Edgar Filing: MILLENNIUM CHEMICALS INC

________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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AMENDMENT NO. 1
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

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

FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER: 1-12091
-------------------

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

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

230 Half Mile Road 07701-7015
P.O. Box 7015 (Zip Code)
Red Bank, NJ
(Address of principal executive offices)

Registrant's telephone number, including area code: 732-933-5000
-------------------

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

Name of each exchange
Title of each class on which registered
------------------- -------------------

Common Stock, par value New York Stock Exchange
$0.01 per share

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant is required to file such reports) and (2) has been subject to such
filing requirements for the past 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 23, 2001 (based upon the closing price of $16.22 per common share as
quoted on the New York Stock Exchange), is approximately $1,000 million. For
purposes of this computation, the shares of voting stock held by directors,
officers and employee benefit plans of the registrant and its wholly owned
subsidiaries were deemed to be stock held by affiliates. The number of shares of
common stock outstanding at March 23, 2001, was 63,450,643 shares, excluding
14,445,943 shares held by the registrant, its subsidiaries and certain Company
trusts, which are not entitled to be voted.

Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 2000, 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 2001 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.

________________________________________________________________________________

EXPLANATORY NOTE

Millennium Chemicals Inc. (the 'Company') is filing this amendment to its
Form 10-K for the fiscal year ended December 31, 2000 to revise the Supplemental
Financial Information of the Company that was included on pages F-2 through F-6
of such Form 10-K. Such revised Supplemental Financial Information includes
revisions to disclose the financial position, results of operations and cash
flows of the Company, Millennium America Inc., an indirect, wholly owned
subsidiary of the Company ('Millennium America'), and subsidiaries of the
Company other than Millennium America. Items 8 and 14, as amended, are hereby
provided in their entirety.

PART II

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements of the Company, including the Notes
thereto, and the report of PricewaterhouseCoopers LLP thereon, contained on
pages 27 through 45 of the Annual Report to Shareholders are incorporated herein
by reference.

In addition, the revised Supplemental Financial Information and the
Financial Statement Schedule listed in Item 14(a)(1)(ii) and (2) of this
Form 10-K/A, including the report of PricewaterhouseCoopers LLP thereon, are
incorporated herein by reference.

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 Financial Statements of the Company, including
the Notes thereto, and the report of PricewaterhouseCoopers LLP
thereon, contained on pages 27 through 45 of the Annual Report to
Shareholders, consist of the following:

Page of
the Company's
Annual Report
-------------

-- Report of PricewaterhouseCoopers LLP.................... 27
-- Consolidated Balance Sheets -- December 31, 2000 and
1999...................................................... 28
-- Consolidated Statements of Operations -- Years Ended
December 31, 2000, 1999 and 1998.......................... 29
-- Consolidated Statements of Cash Flows -- Years Ended
December 31, 2000, 1999 and 1998.......................... 30
-- Consolidated Statements of Changes in Shareholders'
Equity -- Years Ended December 31, 2000, 1999 and 1998.... 31
-- Notes to Consolidated Financial Statements.............. 32 - 45

With the exception of the information listed directly above and the
information specifically incorporated by reference into Items 1, 5, 6,
7, 7A and 8 of the Annual Report on Form 10-K, the Annual Report to
Shareholders is not to be deemed filed as a part of the Annual Report
on Form 10-K.

(ii) Supplemental Financial Information.

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

Page of
This Report
-----------

Report of PricewaterhouseCoopers LLP........................ F-1
Supplemental Financial Information of the Company:
Supplemental Financial Information...................... F-2
Condensed Consolidating Balance Sheets -- December 31,
2000 and 1999......................................... F-3
Condensed Consolidating Statements of
Operations -- Years Ended December 31, 2000, 1999 and
1998.................................................. F-4
Condensed Consolidating Statements of Cash
Flows -- Years Ended December 31, 2000, 1999 and
1998.................................................. F-5 and F-6
Financial Statements of Equistar:
Report of PricewaterhouseCoopers LLP.................... F-7
Consolidated Statements of Income -- Years ended
December 31, 2000 and 1999 and 1998................... F-8
Consolidated Balance Sheets -- December 31, 2000 and
1999.................................................. F-9
Consolidated Statements of Cash Flows -- Years ended
December 31, 2000, 1999 and 1998...................... F-10
Consolidated Statements of Partners' Capital -- Years
ended December 31, 2000, 1999 and 1998................ F-11
Notes to Consolidated Financial Statements.............. F-12 to F-28

2. Financial Statement Schedule.

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

3. Exhibits.

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 (Filed
as Exhibit 4.1(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (the '1997 Form 10-K'))*
10.1 -- 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)*

Exhibit
Number Description of Document
------ -----------------------

10.2 -- 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)*
10.3 -- Form of Indemnification Agreement, dated as of
September 30, 1996, between Hanson and the Company (Filed
as Exhibit 10.8 to the Form 10)*
10.4(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)*
10.4(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.), 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)*
10.4(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'))*
10.5(a) -- Credit Agreement ('Credit Agreement'), dated as of
July 26, 1996, among Millennium America, 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)*
10.5(b) -- Amendment to the Credit Agreement dated as of
December 18, 1996, (Filed as Exhibit 10.14(b) to the 1996
Form 10-K)*
10.5(c) -- Second Amendment to the Credit Agreement dated as of
October 20, 1997, (Filed as Exhibit 10.14(b) to the 1996
Form 10-K)*
10.5(d) -- Third Amendment to the Credit Agreement dated as of
December 31, 1999 (Filed as Exhibit 10.5(d) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (the '1999 Form 10-K'))*
10.6 -- Form of Agreement, dated as of July 24, 1998, between
Millennium America Holdings Inc. and William M. Landuyt;
Robert E. Lee; George H. Hempstead, III; Richard A.
Lamond; and, John E. Lushefski (Filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (the 'September 30, 1998,
Form 10-Q'))*'D'
10.7 -- Form of Agreement, dated as of July 24, 1998, between
Millennium Specialty Chemicals Inc. and George W. Robbins.
This form of agreement is identical to the agreements
between the Company's operating subsidiaries and certain
officers of such subsidiaries who are not executive
officers of the Company. (Filed as Exhibit 10.2 to the
September 30, 1998, Form 10-Q)*'D'
10.8 -- Form of Agreement, dated as of July 24, 1998, between
Millennium Petrochemicals Inc. and each of Peter P. Hanik
and Charles F. Daly (Filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (the '1998 Form 10-K'))*'D'
10.9 -- Form of Change-in-Control Agreement, dated as of
July 24, 1998, between Millennium America Holdings Inc.
and each of C. William Carmean, A. Mickelson Foster, James
A. Lofredo, Corey A. Siegel and Christine F. Wubbolding
(Filed as Exhibit 10.22 to the Form 10-Q)*'D'
10.10 -- Form of Change-in-Control Agreement between each of the
Company's operating subsidiaries and certain officers of
such subsidiaries who are not executive officers of the
Company (Filed as Exhibit 10.19 to the 1998
Form 10-K)*'D'
10.11(a) -- Millennium Chemicals Inc. Annual Performance Incentive
Plan (Filed as Exhibit 10.23 to the Form 10)*'D'

Exhibit
Number Description of Document
------ -----------------------

10.11(b) -- Amendment Number 1 dated January 20, 1997, to the
Millennium Chemicals Inc. Annual Performance Plan. (Filed
as Exhibit 10.23(b) to the 1996 Form 10-K)*'D'
10.11(c) -- Amendment Number 2 dated January 23, 1998, to the
Millennium Chemicals Inc. Annual Performance Incentive
Plan (Filed as Exhibit 10.23(c) to the 1997 Form 10-K)*'D'
10.11(d) -- Amendment Number 3 dated January 22, 1999, to the
Millennium Chemicals Inc. Annual Performance Incentive
Plan (Filed as Exhibit 10.20(d) to the 1998 Form 10-K)*'D'
10.12(a) -- Millennium Chemicals Inc. 1996 Long Term Incentive Plan
(Filed as Exhibit 10.24 to the Form 10)*'D'
10.12(b) -- Termination Amendment dated as of October 23, 1997, to
the Millennium Chemicals Inc. 1996 Long Term Incentive
Plan (Filed as Exhibit 10.24(b) to the 1997 Form 10-K)*'D'
10.12(c) -- Amendment dated January 23, 1998 to the Millennium
Chemicals Inc. 1996 Long Term Incentive Plan (Filed as
Exhibit 10.24(c) to the 1997 Form 10-K)*'D'
10.12(d) -- Amendment dated January 22, 1999, to the Millennium
Chemicals Inc. 1996 Long Term Incentive Plan (Filed as
Exhibit 10.21(d) to the 1998 Form 10-K)*'D'
10.13 -- Millennium Chemicals Inc. 1997 Executive Long-Term
Incentive Plan, as amended by the Termination Amendment
thereto, dated as of October 23, 1997, and as further
amended by amendments thereto dated January 23, 1998 and
January 22, 1999 (Filed as Exhibit 10.22 to the 1998 Form
10-K)*'D'
10.14(a) -- Millennium Chemicals Inc. Long Term Stock Incentive Plan
(Filed as Exhibit 10.25 to the Form 10)*'D'
10.14(b) -- Amendment Number 1 to the Millennium Chemicals Inc. Long
Term Stock Incentive Plan (Filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997)*'D'
10.14(c) -- Amendment dated July 24, 1997 to the Millennium Chemicals
Inc. Long Term Stock Incentive Plan (Filed as Exhibit
10.25(c) to the 1997 Form 10-K)*'D'
10.14(d) -- Amendments dated January 23, 1998 and December 10, 1998,
to the Millennium Chemicals Inc. Long Term Stock Incentive
Plan (Filed as Exhibit 10.23(d) to the 1998
Form 10-K)*'D'
10.15(a) -- Millennium Chemicals Inc. Supplemental Executive
Retirement Plan**'D'
10.15(b) -- Millennium Chemicals Grandfathered Supplemental Executive
Retirement Plan**'D'
10.16 -- Millennium Petrochemicals Grandfathered Supplemental
Executive Retirement Plan**'D'
10.17 -- Millennium Inorganic Chemicals Grandfathered Supplemental
Executive Retirement Plan**'D'
10.18 -- Millennium Specialty Chemicals Grandfathered Supplemental
Executive Retirement Plan**'D'
10.19(a) -- Millennium Chemicals Inc. Salary and Bonus Deferral Plan
(Filed as Exhibit 10.30 to the 1996 Form 10-K)*'D'
10.19(b) -- Amendment Number 1 dated January 23, 1998, to the
Millennium Chemicals Inc. Salary and Bonus Deferral Plan
(Filed as Exhibit 10.30(b) to the 1997 Form 10-K)*'D'
10.19(c) -- Amendment Number 2 dated January 22, 1999, to the
Millennium Chemicals Inc. Salary and Bonus Deferral Plan
(Filed as Exhibit 10.28(c) to the 1998 Form 10-K)*'D'
10.20 -- Millennium Chemicals Inc. Supplemental Savings and
Investment Plan (Filed as Exhibit 10.29 to the 1998 Form
10-K)*'D'
10.21 -- Millennium Chemicals Inc. Long Term Incentive Plan **'D'
10.22 -- Millennium Chemicals Inc. Executive Long Term Incentive
Plan**'D'
10.23 -- Millennium America Holdings Inc. Long Term Incentive Plan
and Executive Long Term Incentive Plan Trust Agreement
**'D'

