Filed by Lyondell Chemical Company
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed Filed Pursuant to Rule 14a-6 under the Securities Exchange Act of 1934
Form S-4 Registration Statement File No.: 333-114877
Subject Company: Millennium Chemicals Inc.
Additional Information:
On October 15, 2004, Lyondell Chemical Company (“Lyondell”) filed with the Securities and Exchange Commission (the “SEC”) the definitive joint proxy statement/prospectus regarding the proposed transaction between Lyondell and Millennium Chemicals Inc. (“Millennium”). Investors and security holders are urged to read that document and any other relevant documents filed or that will be filed with the SEC as they become available, because they contain, or will contain, important information. Investors and security holders may obtain a free copy of the definitive joint proxy statement/prospectus and other documents filed by Lyondell and Millennium with the SEC at the SEC’s web site at www.sec.gov. The definitive joint proxy statement/prospectus and the other documents filed by Lyondell may also be obtained free from Lyondell by calling Lyondell’s Investor Relations department at (713) 309-4590.
Forward-Looking Statements:
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the proposed transaction between Lyondell and Millennium, including financial and operating results, Lyondell’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Lyondell’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following factors, among others, could affect the proposed transaction and the anticipated results: approval by Lyondell’s and Millennium’s respective shareholders and the parties’ ability to achieve expected synergies in the transaction within the expected timeframes or at all. Additional factors that could cause Lyondell’s results to differ materially from those described in the forward-looking statements can be found in Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2003, which was filed with the SEC on March 12, 2004, and Lyondell’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, which will be filed with the SEC in November 2004.
This filing contains slides used by Lyondell in presentations during an analyst conference on November 3, 2004. This information is being filed pursuant to Rule 425 under the Securities Act of 1933.
# # #
Positioned For The Cyclical Upturn
Morgan Stanley Chemicals Roundtable
November 3, 2004
Dan F. Smith
President and Chief Executive Officer
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the proposed transaction between Lyondell Chemical Company (“Lyondell”) and Millennium Chemicals Inc. (“Millennium”), including financial and operating results, Lyondell’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Lyondell’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following factors, among others, could affect the proposed transaction and the anticipated results: approval by Lyondell’s and Millennium’s respective shareholders and the parties’ ability to achieve expected synergies in the transaction within the expected timeframes or at all. Additional factors that could cause Lyondell’s results to differ materially from those described in the forward-looking statements can be found in Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2003, which was filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2004, and Lyondell’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, which will be filed with the SEC in November 2004.
In addition, on October 15, 2004, Lyondell filed with the SEC the definitive joint proxy statement/prospectus regarding the proposed transaction between Lyondell and Millennium. Investors and security holders are urged to read that document and any other relevant documents filed or that will be filed with the SEC as they become available, because they contain, or will contain, important information. Investors and security holders may obtain a free copy of the definitive joint proxy statement/prospectus and other documents filed by Lyondell and Millennium with the SEC at the SEC’s web site at www.sec.gov. The definitive joint proxy statement/prospectus and the other documents filed by Lyondell may also be obtained free from Lyondell by calling Lyondell’s Investor Relations department at (713) 309-4590.
Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation.
2
Lyondell Has Built a Major Global Chemical Enterprise
Global producer of basic chemicals, polymers, and fuels Built one of the world’s leading chemical companies through:
Acquisitions and joint ventures
New investment where differential
Our value proposition
Excel at low-cost operation in a mature industry
Return cash flow to investors:
Dividends and interest
Debt reduction
3
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks:
Impact of oil price?
Will U.S. ethylene assets be able to compete in the future?
What is the potential impact of PO capacity additions? Are strong LCR profits sustainable?
What is peak profitability?
