufactured by the Company's current and
former subsidiaries; typically such proceedings involve large claims made by
many plaintiffs against many defendants in the chemical industry. The Company
does not expect that the outcome of these proceedings, either individually or in
the aggregate, will have a material adverse effect upon the Company's combined
financial condition, results of operations or liquidity.

     Together with other alleged past manufacturers of lead pigments for use in
paint and lead-based paint, a former subsidiary of a discontinued operation has
been named as a defendant or third party defendant in various legal proceedings
alleging that it and other manufacturers are responsible for personal injury and
property damage allegedly associated with the use of lead pigments in paint.
These proceedings consist of four cases in the State of New York, one of which
has been brought by The City of New York, and a class action personal injury
case filed on behalf of all purportedly lead-poisoned children in Ohio. There
can be no assurance that additional litigation will not be filed. The legal
proceedings seek recovery under a variety of theories, including negligence,
failure to warn, breach of warranty, conspiracy, market share liability, fraud
and misrepresentation. The plaintiffs in these actions generally seek to impose
on the defendants responsibility for alleged damages and health concerns
associated with the use of lead-based paints. These cases are in various
pre-trial stages. The Company is vigorously defending such litigation. Although
liability, if any, that may result is not reasonably capable of estimation, the
Company currently believes that the disposition of such claims in the aggregate
should not have a material adverse effect on the Company's combined financial
position, results of operations or liquidity. The pending legal proceedings
referred to above are as follows: Brenner et. al. v. American Cyanamid Company,
et. al., and Tyrell et al v. American Cyanamid et al, both commenced in the
Supreme Court of the State of New York on November 9, 1993; 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; Jennifer German, et. al. v.
Federal Home Loan Mortgage Corp. et. al. v. Lead Industries Association, Inc.,
et. al., commenced in the United States District Court, Southern District of New
York on July 26, 1993; and Jackson, et. al. v. The Glidden Co., et. al.,
commenced in the Court of Common Pleas, Cuyahoga County, Ohio on August 12,
1992.

     In addition, various laws and administrative regulations have, from time to
time, been enacted or proposed at the federal, state and local levels and may be
proposed in the future that seek to (i) impose various obligations on present
and former manufacturers of lead pigment and lead paint with respect to asserted
health concerns associated with the use of such products, and (ii) effectively
overturn court decisions in which the Company's former subsidiary and other
defendants have been successful. No legislation or regulations have been adopted
to date which are expected to have a material adverse effect on the Company's
combined financial position, results of operations or liquidity.

                                       24




<PAGE>
     For information concerning the Company's environmental proceedings, see
'Environmental Matters' in Item 1 of this Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held a Special Meeting of its Shareholders on November 20,
1997, to approve the transactions involved in combining substantially all the
assets comprising the Company's polyethylene, alcohol and related products
business segment and Lyondell's petrochemicals and polymers business segments to
form Equistar, as set forth in the Joint Proxy Statement of the Company and
Lyondell dated October 17, 1997. A detailed description of such transaction is
contained in such Joint Proxy Statement. At such Special Meeting, 51,901,590
shares of Common Stock voted 'For' such proposal, 338,871 shares voted 'Against'
such proposal, and 130,468 shares abstained.

                                       25




<PAGE>
                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The data regarding the Company's Common Stock and Shareholders contained
under the caption 'Market for Registrant's Common Equity and Related Shareholder
Matters' on page 43 of the Company's Annual Report to Shareholders for the year
ended December 31, 1997 (the 'Company's Annual Report'), are incorporated into
this Report by reference.

     The Company paid a dividend of $.12 per share of Common Stock, plus U.K.
Advance Corporation Tax of $.03 per share, in each fiscal quarter of 1997.

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data of the Company contained at the top of page 18
of the Company's Annual Report are incorporated into this Report by reference.
Such selected financial data are derived from the audited Consolidated
(Combined) 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 incorporated by reference into this Report from the
Company's Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The Company's 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' contained on pages 20 through 27 of the Company's
Annual Report is incorporated into this Report by reference. Such information
should be read in conjunction with the Company's Consolidated (Combined)
Financial Statements, including the Notes thereto. In connection with the
forward-looking statements which appear in 'Management's Discussion and Analysis
of Financial Condition and Results of Operations,' the 'Cautionary Statements'
which appear immediately after the Table of Contents in this Report should be
reviewed carefully.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated (Combined) Financial Statements of the Company, including
the Notes thereto, and the report of Price Waterhouse LLP thereon, contained on
pages 28 through 43 of the Company's Annual Report are incorporated into this
Report by reference.

     In addition, the Supplemental Financial Information and Financial Statement
Schedule listed in Item 14(a)(1)(ii) and (2) of this Report, including the
Report of Price Waterhouse LLP thereon and the Reports of Ernst & Young LLP, are
incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information included under the captions 'Executive Officers' in Item 1
of this Report is incorporated herein by reference.

     The information to be included under the captions 'Election of Directors'
and 'Other Matters -- Section 16(a) Beneficial Ownership Reporting Compliance'
in the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
in connection with the Annual Meeting of the Company's Shareholders to be held
on May 15, 1998 (the 'Proxy Statement'), is incorporated herein by reference.

                                       26




<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

     The information to be included under the captions 'Corporate
Governance -- Directors' Remuneration and Attendance at Meetings' and 'Executive
Compensation' in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information to be included under the caption 'Ownership of Common
Stock' in the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Not applicable.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

     (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

         1. (i) The Consolidated (Combined) Financial Statements of the Company,
            including the Notes thereto, and the Report of Price Waterhouse LLP
            thereon, contained on pages 28 through 43 of the Company's Annual
            Report and incorporated by reference into Item 8 of Part II of this
            Report, consist of the following:

<TABLE>
<CAPTION>
                                                                                     PAGE OF
                                                                                  THE COMPANY'S
                                                                                  ANNUAL REPORT
                                                                                 ---------------
<S>                                                                              <C>
 -- Report of Price Waterhouse LLP.............................................          28
 -- Consolidated Balance Sheets -- December 31, 1997 and 1996..................          29
 -- Consolidated (Combined) Statements of Operations -- Years Ended December
    31, 1997, 1996 and 1995....................................................          30
 -- Consolidated (Combined) Statements of Cash Flows -- Years Ended December
    31, 1997, 1996 and 1995....................................................          31
 -- Consolidated (Combined) Statements of Changes in Shareholders'
    Equity -- Years Ended December 31, 1997, 1996 and 1995.....................          32
 -- Notes to Consolidated (Combined) Financial Statements......................       33-43
</TABLE>

            With the exception of the information listed directly above and the
            information specifically incorporated by reference into Items 1, 5,
            6 and 7 of this Report, the Company's Annual Report is not to be
            deemed filed as a part of this Report.

         1. (ii) Supplement Financial Information.