Exhibit
Number Description of Document
------ -----------------------

10.24 -- Millennium Chemicals Inc. Omnibus Incentive Compensation
Plan **'D'
10.25(a) -- Master Transaction Agreement between the Company and
Lyondell (Filed as an Exhibit to the Company's Current
Report on Form 8-K dated July 25, 1997)*
10.25(b) -- First Amendment to Master Transaction Agreement between
Lyondell and the Company (Filed as an Exhibit to the
Company's Current Report on Form 8-K dated October 17,
1997)*
10.26(a) -- Amended and Restated Partnership Agreement of Equistar,
dated May 15, 1998 (Filed as Exhibit 10.36 to the 1998
Form 10-K)*
10.26(b) -- First Amendment to the Limited Partnership Agreement,
dated as of June 30, 1998 (Filed as Exhibit 10.22(b) to
the 1999 Form 10-K)*
10.26(c) -- Second Amendment to the Limited Partnership Agreement
dated as of February 16, 1999(filed as Exhibit 10.22(c) to
1999 Form 10-K)*
10.27(a) -- Asset Contribution Agreement ('Millennium Asset
Contribution Agreement') among Millennium Petrochemicals,
Millennium Petrochemicals LP LLC and Equistar (Filed as an
Exhibit to the Company's Current Report on Form 8-K dated
December 10, 1997)*
10.27(b) -- First Amendment to the Millennium Asset Contribution
Agreement dated as of May 15, 1998 (Filed as Exhibit
10.23(b) to the 1999 Form 10-K)*
10.28(a) -- Asset Contribution Agreement ('Lyondell 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)*
10.28(b) -- First Amendment to Lyondell Asset Contribution Agreement
dated as of May 15, 1998 (Filed as Exhibit 10.24(b) to the
1999 Form 10-K)*
10.29(a) -- Amended and Restated Parent Agreement among Lyondell, the
Company, Occidental, Oxy CH Corporation, Occidental
Chemical Corporation, and Equistar, dated as of May 15,
1998, (Filed as Exhibit 10.37 to the 1998 Form 10-K)*
10.29(b) -- First Amendment to Amended and Restated Parent Agreement,
dated as of June 30, 1998 (Filed as Exhibit 10.25(b) to
the 1999 form 10-K)*
11.1 -- Statement re: computation of per share earnings**
13 -- Information incorporated by reference from the Annual
Report to Shareholders for the Year Ended December 31,
2000**
21.1 -- Subsidiaries of the Company**
23.1 -- Consent of PricewaterhouseCoopers LLP**
23.2 -- Consent of PricewaterhouseCoopers LLP**
23.3 -- Consent of PricewaterhouseCoopers LLP**
23.4 -- Consent of PricewaterhouseCoopers LLP**
27.1 -- Financial Data Schedule**
99.1 -- Form of Letter Agreement, dated July 3, 1996, between
Hanson and United Kingdom Inland Revenue (Filed as Exhibit
99.2 to the Form 10)*
In additon, 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.

---------

* Incorporated by reference

** Filed herewith

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

(b) Reports on Form 8-K None.

SIGNATURES

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

MILLENNIUM CHEMICALS INC.
By: /s/ JOHN E. LUSHEFSKI
..................................
John E. Lushefski
Senior Vice President and
Chief Financial Officer

July 5, 2001

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 financial statements referred to in our
report dated January 26, 2001, appearing on page 27 of the 2000 Annual Report to
Shareholders of Millennium Chemicals Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K/A) also included an audit of the Supplemental Financial Information of
Millennium Chemicals Inc. and the Financial Statement Schedule listed in
Item 14(a) of this Annual Report on Form 10-K/A. In our opinion, such
Supplemental Financial Information of Millennium Chemicals 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 financial statements.

PRICEWATERHOUSECOOPERS LLP
Florham Park, NJ
January 26, 2001

F-1

MILLENNIUM CHEMICALS INC.
SUPPLEMENTAL FINANCIAL INFORMATION

Millennium America Inc. ('Millennium America'), a wholly owned indirect
subsidiary of Millennium Chemicals Inc. (the 'Company'), is a holding company
for all of the Company's operating subsidiaries other than its operations in the
United Kingdom, France, Brazil and Australia. Millennium America is the issuer
of the 7% Senior Notes due November 15, 2006, and the 7.625% Senior Debentures
due November 15, 2026, and is the principal borrower under the Company's
Revolving Credit Agreement. The Senior Notes and Senior Debentures, as well as
the borrowings under the Revolving Credit Agreement, are guaranteed by the
Company. Accordingly, the following Condensed Consolidating Balance Sheets at
December 31, 2000 and 1999, and the Condensed Consolidating Statements of
Operations and Cash Flows for each of the three years in the period ended
December 31, 2000, are provided for Millennium Chemicals Inc. as supplemental
financial information of the Company to disclose the financial position, results
of operations and cash flows of the Company, Millennium America and all
subsidiaries of the Company other than Millennium America. The investment in
subsidiaries is accounted for on the equity method.

F-2

MILLENNIUM CHEMICALS INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
as of December 31, 2000 and 1999

Millennium Millennium Millennium
America Inc. Chemicals Inc. Non-guarantor Chemicals Inc.
(Issuer) (Guarantor) Subsidiaries Eliminations and Subsidiaries
-------- ----------- ------------ ------------ ----------------

2000
ASSETS
Inventories................................. $ $ $ 373 $ $ 373
Other current assets........................ 1 527 528
Property, plant and equipment, net.......... 957 957
Investment in Equistar...................... 760 760
Investment in subsidiaries.................. 5,229 1,033 (6,262) --
Other assets................................ 3 208 211
Goodwill.................................... 391 391
Due from parent and affiliates.............. 633 (633) --
------ ------ ------ ------- ------
Total assets............................ $5,866 $1,033 $3,216 $(6,895) $3,220
------ ------ ------ ------- ------
------ ------ ------ ------- ------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt........ $ 360 $ $ 31 $ $ 391
Other current liabilities................... 24 368 392
Long-term debt.............................. 749 18 767
Other liabilities........................... 3 662 665
Due to parent and affiliates................ 47 586 (633) --
------ ------ ------ ------- ------
Total liabilities....................... 1,133 50 1,665 (633) 2,215
Minority interest........................... 22 22
Shareholders' equity........................ 4,733 983 1,529 (6,262) 983
------ ------ ------ ------- ------
Total liabilities and shareholders'
equity................................ $5,866 $1,033 $3,216 $(6,895) $3,220
------ ------ ------ ------- ------
------ ------ ------ ------- ------
1999
ASSETS
Inventories................................. $ $ $ 361 $ $ 361
Other current assets........................ 1 495 496
Property, plant and equipment, net.......... 995 995
Investment in Equistar...................... 800 800
Investment in subsidiaries.................. 5,170 1,020 (6,190) --
Other assets................................ 4 190 194
Goodwill.................................... 404 404
Due from parent and affiliates.............. 536 (536) --
------ ------ ------ ------- ------
Total assets............................ $5,711 $1,020 $3,245 $(6,726) $3,250
------ ------ ------ ------- ------
------ ------ ------ ------- ------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................... $ 41 $ $ 454 $ $ 495
Long-term debt.............................. 1,010 13 1,023
Other liabilities........................... 3 698 701
Due to parent and affiliates................ 2 534 (536) --
------ ------ ------ ------- ------
Total liabilities....................... 1,051 5 1,699 (536) 2,219
Minority interest........................... 16 16
Shareholders' equity........................ 4,660 1,015 1,530 (6,190) 1,015
------ ------ ------ ------- ------
Total liabilities and shareholders'
equity................................ $5,711 $1,020 $3,245 $(6,726) $3,250
------ ------ ------ ------- ------
------ ------ ------ ------- ------

F-3

MILLENNIUM CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000, 1999 and 1998

2000
Net sales............................. $ $ $1,793 $ $1,793
Cost of products sold................. 1,267 1,267
Depreciation and amortization......... 113 113
Selling, development and
administrative expense.............. 200 200
---- ----- ------ ----- ------
Operating income.................. -- 213 -- 213
Interest expense, net................. (76) (1) (77)
Intercompany interest income/(expense) 109 (109) --
Equity in earnings of Equistar........ 39 39
Equity in earnings of subsidiaries.... 59 43 (102) --
Other income (expense), net........... (1) 8 7
(Provision) benefit for income
taxes............................... (12) (48) (60)
---- ----- ------ ----- ------
Net income (loss)................. $ 80 $ 42 $ 102 $(102) $ 122
---- ----- ------ ----- ------
---- ----- ------ ----- ------