4
The US Economy Is Benefiting From Economic Stimulus
D GDP Leads to After
Stimulus Change 1 Year 2 Years
Fed Rate Reduction 100 BP 0.6 1.7
Real Dollar Decline 10% 0.4 1.6
Income Tax Reduction 1% of GDP 0.4 0.8
Stock Price Increase 20% 0.4 0.8
Oil Price Decline $10/bbl 0.2 0.4
* Source: Fed Reserve, Jan. 1999
5
Chemical and Plastics Demand Grows Rapidly As Economies Develop
Polyethylene Consumption By Nation
PE Consumption/capita, lbs
12 0
10 0
8 0
6 0
4 0
2 0
0
China India Indonesia
Thailand
Malaysia
Korea
Taiwan
WE
Singapore
US
Japan
0 5 , 0 0 0 10 , 0 0 0 15 , 0 0 0 2 0 , 0 0 0 2 5 , 0 0 0 3 0 , 0 0 0 3 5 , 0 0 0 4 0 , 0 0 0
2000 GDP/Capita
Source: CMAI 2001
6
Profitability Is Driven By Supply/Demand Fundamentals
Crude Oil vs. Equistar EBITDA
EBITDA
550 450 350 250 150 50 -50
1H99 1H00 1H01 1H02 1H03 1H04
40 35 30 25 20 15 10 5 0
Crude Price
EBITDA
Crude Price
U.S. Ethylene Operating Rates vs. Equistar EBITDA
EBITDA
550 450 350 250 150 50 -50
1H99 1H00 1H01 1H02 1H03 1H04
100 95 90 85 80 75 70
Operating Rate
EBITDA
Operating Rate
Source: Platt’s, CMAI
7
Our Results Reflect Improving Conditions
Quarterly EBITDA
EBITDA $MM
500 450 400 350 300 250 200 150 100 50 0 -50
Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004
IC&D
100% Equistar
100% LCR
8
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks:
Impact of oil price?
Will U.S. ethylene assets be able to compete in the future?
What is the potential impact of PO capacity additions? Are strong LCR profits sustainable?
What is peak profitability?
9
Ethylene Is Recovering From A Significant Trough
Ethylene Supply/Demand Balance—North America
Bln lbs
110
100
90 80 70 60
50
40
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Rest of World
Effective Operating Rate
(at 96% on-stream-time)
N. America
N. America Demand
Nameplate Capacity
100%
95%
90% 85% 80% 75%
70%
65%
Operating Rate
Source: CMAI / Equistar (September 2004)
10
Liquid Cracking Provides an Advantage vs. Ethane Raw Materials
Equistar Capability
NGL 37%
Liquid 63%
N. American Industry (ex. Equistar)
Liquid 25%
NGL 75%
Liquid Cracking Variable Cost Advantage vs. NGL
Ethane – Light Naphtha Cost of Ethylene Spread
¢/lb ethylene
7 6 5 4 3 2 1 0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 H1 2004
Average
Source: CMAI, Chem Data, and Lyondell
11
Future Ethylene Capacity Additions Favor a Growing Liquid Raw Material Advantage
2004 — 2009
2003 Demand Blbs Demand Growth Blbs Olefins Plant Supply Growth Blbs Blbs
Ethylene 226 56 55 (1)
Propylene 134 38 15 (23)
Ethylene /
Propylene 1.7 1.5 3.7 —
Source: CMAI September 2004
12
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks:
Impact of oil price?
Will U.S. ethylene assets be able to compete in the future?
What is the potential impact of PO capacity additions?
Are strong LCR profits sustainable? What is peak profitability?
13
Propylene Oxide Is Following The Typical Chemical Cycle
B Lbs/yr
20 18 16 14 12 10 8 6 4 2 0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Operating Rate
Demand
Supply
100% 90% 80%Operating
70%
Rate
60%
50%
Source: LYO, SRI
14
PO Technology is Entering its Third Generation of Innovation
1st Generation 2nd Generation 3rd Generation
Technology Chlorohydrin Peroxidation Direct Oxidation
Initial Application 1910 1960/70s 2000/10
Key Producers Dow POSM—Lyondell, Shell
China (several) POTBA – Lyondell
PO/Cumene – Sumitomo/
Lyondell JV
Development Efforts PO/H2O2—Dow/BASF Lyondell
15
Steps Toward Increased IC&D Cash Flow $ MM/Yr
600 500 400 300
200
100
Base
Potential Cash Improvement From 2003
Complete PO-11 Capital Spend
Convert PO/SM
Purchases on Production
1999 PO / TDI
SM Margins
MTBE Resolution
Sell-out at 1995 PO / TDI / SM Margins
16
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks:
Impact of oil price?
Will U.S. ethylene assets be able to compete in the future?
What is the potential impact of PO capacity additions?
Are strong LCR profits sustainable?
What is peak profitability?