            The Supplemental Financial Information relating to the Company,
            Millennium America Inc. ('Millennium America') and Equistar consist
            of the following:

<TABLE>
<S>                                                                             <C>
Report of Price Waterhouse LLP...............................................            F-1
Report of Ernst & Young LLP..................................................            F-2
     (Cornerstone-Spectrum, Inc.)
Report of Ernst & Young LLP (HMB Holdings Inc.)..............................            F-3
Millennium America Consolidated Balance Sheets -- December 31, 1997 and
  1996.......................................................................            F-4
Millennium America Consolidated (Combined) Statements of Operations -- Years
  Ended December 31, 1997, 1996 and 1995.....................................            F-5
Financial Statements of Equistar:
     Report of Price Waterhouse LLP and Coopers and Lybrand L.L.P............            F-6
     Statement of Income -- December 1, 1997 to December 31, 1997............            F-7
</TABLE>

                                                  (table continued on next page)

                                       27




<PAGE>
(table continued from previous page)

<TABLE>
<S>                                                                             <C>
     Balance Sheet -- December 31, 1997......................................            F-8
     Statement of Partners' Capital -- December 1, 1997 to December 31,
       1997..................................................................            F-9
     Statement of Cash Flows -- December 1, 1997 to December 31, 1997........           F-10
     Notes to Financial Statements...........................................   F-11 to F-19
</TABLE>

         2. Financial Statement Schedule.

            Financial Statement Schedule II -- Valuation and Qualifying
            Accounts, located on page S-1 of this Annual Report on Form 10-K,
            should be read in conjunction with the Financial Statements included
            in Item 8 of this Annual Report on Form 10-K. 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 (Combined) Financial Statements of
            the Company or the Notes thereto.

         3. Exhibits.

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                      DESCRIPTION OF DOCUMENT
---------  -------------------------------------------------------------------------------------------
<C>        <S>
 3.1       -- 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'))*
 3.2       -- By-laws of the Company (Filed as Exhibit 3.2 to the Form 10)*
 4.1(a)    -- Form of Indenture, dated as of November 27, 1996, among Millennium America Inc.
              (formerly Hanson America, Inc.) ('Millennium America'), 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**
10.1       -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 16, 1996, between
              Millennium Holdings Inc. (formerly HM Holdings, Inc.) ('Millennium Holdings') and Hanson
              (including related form of Indemnification Agreement and Tax Sharing and Indemnification
              Agreement) (Filed as Exhibit 10.1 to the Form 10)*
10.2       -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 16, 1996, between
              Millennium Holdings and Hanson relating to Peabody Holding Company, Inc. (including
              related form of Indemnification Agreement and Tax Sharing and Indemnification Agreement)
              (Filed as Exhibit 10.2 to the Form 10)*
10.3       -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 16, 1996, between
              Millennium Holdings and Hanson relating to certain Canadian subsidiaries (including
              related form of Indemnification Agreement) (Filed as Exhibit 10.3 to the Form 10)*
10.4       -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 30, 1996, between
              Millennium Holdings and Hanson relating to Lynton Group, Inc. (Filed as Exhibit 10.4 to
              the Form 10)*
10.5       -- Form of Post-Demerger Stock Purchase Agreement, dated as of September 30, 1996, between
              HMB Holdings Inc. and Hanson (including related form of Indemnification Agreement and Tax
              Sharing and Indemnification Agreement) (Filed as Exhibit 10.5 to the Form 10)*
10.6       -- Form of Post-Demerger Stock Purchase Agreement, dated as of September 30, 1996, between
              Hanson and MHC Inc. (including related form of Indemnification Agreement and Tax Sharing
              and Indemnification Agreement) (Filed as Exhibit 10.6 to the Form 10)*
10.7       -- Demerger Agreement, dated as of September 30, 1996, between Hanson, Millennium Overseas
              Holdings Ltd. (formerly Hanson Overseas Holdings Ltd.) and the Company (Filed as Exhibit
              10.7 to the Form 10)*
</TABLE>

                                       28




<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                      DESCRIPTION OF DOCUMENT
---------  -------------------------------------------------------------------------------------------
<C>        <S>
10.8       -- Form of Indemnification Agreement, dated as of September 30, 1996, between Hanson and
              the Company (Filed as Exhibit 10.8 to the Form 10)*
10.9(a)    -- 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)*
10.9(b)    -- 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.) and 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)*
10.9(c)    -- 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')*
10.10      -- Form of Corporate Transition Agreement, dated as of September 30, 1996, between Hanson
              North America Inc. and Millennium America Holdings Inc. (Filed as Exhibit 10.10 to the
              Form 10)*
10.11      -- Form of Joint Ownership Agreement, dated as of September 30, 1996, between Hanson North
              America Inc. and Millennium America Holdings Inc. (Filed as Exhibit 10.11 to the Form
              10)*
10.12      -- Form of Agreement, dated as of October 1, 1996, between Hanson Pacific Limited and
              Millennium Holdings Inc. (Filed as Exhibit 10.12 to the Form 10)*
10.13      -- Form of Management Agreement, dated as of September 30, 1996, among MHC Inc., Millennium
              Petrochemicals Inc. (formerly Quantum Chemical Corporation) ('Millennium Petrochemicals')
              and Welbeck Management Limited (Filed as Exhibit 10.13(a) to the Form 10)*
10.14(a)   -- Credit Agreement ('Credit Agreement'), dated as of July 26, 1996, among Millennium
              America Inc. (formerly Hanson America Inc.), the Company, as Guarantor, the borrowing
              subsidiaries party thereto, the lenders party thereto, The Chase Manhattan Bank, as
              Documentation Agent, and Bank of America National Trust and Savings Association, as
              Administration Agent (Filed as Exhibit 10.14 to the Form 10)*
10.14(b)   -- Amendment to the Credit Agreement dated as of December 18, 1996 (Filed as Exhibit
              10.14(b) to the 1996 Form 10-K)*
10.14(c)   -- Second Amendment to the Credit Agreement dated as of October 20, 1997**
10.15      -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and
              William M. Landuyt (Filed as Exhibit 10.15 to the Form 10)* 'D'
10.16      -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and Robert
              E. Lee (Filed as Exhibit 10.16 to the Form 10)*'D'
10.17      -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and George
              H. Hempstead III (Filed as Exhibit 10.17 to the Form 10)*'D'
10.18      -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and John
              E. Lushefski (Filed as Exhibit 10.18 to the Form 10)*'D'
10.19      -- Agreement, dated as of July 1, 1996, between Millennium Petrochemicals and Ronald H.
              Yocum (Filed as Exhibit 10.19 to the Form 10)*'D'
10.20      -- Agreement, dated as of July 1, 1996, between Millennium Specialty Chemicals Inc.
              (formerly Glidco Inc.), and George W. Robbins (Filed as Exhibit 10.21 to the Form 10)*'D'
10.21      -- Form of Agreement between Millennium Petrochemicals Inc. and each of Peter P. Hanik and
              Charles F. Daly**'D'
10.22      -- Form of Change-in-Control Agreement, dated as of July 1, 1996, between, Millennium
              America Holdings Inc. and each of A. Mickey Foster, Francis V. Lloyd, Christine F.
              Wubbolding, Marie S. Dreher and James A. Lofredo (Filed as Exhibit 10.22 to the Form
              10)*'D'
10.23(a)   -- Millennium Chemicals Inc. Annual Performance Incentive Plan (Filed as Exhibit 10.23 to
              the Form 10)*'D'
10.23(b)   -- Amendment Number 1 to the Millennium Chemicals Inc. Annual Performance Plan. (Filed as
              Exhibit 10.23(b) to the 1996 Form 10-K)*'D'
</TABLE>