1999
Net sales............................. $ $ $1,589 $ $1,589
Cost of products sold................. 1,112 1,112
Depreciation and amortization......... 105 105
Selling, development and
administrative expense.............. 204 204
---- ----- ------ ----- ------
Operating income.................. -- -- 168 -- 168
Interest expense, net................. (65) (4) (69)
Intercompany interest income/(expense) 111 (111) --
Equity in loss of Equistar............ (19) (19)
Equity in earnings of subsidiaries.... (336) 19 317 --
Loss in value of Equistar
investment.......................... (639) (639)
Other income (expense), net........... (1) 25 24
Income from discontinued operations
(net of tax)........................ 38 38
(Provision) benefit for income
taxes............................... (16) 225 209
---- ----- ------ ----- ------
Net income (loss)................. $(306) $ 18 $ (317) $ 317 $ (288)
---- ----- ------ ----- ------
---- ----- ------ ----- ------

1998
Net sales............................. $ $ $1,677 $ (80) $1,597
Cost of products sold................. 1,214 (80) 1,134
Depreciation and amortization......... 102 102
Selling, development and
administrative expense.............. 156 156
---- ----- ------ ----- ------
Operating income.................. -- -- 205 -- 205
Interest expense, net................. (67) (5) (72)
Intercompany interest income/(expense) 105 (105) --
Equity in earnings of Equistar........ 40 40
Equity in earnings of subsidiaries.... 79 60 (139) --
Other income (expense), net........... 27 27
Income from discontinued operations
(net of tax)........................ 1 1
Provision for income taxes............ (13) (24) (37)
---- ----- ------ ----- ------
Net income........................ $104 $ 60 $ 139 $(139) $ 164
---- ----- ------ ----- ------
---- ----- ------ ----- ------

F-4

MILLENNIUM CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998

2000
Cash flow from operations................... $ 80 $ 36 $ 6 $(102) $ 20

Cash flow from investing activities
Capital expenditures.................... (110) (110)
Distributions from Equistar............. 83 83
Proceeds from sale of fixed assets...... 4 4
----- ---- ----- ----- -----
Cash provided by (used in) investing
activities........................ -- -- (23) (23)
Cash flow from financing activities
Dividends to shareholders............... (35) (35)
Repurchase of common stock.............. (65) (65)
Proceeds from long-term debt............ 275 36 311
Repayment of long-term debt............. (165) (22) (187)
Intercompany............................ (172) (1) 71 102 --
(Decrease) Increase in notes payable.... (18) 1 (17)
----- ---- ----- ----- -----
Cash (used in) provided by financing
activities................................ (80) (36) 21 102 7
Effect of exchange rate changes on cash..... (7) (7)
----- ---- ----- ----- -----
Decrease in cash and cash equivalents....... -- -- (3) -- (3)
Cash and cash equivalents at beginning of
year...................................... 110 110
----- ---- ----- ----- -----
Cash and cash equivalents at end of year.... $ -- $ -- $ 107 $ -- $ 107
----- ---- ----- ----- -----
----- ---- ----- ----- -----
1999
Cash flow from operations................... $(306) $ 25 $ (13) $ 317 $ 23

Cash flow from investing activities
Capital expenditures.................... (109) (109)
Distributions from Equistar............. 75 75
Proceeds from syngas transaction........ 123 123
Proceeds from sale of Suburban Propane
investment............................ 75 75
Proceeds from sale of fixed assets...... 13 13
----- ---- ----- ----- -----
Cash provided by (used in) investing
activities........................ -- -- 177 -- 177
Cash flow from financing activities
Dividends to shareholders............... (38) (38)
Repurchase of common stock.............. (200) (200)
Proceeds from long-term debt............ 115 3 118
Repayment of long-term debt............. (66) (27) (93)
Intercompany............................ 231 13 73 (317) --
Increase (decrease) in notes payable.... 26 1 27
----- ---- ----- ----- -----
Cash provided by (used in) financing
activities................................ 306 (25) (150) (317) (186)
Effect of exchange rate changes on cash..... (7) (7)
----- ---- ----- ----- -----
Increase in cash and cash equivalents....... -- -- 7 -- 7
Cash and cash equivalents at beginning of
year...................................... 103 103
----- ---- ----- ----- -----
Cash and cash equivalents at end of year.... $ -- $ -- $ 110 $ -- $ 110
----- ---- ----- ----- -----
----- ---- ----- ----- -----

F-5

MILLENNIUM CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS -- (Continued)
For the Years Ended December 31, 2000, 1999 and 1998

1998
Cash flow from operations................... $ 104 $ 67 $ 118 $(139) $ 150

Cash flow from investing activities
Capital expenditures.................... (215) (215)
Acquisition of businesses............... (85) (85)
Accounts receivable collection through
Equistar.............................. 225 225
Distributions from Equistar............. 317 317
Proceeds from sale of fixed assets...... 10 10
----- ---- ----- ----- -----
Cash provided by (used in) investing
activities........................ -- -- 252 -- 252
Cash flow from financing activities
Dividends to shareholders............... (47) (47)
Proceeds from long-term debt............ 119 53 172
Repayment of long-term debt............. (409) (110) (519)
Intercompany............................ 165 (22) (282) 139 --
Increase in notes payable............... 9 20 29
----- ---- ----- ----- -----
Cash (used in) provided by financing
activities................................ (116) (69) (319) 139 (365)
----- ---- ----- ----- -----
Effect of exchange rate changes on cash..... 2 2
(Decrease) increase in cash and cash
equivalents............................... (12) (2) 53 -- 39
Cash and cash equivalents at beginning of
year...................................... 12 2 50 64
----- ---- ----- ----- -----
Cash and cash equivalents at end of year.... $ -- $ -- $ 103 $ -- $ 103
----- ---- ----- ----- -----
----- ---- ----- ----- -----

F-6

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partnership Governance Committee
of EQUISTAR CHEMICALS, LP:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income, of partners' capital
and of cash flows present fairly, in all material respects, the financial
position of Equistar Chemicals, LP (the 'Partnership') and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 12, 2001

F-7

EQUISTAR CHEMICALS, LP
CONSOLIDATED STATEMENTS OF INCOME

For the year ended
December 31,
------------------------
2000 1999 1998
---- ---- ----
(Millions of dollars)

Sales and other operating revenues:
Unrelated parties....................................... $5,770 $4,506 $3,987
Related parties......................................... 1,725 1,088 537
------ ------ ------
7,495 5,594 4,524
------ ------ ------
Operating costs and expenses:
Cost of sales:
Unrelated parties................................... 5,417 4,069 3,437
Related parties..................................... 1,491 933 491
Selling, general and administrative expenses............ 182 259 229
Research and development expense........................ 38 42 40
Amortization of goodwill and other intangibles.......... 33 33 31
Restructuring and other unusual charges................. -- 96 14
------ ------ ------
7,161 5,432 4,242
------ ------ ------
Operating income........................................ 334 162 282
Interest expense............................................ (185) (182) (156)
Interest income............................................. 4 6 17
Other income, net........................................... -- 46 --
------ ------ ------
Net income and comprehensive income......................... $ 153 $ 32 $ 143
------ ------ ------
------ ------ ------

See Notes to Consolidated Financial Statements.

F-8

EQUISTAR CHEMICALS, LP
CONSOLIDATED BALANCE SHEETS

December 31,
---------------------
2000 1999
---- ----
(Millions of dollars)

ASSETS
Current assets:
Cash and cash equivalents............................... $ 18 $ 108
Accounts receivable:
Trade, net.......................................... 568 491
Related parties..................................... 190 209
Inventories............................................. 506 520
Prepaid expenses and other current assets............... 50 32
------ ------
Total current assets................................ 1,332 1,360
Property, plant and equipment, net.......................... 3,819 3,926
Investment in PD Glycol..................................... 53 52
Goodwill, net............................................... 1,086 1,119
Other assets................................................ 292 279
------ ------
Total assets........................................ $6,582 $6,736
------ ------
------ ------

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable:
Trade............................................... $ 426 $ 424
Related parties..................................... 61 35
Current maturities of long-term debt.................... 90 92
Other accrued liabilities............................... 166 233
------ ------
Total current liabilities........................... 743 784
Long-term debt, less current maturities..................... 2,158 2,169
Other liabilities........................................... 141 121
Commitments and contingencies............................... -- --
Partners' capital........................................... 3,540 3,662
------ ------
Total liabilities and partners' capital............. $6,582 $6,736
------ ------
------ ------

See Notes to Consolidated Financial Statements.

F-9

EQUISTAR CHEMICALS, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended
December 31,
-----------------------
2000 1999 1998
---- ---- ----
(Millions of dollars)

Cash flows from operating activities:
Net income.............................................. $ 153 $ 32 $ 143
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 310 300 268
Net loss on disposition of assets................... 5 35 8
(Increase) decrease in accounts receivable.......... (58) (213) 105
Decrease in receivables from partners............... -- -- 150
Decrease in inventories............................. 14 17 118
Increase in accounts payable........................ 28 119 98
Decrease in payables to partners.................... -- (6) (66)
(Decrease) increase in other accrued liabilities.... (65) 82 64
Net change in other working capital accounts........ (18) (5) 2
Other............................................... (30) (17) (59)
----- ----- -------
Net cash provided by operating activities....... 339 344 831
----- ----- -------
Cash flows from investing activities:
Expenditures for property, plant and equipment.......... (131) (157) (200)
Proceeds from sales of assets........................... 4 75 3
----- ----- -------
Net cash used in investing activities........... (127) (82) (197)
----- ----- -------
Cash flows from financing activities:
Net borrowing (payments) under lines of credit.......... 20 (502) 502
Proceeds from issuance of long-term debt................ -- 898 --
Payment of debt issuance costs.......................... -- (6) --
Repayments of long-term debt............................ (42) (150) (35)
Repayments of obligations under capital leases.......... -- (205) --
Distributions to partners............................... (280) (255) (1,421)
Proceeds from Lyondell note repayment................... -- -- 345
----- ----- -------
Net cash used in financing activities........... (302) (220) (609)
----- ----- -------
(Decrease) increase in cash and cash equivalents............ (90) 42 25
Cash and cash equivalents at beginning of period............ 108 66 41
----- ----- -------
Cash and cash equivalents at end of period.................. $ 18 $ 108 $ 66
----- ----- -------
----- ----- -------

See Notes to Consolidated Financial Statements.