17
LCR Important Cash Generator – Operating Reliability and Crude Deliveries Drive Strong Performance
MB/day
300 250 200 150 100 50 0
CSA
Spot Mkt
1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04
Net Distribution To LYO, $MM
2 22 49 7 67 69 55 32 54 89 138
18
Industry Margins Have Rebounded with Growing Worldwide Demand & Limited Refining Capacity
WTI Crude Oil Refining Margin
3/2/1 Refining Spread ($/Bbl) $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0
Jul-02
Sep-02
Nov
-02
Jan-03
Mar-03
May-03
Jul
-03
Sep-
03
Nov
-03
Jan
-04
Mar
-04
May-04
Jul-04
Sep-04
Source: Platt’s
19
The Following Areas Have Been The Principal Areas Of Investor Interest Over The Past Weeks:
Impact of oil price?
Will U.S. ethylene assets be able to compete in the future?
What is the potential impact of PO capacity additions? Are strong LCR profits sustainable?
What is peak profitability?
20
Lyondell Has Maintained Ethylene Chain Leverage While Diversifying Total Chemical Leverage
Pounds / Share
1994 Jan. 1, 2004 Post Transaction Closing
Petrochemicals
Ethylene 45 46.5 47.5
Styrene — 16.5 12
Propylene Oxide — 13.5 10
TDI — 3 2.5
Acetic Acid — — 5
TiO2 — — 6
45 79.5 83
Derivatives
Polyolefins 5.5 24 24.5
Ethylene Oxygenates — 6.5 6.5
PO Derivatives — 9.5 7
Vinyl Acetate (VAM) — — 3.5
5.5 40 41.5
Notes: Lbs refers to capacity times ownership percentage.
1994 2004 Post-closing (pro forma)*
Share Count 80 MM 177 MM 245 MM
* Assumed 1.05 exchange ratio
21
Enterprise Earnings Capability Far Exceeds Recent Results
(Current Ownership – Pre-Millennium Transaction)
Cycle EBITDA Potential $MM
3000 2500 2000 1500 1000 500 0
2003
1999/2000 Margins 1
1995 Margins1
1988 Margins1
Recession/ Trough
Pre-Recession $6.90 / share
Peak $1.40 / share
2003 Proportional Interest, Dividends & Capital
LCR
IC&D
Equistar
1 Chem Data/CMAI industry margins conditions for IC&D and Equistar products (ex. MTBE) applied to current capacities and ownership, LCR 2003 EBITDA. Note: Assumes 2003 capital structure; 175 MM shares.
22
There Is A Significant Amount of Accessible Debt
Accessible Debt * $MM
1,400 1,200 1,000 800 600 400 200 0
$800 $730 $100 $1 $150 $500 $900 $278 $700 $700 $485
Lyondell
Equistar
Millennium
2004
Lyondell
Equistar
Millennium
2005
Lyondell
Equistar
Millennium
2006
Lyondell
Equistar
Millennium
2007
Lyondell
Equistar
Millennium
2008
Lyondell 9 3/8% ACC Debenture
Lyondell 9 1/2% Sr. Secured Notes Series C Equistar 6 1/2% Notes Millennium 7% Senior Unsecured Notes due 2006
Lyondell 9 5/8% Sr. Secured Notes Series A Lyondell 11 1/8% Sr. Secured Notes Series D Equistar 10 1/8% Senior Notes Millennium 9 1/4% Senior Unsecured Notes due 2008
Lyondell 9 7/8% Sr. Secured Notes Series B Equistar 11.2% Medium Term Notes Equistar 10 5/8% Senior Notes
* As of October 2004
Accessible debt is shown for the first year in which it is callable and does not include subordinated debt. Debt with make-whole provisions is shown at maturity, including the $900MM Senior Secured Notes Series A due 2007 (Lyondell) and $700MM Senior Notes due 2008 (Equistar)
Millennium: Post Transaction
23
De-Leveraging Benefits All Stakeholders
Impact of Lyondell debt reduction at constant capitalization1