                                       29




<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                      DESCRIPTION OF DOCUMENT
---------  -------------------------------------------------------------------------------------------
<C>        <S>
10.23(c)   -- Amendment Number 2 to the Millennium Chemical Inc. Annual Performance Incentive
              Plan**'D'
10.24(a)   -- Millennium Chemicals Inc. 1996 Long Term Incentive Plan (Filed as Exhibit 10.24 to the
              Form 10)*'D'
10.24(b)   -- Termination Amendment to the Millennium Chemicals Inc. 1996 Long Term Incentive
              Plan**'D'
10.24(c)   -- Amendment to the Millennium Chemicals Inc. 1996 Long Term Incentive Plan**'D'
10.25(a)   -- Millennium Chemicals Inc. Long Term Stock Incentive Plan (Filed as Exhibit 10.25 to the
              Form 10)*'D'
10.25(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.)*'D'
10.25(c)   -- Amendment to the Millennium Chemicals Inc. Long Term Stock Incentive Plan**'D'
10.26      -- Millennium Chemicals Inc. Supplemental Executive Retirement Plan (Filed as Exhibit 10.26
              to the Form 10)*'D'
10.27      -- Millennium Petrochemicals Supplemental Executive Retirement Plan (Filed as Exhibit 10.27
              to the Form 10)*'D'
10.28      -- Millennium Inorganic Chemicals Supplemental Executive Retirement Plan (Filed as Exhibit
              10.28 to the Form 10)*'D'
10.29      -- Millennium Specialty Chemicals Supplemental Executive Retirement Plan (Filed as Exhibit
              10.29 to the Form 10)*'D'
10.30(a)   -- Millennium Chemicals Inc. Salary and Bonus Deferral Plan (Filed as Exhibit 10.30 to the
              1996 Form 10-K)*'D'
10.30(b)   -- Amendment to the Millennium Chemicals Inc. Salary and Bonus Deferred Plan**'D'
10.31      -- 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)*
10.32      -- 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)*
10.33      -- Limited Partnership Agreement of Equistar (Filed as an exhibit to the Company's Current
              Report on Form 8-K dated October 17, 1997)*
10.34      -- Asset Contribution Agreement among Millennium Petrochemicals Inc., Millennium
              Petrochemicals LP LLC and Equistar (Filed as an exhibit to the Company's Current Report
              on Form 8-K dated December 10, 1997)*
10.35      -- Asset Contribution Agreement among Lyondell, Lyondell Petrochemicals L.P. Inc. and
              Equistar (Filed as an exhibit to the Company's Current Report on Form 8-K dated December
              10, 1997)*
10.36      -- Parent Agreement among Lyondell, the Company and Equistar (Filed as an exhibit to the
              Company's Current Report on Form 8-K dated December 10, 1997)*
11.1       -- Statement re: computation of per share earnings**
12.1       -- Statement re: computation of ratios**
21.1       -- Subsidiaries of the Company**
23.1       -- Consent of Price Waterhouse LLP**
23.2       -- Consent of Ernst & Young LLP**
23.3       -- Consent of Price Waterhouse LLP and Coopers & Lybrand L.L.P.**
27.1       -- Financial Data Schedule**
99.1       -- Form of Letter Agreement, dated July 3, 1996, between Hanson and U.K. Inland Revenue
              (Filed as Exhibit 99.2 to the Form 10)*
              In addition, the Company hereby agrees to furnish to the SEC, upon request, a copy of any
              instrument not listed above which defines the rights of the holders of long-term debt of
              the Company and its subsidiaries.
</TABLE>

------------

*  Incorporated by reference

** Filed herewith

                                              (footnotes continued on next page)

                                       30




<PAGE>
(footnotes continued from previous page)

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

     (B) REPORTS ON FORM 8-K

              The Company filed a Current Report on Form 8-K dated December 10,
         1997, reporting, pursuant to Item 2 of Form 8-K, the completion on
         December 1, 1997, of the joint venture transaction between the Company
         and Lyondell to form Equistar. The Company incorporated by reference,
         pursuant to Item 7 of Form 8-K, from the Joint Proxy Statement of the
         Company and Lyondell dated October 17, 1997, the financial statements
         of the businesses contributed to Equistar by each of the Company and
         Lyondell and the Unaudited Pro Forma Consolidated Data of the Company
         and Equistar.

                                       31




<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities 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/ WILLIAM M. LANDUYT
                                             ...................................
                                                     WILLIAM M. LANDUYT
                                            CHAIRMAN OF THE BOARD, PRESIDENT AND
                                                 CHIEF EXECUTIVE OFFICER

March 30, 1998

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
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
------------------------------------------  ---------------------------------------------------------------------
<C>                                         <S>
          /S/ WILLIAM M. LANDUYT            Chairman of the Board, President, Chief Executive Officer and
 .........................................    Director (principal executive officer)
           (WILLIAM M. LANDUYT)

            /S/ ROBERT E. LEE               President, Chief Executive Officer of Millennium Inorganic Chemicals
 .........................................    and Director
             (ROBERT E. LEE)

          /S/ JOHN E. LUSHEFSKI             Senior Vice President and Chief Financial Officer (principal
 .........................................    financial officer)
           (JOHN E. LUSHEFSKI)

            /S/ KENNETH BAKER               Director
 .........................................
               (LORD BAKER)

         /S/ WORLEY H. CLARK, JR.           Director
 .........................................
          (WORLEY H. CLARK, JR.)

          /S/ MARTIN D. GINSBURG            Director
 .........................................
           (MARTIN D. GINSBURG)

              /S/ GLENARTHUR                Director
 .........................................
            (LORD GLENARTHUR)

         /S/ DAVID J. P. MEACHIN            Director
 .........................................
          (DAVID J. P. MEACHIN)

           /S/ MARTIN G. TAYLOR             Director
 .........................................
            (MARTIN G. TAYLOR)

           /S/ MARIE S. DREHER              Vice President-Corporate Controller
 .........................................    (principal accounting officer)
            (MARIE S. DREHER)
</TABLE>

                                       32




<PAGE>
                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                     SUPPLEMENTAL FINANCIAL INFORMATION AND
                        THE FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of
MILLENNIUM CHEMICALS INC.

     Our audits of the consolidated (combined) financial statements referred to
in our report dated January 23, 1998, except as to Note 13, which is as of March
20, 1998, appearing on page 28 of the 1997 Annual Report to Shareholders of
Millennium Chemicals Inc. (which report and consolidated (combined) financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Supplemental Financial Information relating to
Millennium America Inc. and the Financial Statement Schedule listed in Item
14(a) of this Annual Report on Form 10-K. In our opinion, such Supplemental
Financial Information relating to Millennium America Inc. and the Financial
Statement Schedule present fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated (combined)
financial statements.

PRICE WATERHOUSE LLP
Morristown, NJ
January 23, 1998

                                      F-1




<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
and Stockholder of
CORNERSTONE-SPECTRUM, INC.

     We have audited the consolidated balance sheet of Cornerstone-Spectrum,
Inc. (the 'Company') as of September 28, 1996 and the related consolidated
statements of operations, changes in stockholder's equity, and cash flows for
the year then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Cornerstone-Spectrum, Inc. at September 28, 1996 and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

     As discussed in Note 3 to the consolidated financial statements of the
Company, the Company changed its method of measuring losses for impairment of
long-lived assets.

                               ERNST & YOUNG LLP

Hackensack, New Jersey
November 13, 1996

                                      F-2




<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
and Stockholder of
HMB HOLDINGS, INC.