F-10

EQUISTAR CHEMICALS, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

Lyondell Millennium Occidental Total
-------- ---------- ---------- -----
(Millions of dollars)

Balance at January 1, 1998............................. $1,055 $2,008 $-- $3,063
Capital contributions:
Net assets..................................... -- -- 2,097 2,097
Other.......................................... (14) 9 8 3
Net income (loss).................................. 84 64 (5) 143
Distributions to partners.......................... (512) (460) (449) (1,421)
------ ------ ------ ------
Balance at December 31, 1998........................... 613 1,621 1,651 3,885
Net income......................................... 14 9 9 32
Distributions to partners.......................... (105) (75) (75) (255)
------ ------ ------ ------
Balance at December 31, 1999........................... 522 1,555 1,585 3,662
Net income......................................... 63 45 45 153
Distributions to partners.......................... (114) (83) (83) (280)
Other.............................................. 5 -- -- 5
------ ------ ------ ------
Balance at December 31, 2000........................... $ 476 $1,517 $1,547 $3,540
------ ------ ------ ------
------ ------ ------ ------

See Notes to Consolidated Financial Statements.

F-11

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Formation of the Partnership and Operations

Pursuant to a partnership agreement ('Partnership Agreement'), Lyondell
Chemical Company ('Lyondell') and Millennium Chemicals Inc. ('Millennium')
formed Equistar Chemicals, LP ('Equistar' or 'Partnership'), a Delaware limited
partnership, which commenced operations on December 1, 1997. From December 1,
1997 to May 15, 1998, Equistar was owned 57% by Lyondell and 43% by Millennium.
Lyondell owns its interest in Equistar through two wholly owned subsidiaries,
Lyondell Petrochemical G.P. Inc. and Lyondell Petrochemical L.P. Inc. ('Lyondell
LP'). Millennium also owns its interest in Equistar through two wholly owned
subsidiaries, Millennium Petrochemicals GP LLC and Millennium Petrochemicals LP
LLC ('Millennium LP').

On May 15, 1998, Equistar was expanded with the contribution of certain
assets from Occidental Petroleum Corporation ('Occidental') (see Note 3). These
assets included the ethylene, propylene and ethylene oxide ('EO') and EO
derivatives businesses and certain pipeline assets held by Oxy Petrochemicals
Inc. ('Oxy Petrochemicals'), a former subsidiary of Occidental, a 50% interest
in a joint venture ('PD Glycol') between PDG Chemical Inc. and E.I. DuPont de
Nemours and Company, and a lease to Equistar of the Lake Charles, Louisiana
olefins plant and related pipelines held by Occidental Chemical Corporation
('Occidental Chemical') (collectively, 'Occidental Contributed Business').
Occidental Chemical and PDG Chemical Inc. are both wholly owned, indirect
subsidiaries of Occidental. The Occidental Contributed Business included olefins
plants at Corpus Christi and Chocolate Bayou, Texas, EO/ethylene glycol ('EG')
and EG derivatives businesses located at Bayport, Texas, Occidental's 50%
ownership of PD Glycol which operates EO/EG plants at Beaumont, Texas, 950 miles
of owned and leased ethylene/propylene pipelines, and the lease to Equistar of
the Lake Charles, Louisiana olefins plant and related pipelines.

In exchange for the Occidental Contributed Business, two subsidiaries of
Occidental were admitted as limited partners and a third subsidiary was admitted
as a general partner in Equistar for an aggregate partnership interest of 29.5%.
In addition, Equistar assumed approximately $205 million of Occidental
indebtedness and Equistar issued a promissory note to an Occidental subsidiary
in the amount of $420 million, which was subsequently paid in cash in June 1998.
In connection with the contribution of the Occidental Contributed Business and
the reduction of Millennium's and Lyondell's ownership interests in the
Partnership, Equistar also issued a promissory note to Millennium LP in the
amount of $75 million, which was subsequently paid in June 1998. These payments
are included in 'Distributions to partners' in the accompanying Statements of
Partners' Capital and of Cash Flows. The consideration paid for the Occidental
Contributed Business was determined based upon arms-length negotiations between
Lyondell, Millennium and Occidental. In connection with the transaction,
Equistar and Occidental also entered into a long-term agreement for Equistar to
supply the ethylene requirements for Occidental Chemical's U.S. manufacturing
plants.

Upon completion of this transaction, Equistar is now owned 41% by Lyondell,
29.5% by Millennium and 29.5% by Occidental, all through wholly owned
subsidiaries.

Equistar owns and operates the petrochemicals and polymers businesses
contributed by Lyondell, Millennium and Occidental ('Contributed Businesses'),
which consist of 17 manufacturing facilities primarily on the U.S. Gulf Coast
and in the U.S. Midwest. The petrochemicals segment manufactures and markets
olefins, oxygenated products, aromatics and specialty products. Olefins include
ethylene, propylene and butadiene, and oxygenated products include ethylene
oxide, ethylene glycol, ethanol and methyl tertiary butyl ether ('MTBE'). The
petrochemicals segment also includes the production and sale of aromatics,
including benzene and toluene. The polymers segment manufactures and markets
polyolefins, including high-density polyethylene ('HDPE'), low-density
polyethylene ('LDPE'), linear low-density polyethylene ('LLDPE'), polypropylene,
and performance polymers, all of which are used in the production of a wide
variety of consumer and industrial products. The performance polymers include
enhanced grades of polyethylene, including wire and cable insulating resins, and
polymeric

F-12

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

powders. The concentrates and compounds business, which was part of performance
polymers products, was sold effective April 30, 1999 (see Note 5).

The Partnership Agreement provides that Equistar is governed by a
Partnership Governance Committee consisting of nine 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 upon their percentage ownership of Equistar.
Distributions are made to the partners based upon their percentage ownership of
Equistar. Additional cash contributions required by the Partnership will also be
based upon the partners' percentage ownership of Equistar.

2. Summary of Significant Accounting Policies

Basis of Presentation -- The consolidated financial statements include the
accounts of Equistar and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition -- Revenue from product sales is recognized upon
delivery 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. Equistar's policy
is to invest cash in conservative, highly rated instruments and limit the amount
of credit exposure to any one institution. Equistar performs periodic
evaluations of the relative credit standing of these financial institutions
which are considered in Equistar's investment strategy.

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

Accounts Receivable -- Equistar sells its products primarily to companies in
the petrochemicals and polymers industries. Equistar performs ongoing credit
evaluations of its customers' financial condition and, in certain circumstances,
requires letters of credit from them. The Partnership's allowance for doubtful
accounts, which is reflected in the accompanying Consolidated Balance Sheets as
a reduction of accounts receivable, totaled $9 million and $6 million at
December 31, 2000 and 1999, respectively.

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,
ranging from 5 to 30 years. Upon retirement or sale, Equistar removes the cost
of the assets and the related accumulated depreciation from the accounts and
reflects any resulting gains or losses in the Consolidated Statements of Income.
Equistar's policy is to capitalize interest cost incurred on debt during the
construction of major projects exceeding one year.

Turnaround Maintenance and Repair Expenses -- Cost of major repairs and
maintenance incurred in connection with substantial overhauls or maintenance
turnarounds of production units at Equistar's manufacturing facilities are
deferred and amortized on a straight-line basis until the next planned
turnaround, generally five to seven years. These costs are maintenance, repair
and replacement costs that are necessary to maintain, extend and improve the
operating capacity and efficiency rates of the production units. Equistar
amortized $24 million, $25 million and $20 million of deferred turnaround
maintenance and repair costs for the years ended December 31, 2000, 1999 and
1998, respectively.

Deferred Software Costs -- Costs to purchase and develop software for
internal use are deferred and amortized on a straight-line basis over a range of
3 to 10 years. Equistar amortized $13 million, $12

F-13

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

million and $6 million of deferred software costs for the years ended
December 31, 2000, 1999 and 1998, respectively.

Goodwill -- Goodwill includes goodwill contributed by Millennium and
goodwill recorded in connection with the contribution of Occidental's assets.
Goodwill is being amortized using the straight-line method over 40 years.
Accumulated amortization of goodwill was $232 million, $199 million and $166
million at December 31, 2000, 1999 and 1998, respectively.

Investment in PD Glycol -- Equistar holds a 50% interest in a joint venture
with E.I. DuPont de Nemours and Company that owns an ethylene glycol facility in
Beaumont, Texas. This investment was contributed by Occidental in 1998. The
investment in PD Glycol is accounted for using the equity method of accounting.
At December 31, 2000 and 1999, Equistar's underlying equity in the net assets of
PD Glycol exceeded the cost of the investment by $7 million and $8 million,
respectively. The excess is being accreted into income on a straight-line basis
over a period of 25 years.

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 be reasonably estimated. The estimated
liabilities have not been discounted to present value. Environmental remediation
costs are expensed or capitalized in accordance with accounting principles
generally accepted in the United States of America.

Exchanges -- Inventory exchange transactions, which involve homogeneous
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.

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.

Comprehensive Income -- Equistar had no items of other comprehensive income
during the years ended December 31, 2000, 1999 and 1998.

Long-Lived Asset Impairment -- In accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, Equistar reviews its long-lived assets, including goodwill, for impairment
on an exception basis whenever events or changes in circumstances indicate a
potential loss in utility. Impairment losses are recognized in 'Restructuring
and other unusual charges' in the Consolidated Statements of Income.

Derivatives -- Adoption of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, did not have a significant impact on the
Consolidated Financial Statements of Equistar. The statement is effective for
Equistar's calendar year 2001.

Reclassifications -- Certain previously reported amounts have been
reclassified to conform to classifications adopted in 2000.