Debt Reduction
$2 Billion (w/o MCH) $3 Billion (with MCH)
Debt to Capitalization 40% 45%
Avoided Interest Expense $ 200MM / Year $ 300MM / Year
Earnings Improvement 75¢ / share 80¢ / share
Share Price Improvement at Constant Capitalization $11.50 / share 2 $12.25 / share 3
1 Capitalization = debt + book value of equity + minority interest
2 Assumes 175MM shares outstanding
3 Assumes 245MM shares outstanding
24
Equistar Chemicals, LP
Reconciliation of Net Income (Loss) to EBITDA
For the six-month periods ended June 30 (Millions of Dollars)
1999 2000 2001 2002 2003 2004
Net income (loss) $ 49 $ 208 $ (107) $ (1,207) $ (195) $ 48
Add:
Depreciation and amortization 147 152 159 147 154 153
Interest expense, net 84 89 91 102 102 110
Cum. effect of accounting change - - - 1,053 - -
EBITDA $ 280 $ 449 $ 143 $ 95 $ 61 $ 311
25
LYONDELL CHEMICAL COMPANY
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA
(Millions of dollars)
Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004
Lyondell net income (loss) $ (113) $ (68) $ (44) $ (77) $ (15) $ 3 $ 50
Add: Provision for (benefit from) income tax (55) (39) (27) (58) (9) 3 26
Interest expense, net 83 99 106 104 109 108 108
Depreciation and amortization 57 61 66 66 63 64 59
(Income) loss from equity investment in Equistar 100 32 26 70 (6) (33) (54)
Income from equity investment in LCR (19) (37) (43) (45) (56) (63) (89)
Lyondell EBITDA $ 53 $ 48 $ 84 $ 60 $ 86 $ 82 $ 100
Equistar net income (loss) $ (146) $ (49) $ (40) $ (104) $ 5 $ 43 $ 72
Add: Depreciation and amortization 78 76 76 77 76 77 81
Interest expense, net 49 53 51 54 55 55 55
Equistar EBITDA $ (19) $ 80 $ 87 $ 27 $ 136 $ 175 $ 208
Proportionate Share—70.5% $ (14) $ 57 $ 61 $ 19 $ 96 $ 123 $ 147
LCR net income $ 28 $ 58 $ 69 $ 73 $ 91 $ 103 $ 147
Add: Depreciation and amortization 28 29 28 28 30 28 29
Interest expense, net 10 9 8 9 10 8 6
LCR EBITDA $ 66 $ 96 $ 105 $ 110 $ 131 $ 139 $ 182
Proportionate Share—58.75% $ 39 $ 56 $ 62 $ 65 $ 77 $ 82 $ 107
Lyondell and Proportionate Share of Equity Investments—EBITDA
Lyondell EBITDA $ 53 $ 48 $ 84 $ 60 $ 86 $ 82 $ 100
70.5% of Equistar EBITDA (14) 57 61 19 96 123 147
58.75% of LCR EBITDA 39 56 62 65 77 82 107
Lyondell and Proportionate Share of Equity Investments $ 78 $ 161 $ 207 $ 144 $ 259 $ 287 $ 354
26
LYONDELL CHEMICAL COMPANY
RECONCILIATION OF LCR NET INCOME (LOSS) TO EBITDA
(Millions of dollars)
Q1 2002 Q2 2002 Q3 2002 Q4 2002 (b) Q1 2003 Q2 2003 Q3 2003 Q4 2003 1Q 2004 2Q 2004 3Q 2004
Net income (loss) $41 $63 $50 $59 $28 $58 $69 $73 $91 $103 $147
Add: Depreciation and amortization 29 30 28 29 28 29 28 28 30 28 29
Interest expense, net 8 7 8 9 10 9 8 9 10 8 6
LCR EBITDA $78 $100 $86 $97 $66 $96 $105 $110 $131 $139 $182
(a) EBITDA for LCR for the three months ended September 30, 2001 was originally reported as $116 million and was restated to include extraordinary charges related to early debt retirement, currently reflected in other expense, net.
(b) EBITDA for the three months ended December 31, 2002 was originally reported as $98 million and was restated to include extraordinary charges related to early debt retirement, currently reflected in other expense, net.