     We have audited the consolidated balance sheets of HMB Holdings, Inc. (the
'Company') as of September 30, 1995 and the related consolidated statements of
income, changes in stockholder's equity, and cash flows for the then ended (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statement referred to above present fairly,
in all material respects, the consolidated financial position of HMB Holdings,
Inc. at September 30, 1995 and the consolidated results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

                               ERNST & YOUNG LLP

Hackensack, New Jersey
November 7, 1995, except for Note 11,
as to which the date is July 2, 1996.

                                      F-3




<PAGE>
                            MILLENNIUM AMERICA INC.
                       CONSOLIDATED FINANCIAL STATEMENTS

     Millennium America, a wholly-owned subsidiary of the Company, is a holding
company for all of the Company's operating subsidiaries other than its
operations in the U.K., France and Australia. Millennium America is the issuer
of the 7% Senior Notes due November 15, 2006, and the 7 5/8% Debentures due
November 15, 2026, and is a borrower under the Company's Revolving Credit
Agreement. Accordingly, the Consolidated Balance Sheets and Consolidated
(Combined) Statements of Operations are provided for Millennium America.

                            MILLENNIUM AMERICA INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                               ------------------
                                                                                                1997        1996
                                                                                               ------      ------
                                                                                                 (IN MILLIONS)

<S>                                                                                            <C>         <C>
                                           ASSETS

Current assets:
     Cash and cash equivalents..............................................................   $   23      $  375
     Trade receivables, net.................................................................      260         399
     Inventories............................................................................      165         411
     Other current assets...................................................................       80          73
                                                                                               ------      ------
          Total current assets..............................................................      528       1,258
Property, plant and equipment...............................................................      473       1,827
Investment in Equistar......................................................................    1,934        --
Investments and other assets................................................................      227         291
Due from parent and affiliates..............................................................      260          89
Goodwill....................................................................................      468       1,766
                                                                                               ------      ------
          Total assets......................................................................   $3,890      $5,231
                                                                                               ------      ------
                                                                                               ------      ------

                              LIABILITIES AND INVESTED CAPITAL
Current liabilities:
     Notes payable..........................................................................   $ --        $   98
     Current maturities of long-term debt...................................................        2           8
     Trade accounts payable.................................................................       43         119
     Income taxes payable...................................................................        4          22
     Accrued expenses and other liabilities.................................................      247         460
                                                                                               ------      ------
          Total current liabilities.........................................................      296         707
Non-current liabilities:
     Long-term debt.........................................................................    1,293       2,319
     Deferred income taxes..................................................................      237          61
     Due to parent and affiliates...........................................................      334         389
     Other liabilities......................................................................      783         649
                                                                                               ------      ------
          Total liabilities.................................................................    2,943       4,125
                                                                                               ------      ------
Commitments and contingencies (see Note 11 of the Company's Annual Report)
Invested capital............................................................................      947       1,106
                                                                                               ------      ------
          Total liabilities and invested capital............................................   $3,890      $5,231
                                                                                               ------      ------
                                                                                               ------      ------
</TABLE>

                                      F-4




<PAGE>
                            MILLENNIUM AMERICA INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                    -----------------------------
                                                                                     1997       1996        1995
                                                                                    ------     -------     ------
                                                                                            (IN MILLIONS)

<S>                                                                                 <C>        <C>         <C>
Net sales........................................................................   $2,714     $ 2,693     $3,432
Operating costs and expenses:
     Cost of products sold.......................................................    1,915       2,019      2,229
     Depreciation and amortization...............................................      184         180        223
     Selling, development and administrative expense.............................      193         191        236
     Impairment of assets and related closure costs..............................     --            58       --
                                                                                    ------     -------     ------
          Operating income.......................................................      422         245        744
Interest expense (primarily to a related party)..................................     (128)       (253)      (240)
Interest income..................................................................        7          28         24
Gain on sale of Suburban Propane.................................................     --           210       --
Equity in earnings of Equistar...................................................       18       --          --
Equity in earnings of Suburban Propane Partners..................................       (5)         37       --
Other (income) expense, net......................................................       19           5        (56)
                                                                                    ------     -------     ------
Income from continuing operations before provision for income taxes..............      333         272        472
Provision for income taxes.......................................................     (150)       (182)      (196)
                                                                                    ------     -------     ------
Income from continuing operations................................................      183          90        276
(Loss) income from discontinued operations (net of income taxes of ($1,167) and
  $22)...........................................................................     --        (2,842)        18
                                                                                    ------     -------     ------
Net income (loss)................................................................   $  183     $(2,752)    $  294
                                                                                    ------     -------     ------
                                                                                    ------     -------     ------
</TABLE>

                                      F-5




<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Partnership Governance Committee
  of EQUISTAR CHEMICALS, LP:

     We have audited the accompanying balance sheet of Equistar Chemicals, LP
(the 'Partnership') as of December 31, 1997, and the related statements of
income, partners' capital, and cash flows for the period from December 1, 1997
(inception) to December 31, 1997. 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 audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equistar Chemicals, LP as of
December 31, 1997, and the results of its operations and its cash flows for the
period from December 1, 1997 (inception) to December 31, 1997, in conformity
with generally accepted accounting principles.

<TABLE>
<S>                                                      <C>
COOPERS & LYBRAND L.L.P.                                 PRICE WATERHOUSE LLP
Houston, Texas                                           Morristown, New Jersey
February 16, 1998                                        February 16, 1998
(Except as to the information presented in Note 18, for  (Except as to the information presented in Note 18, for
which the date is March 20, 1998)                        which the date is March 20, 1998)
</TABLE>

                                      F-6




<PAGE>
                             EQUISTAR CHEMICALS, LP
                              STATEMENT OF INCOME
              FOR THE PERIOD FROM DECEMBER 1, 1997 (INCEPTION) TO
                               DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                              (MILLIONS
                                                                                                  OF
                                                                                               DOLLARS)

<S>                                                                                           <C>
Sales and other operating revenues:
     Unrelated parties.....................................................................      $338
     Related parties.......................................................................        27
                                                                                              ----------
                                                                                                  365
Operating costs and expenses:
     Cost of sales:
          Unrelated parties................................................................       261
          Related parties..................................................................        26
     Selling, general and administrative expenses..........................................        21
     Unusual charges.......................................................................        42
                                                                                              ----------
                                                                                                  350
     Operating income......................................................................        15
Interest expense...........................................................................       (10)
Interest income............................................................................         2
                                                                                              ----------
Net income.................................................................................      $  7
                                                                                              ----------
                                                                                              ----------
</TABLE>

                       See notes to financial statements.