3. Occidental Contributed Business

On May 15, 1998, Equistar was expanded with the contribution of certain
assets from Occidental. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the results of operations for these
assets are included in the accompanying Consolidated Statements of Income

F-14

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

prospectively from May 15, 1998. Occidental contributed assets and liabilities
to Equistar with a net fair value of $2.1 billion in exchange for a 29.5%
interest in the Partnership. Equistar also issued a promissory note to an
Occidental subsidiary in the amount of $420 million, which was subsequently paid
in cash in June 1998. The fair value was allocated to the assets contributed and
liabilities assumed based upon the estimated fair values of such assets and
liabilities at the date of the contribution. The fair value was determined based
upon a combination of internal valuations performed by Lyondell, Millennium and
Occidental using the income approach. The fair values of the assets contributed
and liabilities assumed by the Partnership on May 15, 1998 were as follows:

(Millions of dollars)

Total current assets............................... $ 281
Property, plant and equipment...................... 1,964
Investment in PD Glycol............................ 58
Goodwill........................................... 43
Deferred charges and other assets.................. 49
------
Total assets................................... $2,395
------
------
Other current liabilities.......................... $ 79
Long-term debt..................................... 205
Other liabilities and deferred credits............. 14
Partners' capital.................................. 2,097
------
Total liabilities and partners' capital........ $2,395
------
------

The unaudited pro forma combined historical results of Equistar as if the
Occidental Contributed Business had been contributed on January 1, 1998 were as
follows:

For the year ended
December 31, 1998
-----------------
(Millions of dollars)

Sales and other operating revenues................. $4,869
Restructuring and other unusual charges............ 14
Operating income................................... 320
Net income......................................... 154

The unaudited pro forma data presented above are not necessarily indicative
of the results of operations of Equistar that would have occurred had such
transaction actually been consummated as of January 1, 1998, nor are they
necessarily indicative of future results.

4. Related Party Transactions

Product Transactions with Lyondell -- Lyondell has purchased benzene,
ethylene, propylene and other products at market-related prices from Equistar
since Lyondell's acquisition of ARCO Chemical Company in July 1998. Currently,
Equistar sells ethylene, propylene and benzene to Lyondell at market-related
prices pursuant to agreements dated effective as of August 1999. Under the
agreements, Lyondell is required to purchase 100% of its benzene, ethylene and
propylene requirements for its Channelview and Bayport, Texas facilities, with
the exception of quantities of one product that Lyondell is obligated to
purchase under a supply agreement with an unrelated third party entered into
prior to 1999 and expiring in 2015. The initial term of each of the agreements
between Equistar and Lyondell expires on December 31, 2014. After the initial
term, each of those agreements automatically renews for successive one-year
periods and either party may terminate any of the agreements on one year's
notice. The pricing terms under the agreements between Equistar and Lyondell are
similar to the pricing terms under the ethylene sales agreement between Equistar
and Occidental Chemical. In addition, a wholly owned subsidiary of Lyondell
licenses MTBE technology to Equistar. Lyondell also purchases a significant
portion of the MTBE produced by Equistar at one of its two Channelview units at
market-related prices. Sales to Lyondell totaled $572 million, $242 million and
$89 million for the years ended

F-15

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

December 31, 2000 and 1999 and for the period from August 1, 1998 to
December 31, 1998, respectively. Purchases from Lyondell totaled $2 million, $6
million and $2 million for the years ended December 31, 2000 and 1999 and for
the period from August 1, 1998 to December 31, 1998, respectively.

Product Transactions with Occidental Chemical -- Equistar and Occidental
Chemical entered into a Sales Agreement, dated May 15, 1998 ('Ethylene Sales
Agreement'). Under the terms of the Ethylene Sales Agreement, Occidental
Chemical agreed to purchase an amount of ethylene from Equistar equal to 100% of
the ethylene feedstock requirements of Occidental Chemical's United States
plants less any quantities up to 250 million pounds tolled in accordance with
the provisions of such agreement. Upon three years notice from either party to
the other, Equistar's maximum supply obligation in any calendar year under the
Ethylene Sales Agreement may be 'phased down' as set forth in the agreement,
provided that no phase down may occur prior to January 1, 2009. In accordance
with the phase down provisions of the agreement, the annual minimum requirements
set forth in the agreement must be phased down over at least a five year period
so that the annual required minimum cannot decline to zero prior to
December 31, 2013 unless certain specified force majeure events occur. The
Ethylene Sales Agreement provides for sales of ethylene at market-related
prices. In addition to ethylene, Equistar sells methanol, ethers, and glycols to
Occidental Chemical. During the years ended December 31, 2000 and 1999 and the
period from May 15, 1998 to December 31, 1998, Equistar sold Occidental Chemical
$558 million, $435 million and $171 million, respectively, of product, primarily
under the Ethylene Sales Agreement.

Equistar also purchases various products from Occidental Chemical. During
the years ended December 31, 2000 and 1999 and the period from May 15, 1998 to
December 31, 1998, purchases from Occidental Chemical totaled $2 million, $2
million and $4 million, respectively.

Product Transactions with Millennium -- Equistar sells ethylene to
Millennium at market-related prices pursuant to an agreement entered into in
connection with the formation of Equistar. Under this agreement, Millennium is
required to purchase 100% of its ethylene requirements for its LaPorte, Texas
facility. The initial term of the contract expired December 1, 2000 and
thereafter, renews annually. Either party may terminate on one year's notice.
Neither party has provided notice of termination of the agreement. The pricing
terms of this agreement are similar to the pricing terms of the Ethylene Sales
Agreement with Occidental Chemical. Equistar sold Millennium $90 million, $54
million, and $41 million of ethylene in 2000, 1999 and 1998, respectively.

Equistar purchases vinyl acetate monomer ('VAM') feedstock from Millennium
at formula-based market prices pursuant to an agreement entered into in
connection with the formation of Equistar. Under this agreement, Equistar is
required to purchase 100% of its VAM feedstock requirements for its LaPorte,
Texas, Clinton, Illinois, and Morris, Illinois plants for the production of
ethylene vinyl acetate products at those locations. The initial term of the
contract expires December 31, 2000 and thereafter, renews annually. Either party
may terminate on one year's notice of termination. The initial term will extend
until December 31, 2002 if Millennium elects to increase the amount of ethylene
purchased under the Ethylene Sales Agreement. Millennium did not elect to
increase the amount of ethylene purchased under the Ethylene Sales Agreement.
Therefore, the contract for VAM purchases expired December 31, 2000 and was
subsequently renewed for one year under the automatic renewal provisions. During
the years ending December 31, 2000, 1999 and 1998, purchases from Millennium,
primarily of vinyl acetate monomer, were $16 million, $12 million, and $14
million, respectively.

Product Transactions with Oxy Vinyls, LP -- Occidental Chemical owns 76% of
Oxy Vinyls, LP ('Oxy Vinyls'), a joint venture company formed with an unrelated
third party effective May 1, 1999. Equistar sells ethylene to Oxy Vinyls for Oxy
Vinyls' LaPorte, Texas facility at market-related prices pursuant to an
agreement dated effective as of June 1998, which agreement was assigned to Oxy
Vinyls by one of its owners. The initial term of the agreement expires on
December 31, 2003. After the initial term, the agreement automatically renews
for successive one-year periods and either party may

F-16

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

terminate the agreement on 24 months' notice. Ethylene sales to Oxy Vinyls
totaled $67 million for the year ended December 31, 2000 and $93 million for the
period from May 1, 1999 to December 31, 1999.

Transactions with LYONDELL-CITGO Refining LP -- Lyondell's rights and
obligations under the terms of its product sales and feedstock purchase
agreements with LYONDELL-CITGO Refining LP ('LCR'), a joint venture investment
of Lyondell, were assigned to Equistar. Accordingly, certain olefins by-products
are sold to LCR for processing into gasoline and certain refinery products are
sold to Equistar as feedstocks. Sales of product to LCR were $425 million, $250
million and $223 million and purchases from LCR were $264 million, $190 million
and $131 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Equistar also assumed certain processing arrangements as well as
storage obligations between Lyondell and LCR and provides certain marketing and
information processing services for LCR. Aggregate charges under these various
service agreements of $15 million, $13 million and $15 million were made to LCR
by Equistar for the years ended December 31, 2000, 1999 and 1998, respectively.
All of the agreements between LCR and Equistar are on terms generally
representative of prevailing market prices.

Transactions with LMC -- Lyondell Methanol Company, L.P. ('LMC') sells all
of its products to Equistar. For the years ending December 31, 2000, 1999 and
1998, purchases from LMC were $165 million, $95 million and $103 million,
respectively. Equistar sells natural gas to LMC at prices generally
representative of its cost. Purchases by LMC of natural gas feedstock from
Equistar totaled $85 million, $46 million and $44 million for the years ended
December 31, 2000, 1999 and 1998, respectively. Equistar provides operating and
other services for LMC under the terms of existing agreements that were assumed
by Equistar from Lyondell, including the lease to LMC by Equistar of the real
property on which its methanol plant is located. Pursuant to the terms of those
agreements, LMC pays Equistar a management fee and reimburses certain expenses
of Equistar at cost. Management fees charged by Equistar to LMC totaled $6
million during each of the years ending December 31, 2000, 1999 and 1998.

Shared Services Agreement with Lyondell -- During 1998 and 1999, Lyondell
provided certain administrative services to Equistar, including legal, risk
management, treasury, tax and employee benefit plan administrative services,
while Equistar provided services to Lyondell in the areas of health, safety and
environment, human resources, information technology and legal. In November
1999, Lyondell and Equistar announced an agreement to utilize shared services
more broadly, consolidating such services among Lyondell and Equistar. These
services included information technology, human resources, materials management,
raw material supply, customer supply chain, health, safety and environmental,
engineering, research and development, facility services, legal, accounting,
treasury, internal audit, and tax (the 'Shared Services Agreement'). Beginning
January 1, 2000, employee-related and indirect costs were allocated between the
two companies in the manner prescribed in the Shared Services Agreement, while
direct third party costs, incurred exclusively for either Lyondell or Equistar,
were charged directly to that entity. During the years ended December 31, 2000,
1999 and 1998, Lyondell charged Equistar $133 million, $9 million and $3 million
for these services. The increased charges to Equistar during 2000 resulted from
the increase in services provided by Lyondell under the Shared Services
Agreement. During the years ended December 31, 1999 and 1998, Equistar charged
Lyondell approximately $8 million and approximately $1 million, respectively,
for services. There were no billings from Equistar to Lyondell for the year
ended December 31, 2000.