RECONCILIATION OF LCR NET CASH DISTRIBUTIONS
Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 Q4 2003 1Q 2004 2Q 2004 3Q 2004
Investment in LCR
at beginning of quarter $29 $54 $71 $54 $68 $20 $1 $(14) 3 5 (20)
Add: Equity in income (loss) of LCR 27 39 32 37 19 37 43 45 56 63 89
Other comprehensive loss
due to minimum pension liability - - - (16) - - - 4 - - -
Accrued interest converted to capital - - - - - 10 - - - - -
Contribution payable to LCR - - - - - 3 (3) - - - -
Other - - - - - - - - - - 1
Less: Investment in LCR at end of quarter (54) (71) (54) (68) (20) (1) 14 (3) (5) 20 68
Net cash distributions from
(contributions to) LCR $ 2 $ 22 $ 49 $ 7 $ 67 $ 69 $ 55 $ 32 $ 54 $ 88 $ 138
Distributions from LCR $ 24 $ 27 $ 63 $ 12 $ 88 $ 69 $ 58 $ 38 $ 63 $ 97 $ 148
Contributions to LCR (22) (5) (14) (5) (21) - (3) (6) (9) (9) (10)
Net cash distributions from
(contributions to) LCR $ 2 $ 22 $ 49 $ 7 $ 67 $ 69 $ 55 $ 32 $ 54 $ 88 $ 138
27
Lyondell Chemical Company
Reconciliation of Net Income (Loss) to EBITDA For the Twelve Months Ended December 31, 2003 and Hypothetical Net Income to Hypothetical EBITDA
Assuming Historical Industry Margin Conditions
Hypothetical Results Using
(Millions of dollars) 2003 Actual 1999/2000 Margins 1 1995 Margins 1 1988 Margins 1
Lyondell net (loss) income $ (302) $ 190 $ 900 $ 1,155
Add: (Benefit from) provision for income tax 2 (179) 100 485 620
Interest expense, net 3 392 390 390 390
Depreciation and amortization 4 250 250 250 250
Loss (income) from equity investment in Equistar 228 (170) (940) (1,280)
Income from equity investment in LCR (144) (145) (145) (145)
Lyondell EBITDA $ 245 $ 615 $ 940 $ 990
Equistar net income (loss) $ (339) $ 225 $ 1,315 $ 1,795
Add: Depreciation and amortization 4 307 310 310 310
Interest expense, net 3 207 205 205 205
Equistar EBITDA $ 175 $ 740 $ 1,830 $ 2,310
Proportionate Share—70.5% $ 123 $ 520 $ 1,290 $ 1,630
LCR net income $ 228 $ 230 $ 230 $ 230
Add: Depreciation and amortization 113 115 115 115
Interest expense, net 36 35 35 35
LCR EBITDA $ 377 $ 380 $ 380 $ 380
Proportionate Share—58.75% $ 222 $ 225 $ 225 $ 225
Lyondell and Proportionate Share of Equity Investments—EBITDA
Lyondell EBITDA $ 245 $ 615 $ 940 $ 990
70.5% of Equistar EBITDA 123 520 1,290 1,630
58.75% of LCR EBITDA 222 225 225 225
Lyondell and Proportionate Share of Equity Investments $ 590 $ 1,360 $ 2,455 $ 2,845
1 Using ChemData/CMAI industry margins for Lyondell and Equistar products, excluding MTBE, for the relevant periods applied to current Lyondell and Equistar capacities at 100% utilization and using constant LCR earnings at 2003 level. Except for 2003 Actual, this is not intended to present either historical or forecast earnings of Lyondell, Equistar or LCR.
2 Assumes 35% tax rate for hypothetical data.
3 Assumes constant capitalization and interest rates.
4 Assumes current capacity, book values and estimated useful lives.
28
Positioned For The Cyclical Upturn
Security Analysts of San Francisco
November 3, 2004
Dan F. Smith
President and Chief Executive Officer
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the proposed transaction between Lyondell Chemical Company (“Lyondell”) and Millennium Chemicals Inc. (“Millennium”), including financial and operating results, Lyondell’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Lyondell’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following factors, among others, could affect the proposed transaction and the anticipated results: approval by Lyondell’s and Millennium’s respective shareholders and the parties’ ability to achieve expected synergies in the transaction within the expected timeframes or at all. Additional factors that could cause Lyondell’s results to differ materially from those described in the forward-looking statements can be found in Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2003, which was filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2004, and Lyondell’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, which will be filed with the SEC in November 2004.
In addition, on October 15, 2004, Lyondell filed with the SEC the definitive joint proxy statement/prospectus regarding the proposed transaction between Lyondell and Millennium. Investors and security holders are urged to read that document and any other relevant documents filed or that will be filed with the SEC as they become available, because they contain, or will contain, important information. Investors and security holders may obtain a free copy of the definitive joint proxy statement/prospectus and other documents filed by Lyondell and Millennium with the SEC at the SEC’s web site at www.sec.gov. The definitive joint proxy statement/prospectus and the other documents filed by Lyondell may also be obtained free from Lyondell by calling Lyondell’s Investor Relations department at (713) 309-4590.
Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation.
2
Lyondell Has Built a Major Global Chemical Enterprise
Global producer of basic chemicals, polymers, and fuels
Built one of the world’s leading chemical companies through:
?Acquisitions and joint ventures ?
New investment where differential
Our value proposition ?