                                      F-7




<PAGE>
                             EQUISTAR CHEMICALS, LP
                                 BALANCE SHEET
                               DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                              (MILLIONS
                                                                                                  OF
                                          ASSETS                                               DOLLARS)

<S>                                                                                           <C>
Current assets:
     Cash and cash equivalents.............................................................     $   41
     Accounts receivable:
          Trade............................................................................        445
          Related parties..................................................................         36
     Receivable from partners..............................................................        150
     Inventories...........................................................................        513
     Prepaid expenses and other current assets.............................................         24
                                                                                              ----------
          Total current assets.............................................................      1,209
                                                                                              ----------
Property, plant and equipment..............................................................      3,678
Less accumulated depreciation and amortization.............................................     (1,560)
                                                                                              ----------
                                                                                                 2,118
Goodwill, net..............................................................................      1,139
Deferred charges and other assets..........................................................        151
                                                                                              ----------
          Total assets.....................................................................     $4,617
                                                                                              ----------
                                                                                              ----------
                             LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
     Accounts payable:
          Trade............................................................................     $  171
          Related parties..................................................................         18
     Payable to partners...................................................................         63
     Other accrued liabilities.............................................................         65
     Current maturities of long-term debt..................................................         36
                                                                                              ----------
          Total current liabilities........................................................        353
                                                                                              ----------
Long-term debt.............................................................................      1,512
Other liabilities and deferred credits.....................................................         34
Commitments and contingencies
Partners' capital:
     Partners' capital.....................................................................      3,063
     Note receivable from Lyondell LP......................................................       (345)
                                                                                              ----------
          Total partners' capital..........................................................      2,718
                                                                                              ----------
          Total liabilities and partners' capital..........................................     $4,617
                                                                                              ----------
                                                                                              ----------
</TABLE>

                       See notes to financial statements.

                                      F-8




<PAGE>
                             EQUISTAR CHEMICALS, LP
                         STATEMENT OF PARTNERS' CAPITAL
              FOR THE PERIOD FROM DECEMBER 1, 1997 (INCEPTION) TO
                               DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                        LYONDELL    MILLENNIUM    TOTAL
                                                                        --------    ----------    ------
                                                                             (MILLIONS OF DOLLARS)

<S>                                                                     <C>         <C>           <C>
Balance at December 1, 1997 (inception)..............................    $--          $--         $ --
Capital contributions at inception:
     Net assets, at historical cost..................................       763        2,048       2,811
     Note receivable from Lyondell LP                                       345        --            345
Net income...........................................................         4            3           7
Distributions to partners............................................       (57)         (43)       (100)
                                                                        --------    ----------    ------
Balance at December 31, 1997.........................................    $1,055       $2,008      $3,063
                                                                        --------    ----------    ------
                                                                        --------    ----------    ------
</TABLE>

                       See notes to financial statements.

                                      F-9




<PAGE>
                             EQUISTAR CHEMICALS, LP
                            STATEMENT OF CASH FLOWS
              FOR THE PERIOD FROM DECEMBER 1, 1997 (INCEPTION) TO
                               DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                              (MILLIONS
                                                                                                  OF
                                                                                               DOLLARS)

<S>                                                                                           <C>
Cash flows from operating activities:
     Net income............................................................................     $    7
     Adjustments to reconcile net income to net cash provided by operating activities:
          Depreciation and amortization....................................................         19
          Increase in accounts receivable..................................................       (100)
          Increase in receivable from partners.............................................       (101)
          Increase in inventories..........................................................         (5)
          Increase in accounts payable.....................................................        188
          Increase in payable to partners..................................................         54
          Increase in other accrued liabilities............................................         48
          Net change in other working capital accounts.....................................        (15)
          Other............................................................................          7
                                                                                              ----------
               Net cash provided by operating activities...................................        102
                                                                                              ----------
Cash flows from investing activities:
     Additions to property, plant and equipment............................................        (12)
                                                                                              ----------
          Net cash used in investing activities............................................        (12)
                                                                                              ----------
Cash flows from financing activities:
     Borrowings of long-term debt..........................................................         50
     Cash contributions from partners......................................................          1
     Distributions to partners.............................................................       (100)
                                                                                              ----------
          Net cash used in financing activities............................................        (49)
                                                                                              ----------
Increase in cash and cash equivalents......................................................         41
Cash and cash equivalents at beginning of period...........................................      --
                                                                                              ----------
Cash and cash equivalents at end of period.................................................     $   41
                                                                                              ----------
                                                                                              ----------
</TABLE>

                       See notes to financial statements.

                                      F-10




<PAGE>
                             EQUISTAR CHEMICALS, LP
                         NOTES TO FINANCIAL STATEMENTS

1. FORMATION OF THE COMPANY AND OPERATIONS

     Pursuant to a partnership agreement (the 'Partnership Agreement'), Lyondell
Petrochemical Company ('Lyondell') and Millennium Chemicals Inc. ('Millennium')
formed Equistar Chemicals, LP ('Equistar' or the 'Partnership'), a Delaware
limited partnership, which commenced operations on December 1, 1997 (See note 11
for related discussion). The Partnership is owned 57% by Lyondell and 43% by
Millennium. Lyondell owns its interest in the Partnership through two
wholly-owned subsidiaries, Lyondell Petrochemical G.P. Inc. ('Lyondell GP') and
Lyondell Petrochemical L.P. Inc. ('Lyondell LP'). Millennium also owns its
interest in the Partnership through two wholly-owned subsidiaries, Millennium
Petrochemicals GP LLC ('Millennium GP') and Millennium Petrochemicals LP LLC
('Millennium LP').

     The Partnership owns and operates the petrochemicals and polymers
businesses contributed by Lyondell and Millennium (the 'Contributed Businesses')
which consist of 15 manufacturing facilities on the U.S. Gulf Coast and in the
U.S. Midwest. The petrochemicals segment produces products including ethylene,
propylene, ethyl alcohol, butadiene, aromatics and methyl tertiary butyl ether
('MTBE'). These products are used primarily in the production of other chemicals
and products, including polymers. The petrochemicals segment also includes sales
of methanol produced by Lyondell Methanol LP ('Lyondell Methanol'), which is
owned 75% by Lyondell. The Partnership operates the Lyondell Methanol facility.
The polymers segment produces products that include polyethylene (high-density,
low-density and linear low-density), and polypropylene, which are used in the
production of a wide variety of consumer and industrial products.

     The Partnership Agreement provides that Equistar is governed by a
Partnership Governance Committee consisting of six representatives, three
appointed by each partner. Most of the significant decisions of the Partnership
Governance Committee require unanimous consent, including approval of the
Partnership's Strategic Plan and annual updates thereof.

     Pursuant to the Partnership Agreement, net income is allocated among the
partners on a pro rata basis based on their percentage ownership of the
Partnership. Distributions are made to the partners based on their percentage
ownership of the Partnership. Additional contributions required by the
Partnership will also be based on the partners' percentage ownership of the
Partnership.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Revenue Recognition. Revenue from product sales is generally recognized
upon shipment of products to the customer.

     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 an original maturity date of three months or less. Cash
equivalents are stated at cost, which approximates fair value. The Partnership's
policy is to invest cash in conservative, highly rated instruments and limit the
amount of credit exposure to any one institution. The Partnership performs
periodic evaluations of the relative credit standing of these financial
institutions which are considered in the Partnership's investment strategy.

     The Partnership 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 the Partnership's discretion.
As a result, none of the Partnership's cash is restricted.

     Management determines the appropriate classification of investments in debt
securities as trading, available-for-sale or held-to-maturity at the time of
purchase and reevaluates such designation as of each balance sheet date.

                                      F-11




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Accounts Receivable. The Partnership sells its products primarily to
companies in the petrochemicals and polymers industries. The Partnership
performs ongoing credit evaluations of its customers' financial condition and in
certain circumstances requires letters of credit from them.

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

     Property, Plant and Equipment. Property, plant and equipment are recorded
at cost. Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the related assets,
generally 5 to 25 years.