Shared Services and Shared-Site Agreements with Millennium -- Equistar and
Millennium have entered into a variety of operating, manufacturing and technical
service agreements related to the business of Equistar and the businesses
retained by Millennium Petrochemicals. These agreements include the provision by
Equistar to Millennium Petrochemicals of materials management, certain
utilities, administrative office space, and health and safety services. During
the years ended December 31, 2000, 1999 and 1998, Equistar charged Millennium
Petrochemicals $2 million, $3 million and $5 million for these services. These
agreements also include the provision by Millennium Petrochemicals to Equistar
of certain operational services, including barge dock access. During each of

F-17

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

the years ended December 31, 2000, 1999 and 1998, Millennium Petrochemicals
charged Equistar less than $1 million for these services.

Operating Agreement with Occidental Chemical -- On May 15, 1998, Occidental
Chemical and Equistar entered into an Operating Agreement ('Operating
Agreement') whereby Occidental Chemical agreed to operate and maintain the
Occidental Contributed Business and to cause third-parties to continue to
provide equipment, products and commodities to those businesses upon
substantially the same terms and conditions as provided prior to the transfer.
The Operating Agreement terminated on June 1, 1998. During the term of the
Operating Agreement, Equistar paid Occidental Chemical an administrative fee of
$1 million.

Transition Services Agreement with Occidental Chemical -- On June 1, 1998,
Occidental Chemical and Equistar entered into a Transition Services Agreement.
Under the terms of the Transition Services Agreement, Occidental Chemical agreed
to provide Equistar certain services in connection with the Occidental
Contributed Business, including services related to accounting, payroll, office
administration, marketing, transportation, purchasing and procurement,
management, human resources, customer service, technical services and others.
Predominantly all services under the Transition Services Agreement ceased in
June 1999 in accordance with the terms of the agreement. Health, safety, and
environmental services were extended until December 31, 1999 as permitted by the
Transition Services Agreement. During the year ended December 31, 1999 and the
period from June 1, 1998 to December 31, 1998, Equistar expensed $2 million and
$6 million, respectively, in connection with services provided pursuant to the
Transition Service Agreement.

Loans to Millennium and Occidental -- In connection with Occidental's
admission into Equistar in May 1998, Equistar executed promissory notes to
Millennium and Occidental in the principal amounts of $75 million and $420
million, respectively. Each of the notes provided for the annual accrual of
interest at a rate equal to LIBOR plus 0.6%. These notes were paid in full in
June 1998. Interest expense incurred on these notes during 1998 was $3 million.

Note Receivable from Lyondell LP -- Upon formation of the Partnership,
Lyondell LP contributed capital to Equistar in the form of a $345 million
promissory note ('Lyondell Note'). The Lyondell Note bore interest at LIBOR plus
a market spread. The note was repaid in full by Lyondell in July 1998. Interest
income on the Lyondell Note totaled $13 million during 1998.

5. Sale of Concentrates and Compounds Business

Effective April 30, 1999, Equistar completed the sale of its concentrates
and compounds business. The transaction included two manufacturing facilities,
located in Heath, Ohio and Crockett, Texas, and related inventories. Equistar's
proceeds from the sale were approximately $75 million.

6. Restructuring and Other Unusual Charges

During the fourth quarter 1999, Equistar recorded a charge of $96 million
associated with decisions to shut down certain polymer reactors and to
consolidate certain administrative functions between Lyondell and Equistar. The
decision to shut down the reactors was based on their high production cost,
market conditions in the polyethylene industry and the flexibility to utilize
more efficient reactors to meet customer requirements. Accordingly, Equistar
recorded a charge of $72 million to adjust the asset carrying values. The
remaining $24 million of the total charge represents severance and other
employee-related costs for approximately 500 employee positions that are being
eliminated. The eliminated positions, primarily administrative functions,
resulted from opportunities to share such services between Lyondell and Equistar
and, to a lesser extent, positions associated with the shut down polymer
reactors. Through December 31, 2000, approximately $19 million of severance and
other employee-related costs had been paid and charged against the accrued
liability. As of December 31, 2000, substantially all of the employee
terminations had been completed and the remaining liability was eliminated.

F-18

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In 1998, Equistar recorded and paid, as incurred, an additional $12 million
in restructuring charges related to the initial merger and integration of
Equistar. These costs included costs associated with the consolidation of
operations and facilities of $11 million and other miscellaneous charges of
$1 million.

7. Accounts Receivable

In December 1998, Equistar entered into a purchase agreement with an
independent issuer of receivables-backed commercial paper. Under the terms of
the agreement, Equistar agreed to sell on an ongoing basis and without recourse,
designated accounts receivable. To maintain the balance of the accounts
receivable sold, Equistar is obligated to sell new receivables as existing
receivables are collected. The agreement continues until terminated upon notice
by either party.

At December 31, 1998, 1999 and 2000, Equistar's gross accounts receivable
that had been sold to the purchasers aggregated $130 million. Increases and
decreases in the amount have been reported as operating cash flows in the
Consolidated Statements of Cash Flows. Costs related to the sale are included in
'Selling, general and administrative expenses' in the Consolidated Statements of
Income.

8. 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. Inventories at December 31, 2000 and 1999 consisted
of the following:

2000 1999
---- ----
(Millions of dollars)

Finished goods............................................ $273 $278
Work-in-process........................................... 16 10
Raw materials............................................. 123 137
Materials and supplies.................................... 94 95
---- ----
Total inventories..................................... $506 $520
---- ----
---- ----

The excess of the current cost of inventories over book value was
approximately $165 million at December 31, 2000.

9. Property, Plant and Equipment, Net

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

2000 1999
---- ----
(Millions of dollars)

Land.................................................... $ 78 $ 78
Manufacturing facilities and equipment.................. 5,769 5,656
Construction in progress................................ 134 134
------ ------
Total property, plant and equipment................. 5,981 5,868
Less accumulated depreciation........................... 2,162 1,942
------ ------
Property, plant and equipment, net.................. $3,819 $3,926
------ ------
------ ------

No interest was capitalized during 2000, 1999 and 1998. Depreciation expense
for the years ending December 31, 2000, 1999 and 1998 was $229 million, $221
million and $200 million, respectively.

In July 1998, the depreciable lives of certain assets, primarily
manufacturing facilities and equipment, were increased from a range of 5 to 25
years to a range of 5 to 30 years. The change was made to more accurately
reflect the estimated periods during which such assets will remain in service,
based upon Equistar's actual experience with those assets. This change was
accounted for as a change in accounting estimate and resulted in a $33 million
decrease in depreciation expense for 1998.

F-19

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10. Other Accrued Liabilities

Other accrued liabilities at December 31, 2000 and 1999 were as follows:

2000 1999
---- ----
(Millions of dollars)

Accrued property taxes................................... $ 73 $ 68
Accrued payroll costs.................................... 38 68
Accrued interest......................................... 52 50
Other.................................................... 3 47
---- ----
Total other accrued liabilities...................... $166 $233
---- ----
---- ----

11. Pension and Other Postretirement Benefits

All full-time regular employees of the Partnership are covered by defined
benefit pension plans sponsored by Equistar. The plans became effective January
1, 1998, except for union represented employees formerly employed by Millennium,
whose plans were contributed to Equistar on December 1, 1997, and union
represented employees formerly employed by Occidental, whose plans were
contributed to Equistar on May 15, 1998. In connection with the formation of
Equistar, there were no pension assets or obligations contributed to Equistar,
except for the union represented plans described above. Retirement benefits are
based upon years of service and the employee's highest three consecutive years
of compensation during the last ten years of service. Equistar accrues pension
costs based upon an actuarial valuation and funds the plans through periodic
contributions to pension trust funds as required by applicable law. Equistar
also has unfunded supplemental nonqualified retirement plans, which provide
pension benefits for certain employees in excess of the tax qualified plans'
limits. In addition, Equistar sponsors unfunded postretirement benefit plans
other than pensions for both salaried and nonsalaried employees, which provide
medical and life insurance benefits. These postretirement health care plans are
contributory while the life insurance plans are noncontributory.

F-20

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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

Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
(Millions of dollars)

Change in benefit obligation:
Benefit obligation, January 1..................... $ 99 $ 88 $ 77 $ 69
Service cost...................................... 17 22 2 4
Interest cost..................................... 9 7 6 6
Actuarial loss (gain)............................. 8 (8) 11 (2)
Net effect of curtailments, settlements and
special termination benefits.................... (1) -- 1 --
Transfer to Lyondell.............................. -- -- (3) --
Benefits paid..................................... (12) (10) (2) --
---- ---- ---- ----
Benefit obligation, December 31................... 120 99 92 77
---- ---- ---- ----
Change in plan assets:
Fair value of plan assets, January 1.............. 101 88 -- --
Actual return of plan assets...................... (3) 7 -- --
Partnership contributions......................... 31 16 2 --
Benefits paid..................................... (12) (10) (2) --
---- ---- ---- ----
Fair value of plan assets, December 31............ 117 101 -- --
---- ---- ---- ----
Funded status..................................... (3) 2 (91) (77)
Unrecognized actuarial loss....................... 24 5 20 13
---- ---- ---- ----
Net amount recognized............................. $ 21 $ 7 $(71) $(64)
---- ---- ---- ----
---- ---- ---- ----
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid benefit cost.............................. $ 35 $ 33 $-- $--
Accrued benefit liability......................... (14) (26) (71) (64)
---- ---- ---- ----
Net amount recognized............................. $ 21 $ 7 $(71) $(64)
---- ---- ---- ----
---- ---- ---- ----

The benefit obligation, accumulated benefit obligation and fair value of
assets for pension plans with benefit obligations in excess of plan assets were
$63 million, $42 million and $40 million, respectively, as of December 31, 2000
and $40 million, $26 million and $13 million, respectively, as of December 31,
1999.