Excel at low-cost operation in a mature industry ?
Return cash flow to investors:
Dividends and interest
Debt reduction
3
Lyondell Has Followed A Consistent Path Over The Years
Rexene Polymers Purchase of LDPE & PP Assets
LCR/Refinery Upgrade Partnered With PDVSA
Equistar 2 Oxychem Joins Equistar Partnership
Bayer Divested Polyols Business to Bayer
PO & BDO Europe
LYO & MCH Combine
1985 Formation: ARCO Olefins, Houston Refinery
1985-95
1996-97
1998
1999-00
2000
2001-03
2004
Alathon Purchase Acquired HDPE Assets From Oxychem
Equistar 1 Joined With Millennium to Form Equistar
ARCO Chemical Purchased ACC
Merged Structure Combined Management of Equistar and Lyondell
Increase Equistar Ownership Purchased Oxy’s Share of Equistar
4
3rd Largest Chemical Company in North America (Post-Transaction)
2003 Sales ($ in millions)
$ 35,000
$ 30,000
$ 25,000
$ 20,000
$ 15,000
$ 10,000
$ 5,000
$0
ARJ
WLM
ALB
SHLM
FUL
GLK
CYT
FOE
HPC
POL
LZ
CK
RPM
VAL
EC
ECL
NCX
SHW
EMN
ROH
PPG
Pro Forma Lyondell
DD
DOW
5
Total Chemical Leverage Per Share Has
Increased
Pounds / Share
1994 Jan. 1, 2004 Post Transaction Closing
Petrochemicals
Ethylene 45 46.5 47.5
Styrene — 16.5 12
Propylene Oxide — 13.5 10
TDI — 3 2.5
Acetic Acid — — 5
TiO2 — — 6
45 79.5 83
Derivatives
Polyolefins 5.5 24 24.5
Ethylene Oxygenates — 6.5 6.5
PO Derivatives — 9.5 7
Vinyl Acetate (VAM) — — 3.5
5.5 40 41.5
Notes: Lbs refers to capacity times ownership percentage
1994 2004 Post-closing (pro forma)*
Share Count 80 MM 245 MM 177 MM
* Assumed 1.05 exchange ratio
6
Our Products Have Become Basic Necessities In Developed Economies
2003 Sales Revenue
Chemicals
Plastics
Pigments
Fuels
* Includes pending MCH transaction and proportional share of LCR
7
Lyondell and Equistar Products Serve a Broad Mix of End Users
Other
Electronics
Textiles/ Furnishings
Packaging
Bldg & Const
Transportation
Consumer
Packaging
Textiles/ Furnishings
Electronics
Other
Bldg & Const
Transportation
Consumer
ETHYLENE
PROPYLENE OXIDE
8
Lyondell and Equistar Products Serve a Broad Mix of End Users
Other
Electronics
Textiles/ Furnishings
Packaging
Bldg & Const
Transportation
Consumer
Other
Electronics
Packaging
Consumer
Textiles/ Furnishings
Bldg & Const
Transportation
PROPYLENE OXIDE
ETHYLENE
8
Chemical and Plastics Demand Grows Rapidly As Economies Develop
Polyethylene Consumption By Nation
PE Consumption/capita, lbs
12 0
10 0
8 0
6 0
4 0
2 0
0
0 5 , 0 0 0 10 , 0 0 0 15 , 0 0 0 2 0 , 0 0 0 2 5 , 0 0 0 3 0 , 0 0 0 3 5 , 0 0 0 4 0 , 0 0 0
2000 GDP/Capita
Malaysia
China India Indonesia
Thailand
Korea
Taiwan
WE
Singapore
US
Japan
Source: CMAI 2001
9
The Current Lyondell Enterprise Has A Well Established Presence in Asia
Presence established in 1972 40% interest in Nihon Oxirane $1 B revenue in 2003 1 2.5 – 3.0 B lbs of sales 1 Leading PO and derivative positions Strong styrene relationships
Beijing Tokyo Shanghai Guanghou Taipei Hong Kong
1 Includes 100% of Nihon Oxirane
Offices Inventory Point Manufacturing
10
… But Profitability Is Driven By Supply/Demand Fundamentals
Crude Oil vs. Equistar EBITDA
U.S. Ethylene Operating Rates vs. Equistar EBITDA
EBITDA
550
450
350
250
150
50
-50
1H99 1H00 1H01 1H02 1H03 1H04
40
35
30
25
20
15
10
5
0
Crude Price
EBITDA
Crude Price
EBITDA
550 450 350 250 150 50 -50
1H99 1H00 1H01 1H02 1H03 1H04
100 95 90 85 80 75 70
Operating Rate
EBITDA
Operating Rate
Source: Platt’s, CMAI
12
Ethylene Is Recovering From A Significant Trough
Ethylene Supply/Demand Balance—North America
Bln lbs