     Upon retirement or sale, the Partnership removes the cost of the assets and
the related accumulated depreciation from the accounts and reflects any
resulting gains or losses in income. The Partnership's policy is to capitalize
interest cost incurred on debt during the construction of major projects
exceeding one year.

     Turnaround Maintenance and Repair Expenses. Cost of major repairs and
maintenance incurred in connection with turnarounds of units at the
Partnership's manufacturing facilities are deferred and amortized on a
straight-line basis until the next planned turnaround, generally four to six
years.

     Goodwill. Goodwill, which was contributed by Millennium, is being amortized
using the straight-line method over forty years. Management periodically
evaluates goodwill for impairment based on the anticipated future cash flows
attributable to the related operations. Such expected cash flows, on an
undiscounted basis, are compared to the carrying value of the tangible and
intangible assets, and if impairment is indicated, the carrying value of
goodwill, and if necessary other related assets, is adjusted. Management
believes that no impairment exists at December 31, 1997. The Partnership
amortized $3 million of goodwill during the period from December 1, 1997
(inception) to December 31, 1997.

     Environmental Remediation Costs. Expenditures related to investigation and
remediation of contaminated sites, which include operating facilities and waste
disposal sites, are accrued when it is probable a liability has been incurred
and the amount of the liability can reasonably be estimated. Estimates have not
been discounted to present value. Environmental remediation costs are expensed
or capitalized in accordance with generally accepted accounting principles.

     In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ('SOP 96-1'), 'Environmental Remediation
Liabilities,' which establishes new accounting and reporting standards for the
recognition and disclosure of environmental remediation liabilities. The effect
of adoption of SOP 96-1 in 1997 did not have a material impact on the
Partnership's financial position or results of operations.

     Exchanges. Finished product exchange transactions, which are of a
homogeneous nature of commodities in the same line of business 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. Exchanges settled through
payment and receipt of cash are accounted for as purchases and sales.

     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 and 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.

                                      F-12




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. FINANCIAL INSTRUMENTS

     The fair value of all financial instruments included in current assets and
current liabilities, including cash and cash equivalents, accounts receivable,
accounts payable and notes payable, approximated their carrying value due to
their short maturity. Based on the borrowing rates currently available to the
Partnership for debt with terms and average maturities similar to the
Partnership's debt portfolio, the fair value of the Partnership's long-term
debt, including amounts due within one year, was $1.506 billion at December 31,
1997.

     At December 31, 1997, the Partnership had issued letters of credit totaling
$4 million.

4. RELATED PARTY TRANSACTIONS

     Lyondell provides certain corporate, general and administrative services to
the Partnership, including legal, tax, treasury, risk management and other
services pursuant to a shared services agreement. The Partnership provides
certain general and administrative services to Lyondell, including computer,
office lease and employee benefits services. During the period from December 1,
1997 (inception) to December 31, 1997, billings for these services were less
than $1 million.

     The Partnership also provides certain general and administrative services
to Millennium, including materials management, certain utilities, office space,
health, safety and environmental services and computer services. Millennium
provides the Partnership with certain operational services, including waste
water treatment and barge dock access. During the period from December 1, 1997
(inception) to December 31, 1997, billings for these services were less than $1
million.

     The Partnership has several feedstock and product sales agreements with
Lyondell-CITGO Refining Company Ltd. ('LCR'), a joint venture investment of
Lyondell. Sales to LCR were $27 million and cost of sales to LCR were $26
million for the period from December 1, 1997 (inception) to December 31, 1997.

     The Partnership has a feedstock, product sales and other services agreement
with Lyondell Methanol. Lyondell Methanol sells all of its products to Equistar.
Purchases from Lyondell Methanol were $15 million for the period from December
1, 1997 (inception) to December 31, 1997. Lyondell Methanol purchased $4 million
of natural gas feedstock from the Partnership during the period from December 1,
1997 (inception) to December 31, 1997. Lyondell Methanol also pays a business
management fee to Equistar which was less than $1 million during the period from
December 1, 1997 (inception) to December 31, 1997.

5. INVENTORIES

     The categories of inventory and their book values at December 31, 1997 were
as follows:

<TABLE>
<CAPTION>
                                                                  (MILLIONS OF DOLLARS)

<S>                                                               <C>
Petrochemicals.................................................           $ 183
Polymers.......................................................             264
Materials and supplies.........................................              66
                                                                         ------
     Total inventories.........................................           $ 513
                                                                         ------
                                                                         ------
</TABLE>

     For the period from December 1, 1997 (inception), to December 31, 1997, the
Partnership increased cost of sales by approximately $1 million associated with
the reduction in LIFO inventories. The excess of the current cost of inventories
over book value was approximately $103 million at December 31, 1997.

                                      F-13




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT

     The components of property, plant and equipment and their gross value at
December 31, 1997, were as follows:

<TABLE>
<CAPTION>
                                                                  (MILLIONS OF DOLLARS)

<S>                                                               <C>
Manufacturing facilities and equipment.........................          $ 3,477
Construction projects in progress..............................              127
Land...........................................................               74
                                                                         -------
     Total property, plant and equipment.......................          $ 3,678
                                                                         -------
                                                                         -------
</TABLE>

7. DEFERRED CHARGES AND OTHER ASSETS

     Deferred charges and other assets at December 31, 1997, were as follows:

<TABLE>
<CAPTION>
                                                                  (MILLIONS OF DOLLARS)

<S>                                                               <C>
Deferred turnaround costs, net.................................           $  66
Deferred software costs, net...................................              44
Deferred pension asset.........................................              23
Other..........................................................              18
                                                                         ------
     Total deferred charges and other assets...................           $ 151
                                                                         ------
                                                                         ------
</TABLE>

8. OTHER ACCRUED LIABILITIES

     Other accrued liabilities at December 31, 1997, were as follows:

<TABLE>
<CAPTION>
                                                                  (MILLIONS OF DOLLARS)

<S>                                                               <C>
Accrued severance and other costs related to formation of the
  Partnership..................................................            $27
Accrued interest...............................................             10
Other..........................................................             28
                                                                           ---
     Total other accrued liabilities...........................            $65
                                                                           ---
                                                                           ---
</TABLE>

9. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

     Long-term debt at December 31, 1997, was comprised of the following:

<TABLE>
<CAPTION>
                                                                  (MILLIONS OF DOLLARS)

<S>                                                               <C>
10.00% Notes due in 1999.......................................          $   150
9.125% Notes due in 2002.......................................              100
5-year term credit facility....................................              800
Medium-term notes (1998-2005)..................................              194
6.5% Notes due in 2006.........................................              150
7.55% Debentures due in 2026...................................              150
Other..........................................................                4
                                                                         -------
                                                                           1,548
Less current portion...........................................               36
                                                                         -------
     Total long-term debt......................................          $ 1,512
                                                                         -------
                                                                         -------
</TABLE>

     Aggregate maturities of long-term debt during the five years subsequent to
December 31, 1997, are as follows: 1998-$36 million; 1999-$150 million; 2000-$42
million; 2001-$90 million; 2002-$901 million. All of the above debt is
guaranteed by the Partners.

                                      F-14




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The medium-term notes mature at various dates from 1998 to 2005 and have a
weighted average interest rate at December 31, 1997 of 9.83 percent.