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

Other
Pension Benefits Postretirement Benefits
---------------------- -------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(Millions of dollars)

Components of net periodic benefit cost:
Service cost........................... $ 17 $ 22 $ 16 $ 2 $ 4 $ 3
Interest cost.......................... 9 7 5 6 6 4
Amortization of actuarial loss......... -- 1 -- 1 1 --
Expected return of plan assets......... (8) (8) (6) -- -- --
Net effect of curtailments, settlements
and special termination benefits..... (1) -- -- 1 -- --
---- ---- ---- ---- ---- ----
Net periodic benefit cost.............. $ 17 $ 22 $ 15 $ 10 $ 11 $ 7
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
Weighted-average assumptions as of
December 31:
Discount rate.......................... 7.50% 8.00% 6.75% 7.50% 8.00% 6.75%
Expected return on plan assets......... 9.50% 9.50% 9.50% -- -- --
Rate of compensation increase.......... 4.50% 4.75% 4.75% 4.50% 4.75% 4.75%

F-21

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

For measurement purposes, the assumed annual rate of increase in the per
capita cost of covered health care benefits as of December 31, 2000 was 7.0% for
2001 and 5.0% thereafter. The health care cost trend rate assumption does not
have a significant effect on the amounts reported. To illustrate, increasing or
decreasing the assumed health care cost trend rates by one percentage point in
each year would change the accumulated postretirement benefit liability as of
December 31, 2000 by less than $1 million and would not have a material effect
on the aggregate service and interest cost components of the net periodic
postretirement benefit cost for the year then ended.

Equistar also maintains voluntary defined contribution savings plans for
eligible employees. Contributions to the plans by Equistar were $17 million, $20
million and $15 million for the years ended December 31, 2000, 1999 and 1998,
respectively.

12. Long-Term Debt and Financing Arrangements

In February 1999, Equistar and Equistar Funding Corporation ('Equistar
Funding') co-issued $900 million of debt securities. Equistar Funding, a wholly
owned subsidiary of Equistar, is a Delaware corporation formed for the sole
purpose of facilitating the financing activities of Equistar. Equistar is
jointly and severally liable with Equistar Funding on the outstanding notes and
new notes. The debt securities include $300 million of 8.50% Notes, which will
mature on February 15, 2004, and $600 million of 8.75% Notes, which will mature
on February 15, 2009. Equistar used the net proceeds from this offering (i) to
repay the $205 million outstanding under a capitalized lease obligation relating
to Equistar's Corpus Christi facility, (ii) to repay the outstanding balance
under the $500 million credit agreement, after which the $500 million credit
agreement was terminated, (iii) to repay the outstanding $150 million, 10.00%
Notes due in June 1999, and (iv) to the extent of the remaining net proceeds, to
reduce outstanding borrowing under the five-year credit facility and for
Partnership working capital purposes.

Equistar has a five-year, $1.25 billion credit facility with a group of
banks expiring November 2002. Borrowing under the facility bears interest at
either the Federal Funds rate plus 1/2 of 1%, LIBOR plus 1/2 of 1%, a fixed rate
offered by one of the sponsoring banks or interest 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 upon the type of
borrowing made under the facility. Borrowing under the facility had a weighted
average interest rate of 7.13% and 6.0% at December 31, 2000 and 1999,
respectively. Millennium America Inc., a subsidiary of Millennium, provided
limited guarantees with respect to the payment of principal and interest on a
total of $750 million principal amount of indebtedness under the $1.25 billion
revolving credit facility. However, the lenders may not proceed against
Millennium America Inc. until they have exhausted their remedies against
Equistar. The guarantee will remain in effect indefinitely, but at any time
after December 31, 2004, Millennium America Inc. may elect to terminate the
guarantee if certain conditions are met including financial ratios and
covenants. In addition, Millennium America Inc. may elect to terminate the
guarantee if Millennium Petrochemicals Inc. sells its interests in Millennium GP
and Millennium LP or if those entities sell their interests in Equistar,
provided certain conditions are met including financial ratios and covenants.

The credit facility is available for working capital and general Partnership
purposes as needed and contains covenants that, subject to exceptions, restrict
sale and leaseback transactions, lien incurrence, debt incurrence, sales of
assets and mergers and consolidations, and require Equistar to maintain
specified financial ratios, in all cases as provided in the credit facility. The
breach of these covenants could permit the lenders to declare the loans
immediately payable and to terminate future lending commitments.

Equistar was in compliance with all covenants under its credit facility as
of December 31, 2000. However, given the poor current business environment,
Equistar is seeking an amendment to its credit facility that would increase its
financial and operating flexibility, primarily by making certain financial

F-22

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

ratio requirements less restrictive. Equistar anticipates that the amendment
will become effective prior to March 31, 2001.

The terminated $500 million credit agreement was entered into on June 12,
1998. Borrowing under the agreement bore interest at either the Federal Funds
rate plus 1/2 of 1%, LIBOR plus 0.625%, a fixed rate offered by one of the
sponsoring banks or interest rates that were based on a competitive auction
feature.

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

2000 1999
---- ----
(Millions of dollars)

Bank credit facilities:
5-year term credit facility........................ $ 820 $ 800
Other debt obligations:
Medium-term notes (due 2000-2005).................. 121 163
9.125% Notes due 2002.............................. 100 100
8.50% Notes due 2004............................... 300 300
6.50% Notes due 2006............................... 150 150
8.75% Notes due 2009............................... 598 598
7.55% Debentures due 2026.......................... 150 150
Other.............................................. 9 --
------ ------
Total long-term debt............................... 2,248 2,261
Less current maturities................................ 90 92
------ ------
Total long-term debt, net.......................... $2,158 $2,169
------ ------
------ ------

Aggregate maturities of long-term debt during the next five years are as
follows: 2001-$90 million; 2002-$921 million; 2003-$29 million; 2004-$300
million; 2005-$5 million and thereafter-$903 million. The 8.75% Notes have a
face amount of $600 million and are shown net of unamortized discount. The
medium-term notes mature at various dates from 2001 to 2005 and had a weighted
average interest rate of 9.6% and 10.0% at December 31, 2000 and 1999,
respectively.

The medium-term Notes, the 9.125% Notes, the 6.5% Notes and the 7.55%
Debentures were assumed by Equistar from Lyondell when Equistar was formed in
1997. As between Equistar and Lyondell, Equistar is primarily liable for this
debt. Lyondell remains a co-obligor for the medium-term notes and certain events
involving only Lyondell could give rise to events of default under those notes,
permitting the obligations to be accelerated. If such an event permitted more
than $50 million of the medium-term notes to be accelerated, the lenders under
Equistar's $1.25 billion revolving credit facility would have the right to
accelerate all debt outstanding under the facility and to terminate future
lending commitments. $90 million aggregate principal amount of the medium-term
notes will mature on August 1, 2001. Under certain limited circumstances, the
holders of the medium-term notes have the right to require repurchase of the
notes. Following amendments to the indentures for the 9.125% Notes and 6.5%
Notes and the 7.55% Debentures in November 2000, Lyondell remains a guarantor of
that debt but not a co-obligor. The consolidated financial statements of
Lyondell are filed as an exhibit to Equistar's Annual Report on Form 10-K for
the year ended December 31, 2000.

13. Financial Instruments

Equistar does not buy, sell, hold or issue financial instruments for
speculative trading purposes.

Beginning October 1999, Equistar entered into over-the-counter 'derivatives'
and price collar agreements for crude oil with Occidental Energy Marketing,
Inc., a subsidiary of Occidental, to help manage its exposure to commodity price
risk with respect to crude-oil related raw material purchases. At December 31,
2000, 'derivatives' agreements covering 5.1 million barrels and maturing from
January 2001 through July 2001 were outstanding. The carrying value and fair
market value of these derivative instruments at December 31, 2000 represented a
liability of $13 million and was based on

F-23

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

quoted market prices. At December 31, 1999, 'derivatives' and collar agreements
covering 2.4 million and 1.5 million barrels, respectively, and maturing in
January 2000, were outstanding. Both the carrying value and fair market value of
these derivative instruments at December 31, 1999 represented an asset of $7
million and was based on quoted market prices. Unrealized gains and losses on
'derivatives' and price collars are deferred until realized at which time they
are reflected in the cost of the purchased raw material. See Item 7a. Disclosure
of Market and Regulatory Risk -- Commodity Price Risk.

The fair value of all nonderivative financial instruments included in
current assets and current liabilities, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, approximated
their carrying value due to their short maturity. Based on the borrowing rates
currently available to Equistar for debt with terms and average maturities
similar to Equistar's debt portfolio, the fair value of Equistar's long-term
debt, including amounts due within one year, was approximately $2.1 billion and
$2.2 billion at December 31, 2000 and 1999, respectively.

Equistar had issued letters of credit totaling $1 million and $6 million at
December 31, 2000 and 1999, respectively.

14. Commitments and Contingencies

Commitments -- Equistar 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. See
also Note 4, describing related party commitments.

Equistar is party to various unconditional purchase obligation contracts as
a purchaser for product and services. At December 31, 2000, future minimum
payments under these contracts with noncancelable contract terms in excess of
one year were as follows:

(Millions of dollars)

2001................................................ $ 29
2002................................................ 27
2003................................................ 23
2004................................................ 22
2005................................................ 22
Thereafter.......................................... 118
----
Total minimum contract payments................. $241
----
----

Equistar's total purchases under these agreements were $35 million, $39
million and $35 million for the years ending December 31, 2000, 1999 and 1998,
respectively.

Indemnification Arrangements -- Lyondell, Millennium and Occidental have
each agreed to provide certain indemnifications to Equistar with respect to the
petrochemicals and polymers businesses contributed by the partners. In addition,
Equistar agreed to assume third party claims that are related to certain
pre-closing contingent liabilities that are asserted prior to December 1, 2004
for Lyondell and Millennium, and May 15, 2005 for Occidental, to the extent the
aggregate thereof does not exceed $7 million to each partner, subject to certain
terms of the respective asset contribution agreements. As of December 31, 2000,
Equistar had incurred a total of $16 million for these uninsured claims and
liabilities. Equistar also agreed to assume third party claims that are related
to certain pre-closing contingent liabilities that are asserted for the first
time after December 1, 2004 for Lyondell and Millennium, and for the first time
after May 15, 2005 for Occidental.