110
100
90
80
70
60
50
40
N. America Demand
N. America
Effective Operating Rate
(at 96% on-stream-time)
Rest of World
Nameplate Capacity
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
100%
95%
90%
85%
80%
75%
70%
65%
Operating Rate
Source: CMAI / Equistar (September 2004)
13
Leading Product Positions Create Significant Earnings Leverage
Capacity Position (1)
Pre-Tax Leverage
Product North America Global (D1¢/unit)
Intermediate Propylene Oxide (lbs) (2) 1st 1st $23MM
Chemicals and Styrene Monomer (lbs) 1st 4th $21MM
Derivatives MTBE (bbl/day) 1st 2nd $9MM (4)
Ethylene (lbs) 2nd 5th $116MM
Equistar Propylene (lbs) (3) 2nd 7th $50MM
Polyethylene (lbs) 3rd 4th $57MM
TiO2 (lbs) 3rd 2nd $15 MM
Millennium Acetyls (lbs)
- Acetic Acid 2nd 3rd $12 MM
- Vinyl Acetate Monomer 2nd 3rd $9 MM
1 Source: Capacities as of January 2004, CMAI, 2 Includes 100% of joint venture volumes 3 Does not include refinery-grade he product flexibility material or ‘s facility.
4 Based ¢/gal change on 1
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In Summary, Our Businesses Are Well Positioned for the Up-Cycle
Improving Global Economy Tightening Supply/Demand Outlook Significant Volumetric Leverage Differentiated Positions
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Our Results Reflect Improving Conditions
Quarterly EBITDA
EBITDA $MM
500
450
400
350
300
250
200
150
100
50
0
-50
Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004
IC&D
100% Equistar
100% LCR
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Enterprise Earnings Capability Far Exceeds Recent Results
(Current Ownership – Pre-Millennium Transaction)
Cycle EBITDA Potential $MM
3000
2500
2000
1500
1000
500
0
Recession/ Trough
Pre-Recession
Peak $6.90 / share $1.40 / share
2003 Proportional Interest, Dividends & Capital
2003 1999/2000 Margins 1 1995 Margins1 1988 Margins1
LCR
IC&D
Equistar
1 Chem Data/CMAI industry margins conditions for IC&D and Equistar products (ex. MTBE) applied to current capacities and ownership, LCR 2003 EBITDA. Note: Assumes 2003 capital structure; 175 MM shares.
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Debt Reduction
$2 Billion (w/o MCH) $3 Billion (with MCH)
Debt to Capitalization 40% 45%
Avoided Interest Expense $200MM / Year $300MM / Year
Earnings Improvement 75¢ / share 80¢ / share
Share Price Improvement at Constant Capitalization $11.50 / share 2 $12.25 / share 3
De-Leveraging Benefits All Stakeholders
Impact of Lyondell debt reduction at constant capitalization1
1 Capitalization = debt + book value of equity + minority interest
2 Assumes 175MM shares outstanding
3 Assumes 245MM shares outstanding
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Lyondell Stock Has Performed Well In Troughs and Recoveries
1990 – 1995 Cycle
2000 – 200? Cycle
Shareholder Return % / Yr
35 30 25 20 15 10 5 0 -5 -10 -15
Q4 ‘90—Q4 ‘93 Downturn Q4 ‘93—July ‘95 Recovery Q4 ‘00—Q4 ‘03 Downturn Q4 ‘03—? Recovery
Lyondell
S&P 500
Source: Bloomberg
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1999 2000 2001 2002 2003 2004
Net income (loss) $ 49 $ 208 $ (107) $ (1,207) $ (195) $ 48
Add:
Depreciation and amortization 147 152 159 147 154 153
Interest expense, net 84 89 91 102 102 110
Cum. effect of accounting change - - - 1,053 - -
EBITDA $ 280 $ 449 $ 143 $ 95 $ 61 $ 311
Equistar Chemicals, LP
Reconciliation of Net Income (Loss) to EBITDA
For the six-month periods ended June 30 (Millions of Dollars)