     The Partnership has a five-year, $1.25 billion credit facility ('Facility')
with a group of banks expiring November 2002. Borrowings under the Facility bear
interest at either the Federal Funds rate plus 1/2 of 1 percent, LIBOR, a fixed
rate offered by one of the sponsoring banks or rates that are based on a
competitive auction feature wherein the interest rate can be established by
competitive bids submitted by the sponsoring banks, depending on the type of
borrowing made under the Facility. The Facility is available for working capital
and general purposes as needed and contains covenants relating to liens, sale
and leaseback transactions, debt incurrence, leverage and interest coverage
ratios, sales of assets and mergers and consolidations. As of December 31, 1997,
the Partnership was in compliance with the covenants of the Facility.

10. NOTE RECEIVABLE FROM LYONDELL LP

     Upon formation of the Partnership, Lyondell LP also contributed capital to
the Partnership in the form of a $345 million promissory note (the 'Lyondell
Note'). The Lyondell Note bears interest at LIBOR plus a market spread. The
Lyondell Note will be repaid to the Partnership at the earlier of 3 years from
the date the Partnership commenced operations or 30 days after a financing at
LCR, a joint venture investment of Lyondell, which results in the repayment of
LCR's existing $450 million 5-year term loan and a distribution to Lyondell of
at least $345 million. During the period from December 1, 1997 (inception) to
December 31, 1997, the Partnership accrued $1.75 million of interest income
related to the Lyondell Note.

11. UNUSUAL CHARGES

     In December 1997, the Partnership recorded $42 million of unusual charges
related to the formation of the Partnership. These charges included severance
and other costs related to a workforce reduction (approximately 430 employees)
that resulted from the consolidation of the businesses contributed to the
Partnership ($30 million), various closing costs ($6 million), and various other
charges ($6 million). Approximately $15 million of these charges were paid in
1997 and $27 million are included in other accrued liabilities in the
accompanying balance sheet and will be paid during 1998.

12. SUPPLEMENTAL CASH FLOW INFORMATION

     The historical cost of the net assets contributed to the Partnership at
inception are summarized as follows (in millions of dollars):

<TABLE>
<CAPTION>
                                                                             AMOUNT
                                                                             ------

<S>                                                                          <C>
Total current assets......................................................   $ 948
Property, plant and equipment, net........................................   2,121
Goodwill, net.............................................................   1,142
Deferred charges and other assets.........................................     158
                                                                             ------
     Total assets.........................................................   $4,369
                                                                             ------
                                                                             ------
Current maturities of long-term debt......................................   $  36
Other current liabilities.................................................      17
Long-term debt............................................................   1,462
Other liabilities and deferred credits....................................      43
Partners' capital.........................................................   3,156
Note receivable from Lyondell LP..........................................    (345 )
                                                                             ------
     Total liabilities and partners' capital..............................   $4,369
                                                                             ------
                                                                             ------
</TABLE>

                                      F-15




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. LEASES

     At December 31, 1997, future minimum rental payments for operating leases
with noncancelable lease terms in excess of one year were as follows:

<TABLE>
<CAPTION>
                                                                         AMOUNT
                                                                  ---------------------
                                                                  (MILLION OF DOLLARS)

<S>                                                               <C>
1998...........................................................           $ 128
1999...........................................................             111
2000...........................................................              80
2001...........................................................              56
2002...........................................................              42
Thereafter.....................................................             369
                                                                         ------
     Total minimum lease payments..............................           $ 786
                                                                         ------
                                                                         ------
</TABLE>

     Operating lease net rental expense was $11 million for the period from
December 1, 1997 (inception), to December 31, 1997.

     The Partnership is party to various unconditional purchase obligation
contracts as a purchaser for product and services. At December 31, 1997, future
minimum payments under these contracts with noncancelable contract terms in
excess of one year were as follows:

<TABLE>
<CAPTION>
                                                                         AMOUNT
                                                                  ---------------------
                                                                  (MILLION OF DOLLARS)

<S>                                                               <C>
1998...........................................................           $  30
1999...........................................................              29
2000...........................................................              29
2001...........................................................              26
2002...........................................................              26
Thereafter.....................................................             189
                                                                         ------
     Total minimum contract payments...........................           $ 329
                                                                         ------
                                                                         ------
</TABLE>

     The Partnership's total purchases under these agreements were $3 million
during the period from December 1, 1997 (inception), to December 31, 1997.

14. RETIREMENT PLANS

     All full-time regular employees of the Partnership are covered by defined
benefit pension plans sponsored by the Partnership. The plans became effective
on January 1, 1998, except for union represented employees, whose plans were
contributed to the Partnership at formation. In connection with the formation of
the Partnership, there were no pension assets or obligations contributed to the
Partnership, except for the union represented plans. Retirement benefits are
based on years of service and the employee's highest three consecutive years of
compensation during the last ten years of service. The funding policy for these
plans is to make periodic contributions as required by applicable law. The
Partnership accrues pension costs based on an actuarial valuation and funds the
plans through contributions to pension trust funds. The Partnership also has
unfunded supplemental nonqualified retirement plans which provide pension
benefits for certain employees in excess of the tax qualified plans' limits.

                                      F-16




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The following table sets forth the funded status of the union represented
plans at December 31, 1997 (the other plans are unfunded as of December 31,
1997):

<TABLE>
<CAPTION>
                                                                  PLANS WITH ASSETS IN
                                                                     EXCESS OF ABO
                                                                  --------------------
                                                                      (MILLIONS OF
                                                                  DOLLARS)

<S>                                                               <C>
Actuarial present value of benefit obligations:
     Vested benefit obligation.................................           $ 19
                                                                           ---
                                                                           ---
     Accumulated benefit obligation ('ABO')....................           $ 20
                                                                           ---
                                                                           ---
     Projected benefit obligation..............................           $ 21
Plan assets at fair value, primarily stocks and bonds..........             40
Plan assets in excess of projected benefit obligation..........             19
Unrecognized net loss..........................................              4
                                                                           ---
Net pension asset..............................................           $ 23
                                                                           ---
                                                                           ---
</TABLE>

     As the non-union plans became effective on January 1, 1998, the Partnership
did not recognize any net periodic pension cost during the period from December
1, 1997 (inception), to December 31, 1997.

     The assumptions used at December 31, 1997, in determining the net pension
liability shown above were as follows:

<TABLE>
<CAPTION>
                                                                              PERCENT

<S>                                                                           <C>
Discount rate..............................................................     7.25
Rate of salary progression.................................................     4.75
Long-term rate of return on assets.........................................     9.00
</TABLE>

     Effective January 1, 1998, the Partnership also maintains voluntary defined
contribution savings plans for eligible employees. Under provisions of the
plans, the Partnership contributes an amount equal to 160 percent of employee
contributions up to a maximum matching contribution of eight percent of the
employee's base salary.

15. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

     The Partnership sponsors unfunded postretirement benefit plans other than
pensions ('OPEB') for both salaried and non-salaried employees, which provide
medical and life insurance benefits. The postretirement health care plans are
contributory while the life insurance plans are non-contributory. Currently, the
Partnership pays approximately 80 percent of the cost of the health care plans,
but reserves the right to modify the cost-sharing provisions at any time. In
connection with the formation of the Partnership, the Partners contributed $31
million of accrued postretirement benefit liabilities for employees that
transferred to the Partnership.