Environmental -- Equistar's policy is to be in compliance with all
applicable environmental laws. Equistar 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, Equistar
cannot accurately predict future developments, such as increasingly strict
requirements of environmental laws, inspection and enforcement policies and

F-24

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

compliance costs therefrom which might affect the handling, manufacture, use,
emission or disposal of products, other materials or hazardous and non-hazardous
waste. Equistar had no reserves for environmental matters as of December 31,
2000 and 1999.

The eight-county Houston/Galveston region has been designated a severe
non-attainment area for ozone by the EPA. As a result, the Texas Natural
Resource Conservation Commission ('TNRCC') has submitted a plan to the EPA to
reach and demonstrate compliance with the ozone standard by the year 2007. These
emission reduction controls must be installed during the next several years,
well in advance of the 2007 deadline. This could result in increased capital
investment, which could be between $150 million and $300 million before the 2007
deadline, as well as higher annual operating costs for Equistar. Equistar has
been actively involved with a number of organizations to help solve the ozone
problem in the most cost-effective manner and, in January 2001, Equistar and an
organization composed of industry participants filed a lawsuit against the TNRCC
to encourage adoption of their alternative plan to achieve the same air quality
improvement with less negative economic impact on the region.

In the United States, the Clean Air Act Amendments of 1990 set minimum
levels for oxygenates, such as MTBE, in gasoline sold in areas not meeting
specified air quality standards. However, while studies by federal and state
agencies and other organizations have shown that MTBE is safe for use in
gasoline, is not carcinogenic and is effective in reducing automotive emissions,
the presence of MTBE in some water supplies in California and other states due
to gasoline leaking from underground storage tanks and in surface water from
recreational water craft has led to public concern that MTBE may, in certain
limited circumstances, affect the taste and odor of drinking water supplies, and
thereby lead to possible environmental issues.

Certain federal and state governmental initiatives have sought either to
rescind the oxygenate requirement for reformulated gasoline or to restrict or
ban the use of MTBE. Such actions, to be effective, would require (i) a waiver
of the state's oxygenate mandate, (ii) Congressional action in the form of an
amendment to the Clean Air Act or (iii) replacement of MTBE with another
oxygenate such as ethanol, a more costly, untested, and less widely available
additive. At the federal level, a blue ribbon panel appointed by the EPA issued
its report on July 27, 1999. That report recommended, among other things,
reducing the use of MTBE in gasoline. During 2000, the EPA announced its intent
to seek legislative changes from Congress to give the EPA authority to ban MTBE
over a three-year period. Such action would only be granted through amendments
to the Clean Air Act. Additionally, the EPA is seeking a ban of MTBE utilizing
rulemaking authority contained in the Toxic Substance Control Act. It would take
at least three years for such a rule to issue. Recently, however, senior policy
analysts at the U.S. Department of Energy presented a study stating that banning
MTBE would create significant economic risk. The presentation did not identify
any benefits from banning MTBE. The EPA initiatives mentioned above or other
governmental actions could result in a significant reduction in Equistar's MTBE
sales. Equistar has developed technologies to convert its process to produce
alternate gasoline blending components should it be necessary to reduce MTBE
production in the future.

General -- 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 Equistar.

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 Equistar. 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 Equistar'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.

F-25

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

15. Lease Commitments

Equistar leases various facilities and equipment under noncancelable lease
arrangements for varyious periods. At December 31, 2000, future minimum lease
payments relating to noncancelable operating leases with lease terms in excess
of one year were as follows:

(Millions of dollars)

2001................................................ $ 83
2002................................................ 66
2003................................................ 59
2004................................................ 54
2005................................................ 48
Thereafter.......................................... 317
----
Total minimum lease payments.................... $627
----
----

Operating lease net rental expense was $115 million, $112 million and $110
million for the years ending December 31, 2000, 1999 and 1998, respectively.

Equistar leases railcars for the distribution of products in its polymers
business segment. The railcars are leased under two master leases entered into
in 1999 and a third master lease entered into in 1996 by Millennium and assumed
by Equistar upon its formation on December 1, 1997. The leases have five
renewable one-year terms and mature after the fifth year. Equistar may, at its
option, purchase the railcars during or at the end of the lease term for an
amount generally equal to the lessor's unrecovered costs, as defined. If
Equistar does not exercise the purchase option, the railcars will be sold and
Equistar will pay the lessor to the extent the proceeds from the sale of the
railcars are less than their guaranteed residual value, as defined by the
agreements. The guaranteed residual value under these leases was approximately
$185 million at December 31, 2000.

16. Supplemental Cash Flow Information

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

For the Year Ended
December 31,
---------------------
2000 1999 1998
---- ---- ----
(Millions of dollars)

Cash paid for interest.................................. $180 $146 $154
---- ---- ----
---- ---- ----

17. Segment Information and Related Information

Using the guidelines set forth in SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, Equistar has identified two reportable
segments in which it operates. The reportable segments are petrochemicals and
polymers. The petrochemicals segment includes olefins, oxygenated products,
aromatics and specialty products. Olefins include ethylene, propylene and
butadiene, and the oxygenated products include ethylene oxide, ethylene glycol,
ethanol and MTBE. Aromatics include benzene and toluene. The polymers segment
consists of polyolefins, including high-density polyethylene, low-density
polyethylene, linear low-density polyethylene, polypropylene, and performance
polymers. The performance polymers include enhanced grades of polyethylene,
including wire and cable insulating resins, and polymeric powders. The
concentrates and compounds business, which was part of performance polymers, was
sold effective April 30, 1999 (see Note 5).

No customer accounted for 10% or more of sales during the years ended
December 31, 2000, 1999 or 1998.

F-26

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The accounting policies of the segments are the same as those described in
'Summary of Significant Accounting Policies' (see Note 2).

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

Petrochemicals Polymers Unallocated Eliminations Consolidated
-------------- -------- ----------- ------------ ------------
(Millions of dollars)

For the year ended December 31, 2000:
Sales and other operating
operating revenues:
Customers................. $5,144 $2,351 $-- $-- $7,495
Intersegment.............. 1,887 -- -- (1,887) --
------ ------ ------ ------- ------
7,031 2,351 -- (1,887) 7,495
Operating income (loss)....... 694 (185) (175) -- 334
Total assets.................. 3,693 1,534 1,355 -- 6,582
Capital expenditures.......... 79 46 6 -- 131
Depreciation and amortization
expense..................... 199 55 56 -- 310

For the year ended December 31, 1999:
Sales and other operating
operating revenues:
Customers................. 3,435 2,159 -- -- 5,594
Intersegment.............. 1,324 -- -- (1,324) --
------ ------ ------ ------- ------
4,759 2,159 -- (1,324) 5,594
Restructuring and other
unusual charges............. -- -- 96 -- 96
Operating income.............. 447 51 (336) -- 162
Total assets.................. 3,671 1,551 1,514 -- 6,736
Capital expenditures.......... 61 83 13 -- 157
Depreciation and amortization
expense..................... 194 53 53 -- 300

For the year ended December 31, 1998:
Sales and other operating
operating revenues:
Customers................. 2,362 2,162 -- -- 4,524
Intersegment.............. 1,112 46 -- (1,158) --
------ ------ ------ ------- ------
3,474 2,208 -- (1,158) 4,524
Restructuring and other
unusual charges............. -- -- 14 -- 14
Operating income.............. 319 177 (214) -- 282
Total assets.................. 3,625 1,563 1,477 -- 6,665
Capital expenditures.......... 71 116 13 -- 200
Depreciation and amortization
expense..................... 152 65 51 -- 268

The following table presents the details of 'Operating income' as presented
above in the 'Unallocated' column for the years ended December 31, 2000, 1999
and 1998.

2000 1999 1998
---- ---- ----
(Millions of dollars)

Expenses not allocated to petrochemicals and polymers:
Principally general and administrative expenses......... $(175) $(240) $(200)
Restructuring and other unusual charges................. -- (96) (14)
----- ----- -----
Total-Unallocated................................... $(175) $(336) $(214)
----- ----- -----
----- ----- -----

F-27

EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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

2000 1999 1998
---- ---- ----
(Millions of dollars)

Cash........................................................ $ 18 $ 108 $ 66
Accounts receivable -- trade and related parties............ 16 18 14
Prepaids and other current assets........................... 17 22 25
Property, plant and equipment, net.......................... 56 58 48
Goodwill, net............................................... 1,086 1,119 1,151
Other assets................................................ 162 189 173
------ ------ ------
$1,355 $1,514 $1,477
------ ------ ------
------ ------ ------

18. Subsequent Event

Equistar discontinued production at its Port Arthur, Texas, polyethylene
facility on February 28, 2001 and shut down the facility. Closed production
units include a 240 million pounds per year HDPE reactor and an LDPE reactor
with annual capacity of 160 million pounds. These units and a 300 million pounds
per year HDPE reactor mothballed in 1999 have been shut down permanently. The
asset values of these production units were previously adjusted as part of a $96
million restructuring charge recognized in 1999. Equistar expects to incur
approximately $20 million of costs, including severance benefits for
approximately 125 people at the Port Arthur facility as well as shutdown-related
costs.

F-28

SCHEDULE II

MILLENNIUM CHEMICALS INC.
VALUATION AND QUALIFYING ACCOUNTS

Charged
Balance at to Balance at
Beginning Costs and End of
of Period Expenses Deductions of Period
--------- -------- ---------- ---------
(In Millions)

Description
Year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 2 $1 $ $ 3
Valuation Allowance......................... 143 (7)(a) 136
Year ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts............. 3 (1)(b) 2
Valuation Allowance......................... 126 (60)(a) 76
Year ended December 31, 2000
Deducted from asset accounts:
Allowance for doubtful accounts............. 2 2 4
Valuation Allowance......................... 76 (6)(a) 70

---------

(a) Valuation allowance for capital loss carryover.

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

S-1

STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as.....................................'D'