     The following table sets forth the plans' separate postretirement benefit
liabilities at December 31, 1997:

<TABLE>
<CAPTION>
                                                                                              MEDICAL         LIFE
                                                                                              -------         ----
                                                                                                  (MILLIONS OF
                                                                                                    DOLLARS)

<S>                                                                                           <C>             <C>
Accumulated postretirement benefit obligation:
     Retirees..............................................................................    $--            $--
     Fully eligible active plan participants...............................................      (11)           (3)
     Other active plan participants........................................................      (25)          (11)
                                                                                              -------         ----
                                                                                                 (36)          (14)
Unrecognized prior service cost............................................................     --             --
Unrecognized net loss......................................................................       14             5
                                                                                              -------         ----
Accrued postretirement benefit liability...................................................    $ (22)         $ (9)
                                                                                              -------         ----
                                                                                              -------         ----
</TABLE>

                                      F-17




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The accrued postretirement benefit liabilities were calculated and
contributed as of December 31, 1997; therefore, there was no net periodic
postretirement benefit costs for the period from December 1, 1997 (inception),
to December 31, 1997.

     For measurement purposes, the assumed annual rate of increase in the per
capita cost of covered health care benefits as of December 31, 1997, was 7% for
1998-2001 and 5% thereafter. The health care cost trend rate assumption does not
have a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit liability as of December 31,
1997, by less than $1 million.

     The accumulated postretirement benefit obligation was calculated utilizing
a weighted-average discount rate of 7.25% at December 31, 1997, and an average
rate of salary progression of 4.75%. The Partnership's current policy is to fund
the postretirement health care and life insurance plans on a pay-as-you-go
basis.

16. COMMITMENTS AND CONTINGENCIES

     The Partnership has various purchase commitments for materials, supplies
and services incident to the ordinary conduct of business. In the aggregate,
such commitments are not at prices in excess of current market.

     The Partnership is also subject to 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 upon the
financial statements or liquidity of the Partnership.

     Equistar has agreed to indemnify and defend Lyondell and Millennium,
individually, against certain uninsured claims and liabilities which Equistar
may incur relating to the operation of the Contributed Business prior to
December 1, 1997 up to $7 million each within the first seven years of the
partnership, subject to certain terms of the Asset Contribution Agreements.

     The Partnership's policy is to be in compliance with all applicable
environmental laws. The Partnership is subject to extensive environmental laws
and regulations concerning emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste materials. Some of these laws and regulations
are subject to varying and conflicting interpretations. In addition, the
Partnership cannot accurately predict future developments, such as increasingly
strict requirements of environmental laws, inspection and enforcement policies
and compliance costs therefrom which might affect the handling, manufacture,
use, emission or disposal of products, other materials or hazardous and
non-hazardous waste.

     In the opinion of management, any liability arising from the matters
discussed in this Note is not expected to have a material adverse effect on the
financial statements or liquidity of the Partnership. However, the adverse
resolution in any reporting period of one or more of these matters discussed in
this Note could have a material impact on the Partnership's results of
operations for that period without giving effect to contribution or
indemnification obligations of co-defendants or others, or to the effect of any
insurance coverage that may be available to offset the effects of any such
award.

17. SEGMENT INFORMATION

     The petrochemicals segment consists of olefins, including ethylene,
propylene, butadiene, butylenes and specialty products; aromatics, including
benzene and toluene; and MTBE. The polymers segment consists of polyolefins
including polypropylene, high-density polyethylene, low-density polyethylene and
linear low-density polyethylene.

                                      F-18




<PAGE>
                             EQUISTAR CHEMICALS, LP
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Summarized below is the segment data for the Partnership. Intersegment
sales between the petrochemicals and polymers segments were made at prices based
on current market values.


<TABLE>
<CAPTION>
                                 PETROCHEMICALS    POLYMERS
                                    SEGMENT         SEGMENT     UNALLOCATED    ELIMINATIONS    CONSOLIDATED
                                 --------------    ---------    -----------    ------------    ------------
                                                           (MILLIONS OF DOLLARS)

<S>                              <C>               <C>          <C>            <C>             <C>
Sales and other operating
  revenues:
     Customers................       $  179         $   186                                       $  365
     Intersegment.............          105           --                          $ (105)         --
                                    -------        ---------                   ------------    ------------
                                        284             186                         (105)            365
Cost of sales.................          236             156                         (105)            287
Selling, general and
  administrative expenses.....            1               8       $    12         --                  21
Unusual charges...............       --               --               42         --                  42
                                    -------        ---------    -----------    ------------    ------------
Operating income..............       $   47         $    22       $   (54)        --              $   15
                                    -------        ---------    -----------    ------------    ------------
                                    -------        ---------    -----------    ------------    ------------
Depreciation and amortization
  expense.....................       $    7         $     7       $     5         --              $   19
                                    -------        ---------    -----------    ------------    ------------
                                    -------        ---------    -----------    ------------    ------------
Capital expenditures..........       $    7         $     4       $     1         --              $   12
                                    -------        ---------    -----------    ------------    ------------
                                    -------        ---------    -----------    ------------    ------------
Identifiable assets...........       $1,679         $ 1,510       $ 1,428         $--             $4,617
                                    -------        ---------    -----------    ------------    ------------
                                    -------        ---------    -----------    ------------    ------------
</TABLE>

18. SUBSEQUENT EVENT

     On March 20, 1998, Lyondell and Millennium announced an agreement to expand
Equistar with the addition of the ethylene, propylene, ethylene oxide and
ethylene glycol derivatives businesses of Occidental Chemical Corporation
('Occidental'), a subsidiary of Occidental Petroleum Corporation. The
transaction, which is subject to regulatory approval, is expected to close by
mid-year 1998. After the close of the transaction, Lyondell will have 41%
ownership interest of the Partnership and Millennium and Occidental will each
have 29.5% ownership interests.

                                      F-19




<PAGE>
                                                                     SCHEDULE II

                           MILLENNIUM CHEMICALS INC.
                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                               BALANCE AT     CHARGED TO    CHARGED TO
                                              BEGINNING OF      COSTS         OTHER                        BALANCE AT
                 DESCRIPTION                     PERIOD      AND EXPENSES    ACCOUNTS    DEDUCTION        END OF PERIOD
--------------------------------------------- ------------   ------------   ----------   ---------        -------------
                                                                            (IN MILLIONS)
<S>                                           <C>            <C>            <C>          <C>              <C>
Year ended December 31, 1995:
  Deducted from asset accounts:
     Allowance for doubtful accounts.........     $ 15           $  5        $     --      $   4(a)           $  16
Year ended December 31, 1996:
  Deducted from asset accounts:
     Allowance for doubtful accounts.........       16              1              --          9(a)(b)            8
          Valuation Allowance................       --             --           112(c)        --                112
Year ended December 31, 1997:
  Deducted from asset accounts:
     Allowance for doubtful accounts.........        8                            2(d)         4(a)               2
          Valuation Allowance................      112                                       (31)               143
</TABLE>

------------

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

 (b) Sale of Suburban Propane.

 (c) Valuation on tax carryforwards arising from demerger transactions.

 (d) Reclassed to other current assets as net receivable from Equistar.

                                      S-1



                          STATEMENT OF DIFFERENCES
                          ------------------------

The registered trademark symbol shall be expressed as.................   'r'
The dagger symbol shall be expressed as...............................   'D'
Characters normally expressed as subscript shall be expressed as
baseline characters.