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LYONDELL CHEMICAL COMPANY
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA
(Millions of dollars)
Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004
Lyondell net income (loss) $ (113) $ (68) $ (44) $ (77) $ (15) $ 3 $ 50
Add: Provision for (benefit from) income tax (55) (39) (27) (58) (9) 3 26
Interest expense, net 83 99 106 104 109 108 108
Depreciation and amortization 57 61 66 66 63 64 59
(Income) loss from equity investment in Equistar 100 32 26 70 (6) (33) (54)
Income from equity investment in LCR (19) (37) (43) (45) (56) (63) (89)
Lyondell EBITDA $ 53 $ 48 $ 84 $ 60 $ 86 $ 82 $ 100
Equistar net income (loss) $ (146) $ (49) $ (40) $ (104) $ 5 $ 43 $ 72
Add: Depreciation and amortization 78 76 76 77 76 77 81
Interest expense, net 49 53 51 54 55 55 55
Equistar EBITDA $ (19) $ 80 $ 87 $ 27 $ 136 $ 175 $ 208
Proportionate Share—70.5% $ (14) $ 57 $ 61 $ 19 $ 96 $ 123 $ 147
LCR net income $ 28 $ 58 $ 69 $ 73 $ 91 $ 103 $ 147
Add: Depreciation and amortization 28 29 28 28 30 28 29
Interest expense, net 10 9 8 9 10 8 6
LCR EBITDA $ 66 $ 96 $ 105 $ 110 $ 131 $ 139 $ 182
Proportionate Share—58.75% $ 39 $ 56 $ 62 $ 65 $ 77 $ 82 $ 107
Lyondell and Proportionate Share of Equity Investments—EBITDA
Lyondell EBITDA $ 53 $ 48 $ 84 $ 60 $ 86 $ 82 $ 100
70.5% of Equistar EBITDA (14) 57 61 19 96 123 147
58.75% of LCR EBITDA 39 56 62 65 77 82 107
Lyondell and Proportionate Share of Equity Investments $ 78 $ 161 $ 207 $ 144 $ 259 $ 287 $ 354
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Lyondell Chemical Company
Reconciliation of Net Income (Loss) to EBITDA For the Twelve Months Ended December 31, 2003 and Hypothetical Net Income to Hypothetical EBITDA
Assuming Historical Industry Margin Conditions
Hypothetical Results Using
2003 1999/2000 1995 1988
(Millions of dollars) Actual Margins 1 Margins 1 Margins 1
Lyondell net (loss) income $ (302) $ 190 $ 900 $ 1,155
Add: (Benefit from) provision for income tax 2 (179) 100 485 620
Interest expense, net 3 392 390 390 390
Depreciation and amortization 4 250 250 250 250
Loss (income) from equity investment in Equistar 228 (170) (940) (1,280)
Income from equity investment in LCR (144) (145) (145) (145)
Lyondell EBITDA $ 245 $ 615 $ 940 $ 990
Equistar net income (loss) $ (339) $ 225 $ 1,315 $ 1,795
Add: Depreciation and amortization 4 307 310 310 310
Interest expense, net 3 207 205 205 205
Equistar EBITDA $ 175 $ 740 $ 1,830 $ 2,310
Proportionate Share—70.5% $ 123 $ 520 $ 1,290 $ 1,630
LCR net income $ 228 $ 230 $ 230 $ 230
Add: Depreciation and amortization 113 115 115 115
Interest expense, net 36 35 35 35
LCR EBITDA $ 377 $ 380 $ 380 $ 380
Proportionate Share—58.75% $ 222 $ 225 $ 225 $ 225
Lyondell and Proportionate Share of Equity Investments—EBITDA
Lyondell EBITDA $ 245 $ 615 $ 940 $ 990
70.5% of Equistar EBITDA 123 520 1,290 1,630
58.75% of LCR EBITDA 222 225 225 225
Lyondell and Proportionate Share of Equity Investments $ 590 $ 1,360 $ 2,455 $ 2,845
1 Using ChemData/CMAI industry margins for Lyondell and Equistar products, excluding MTBE, for the relevant periods applied to current Lyondell and Equistar capacities at 100% utilization and using constant LCR earnings at 2003 level. Except for 2003 Actual, this is not intended to present either historical or forecast earnings of Lyondell, Equistar or LCR.
2 Assumes 35% tax rate for hypothetical data.
3 Assumes constant capitalization and interest rates.
4 Assumes current capacity, book values and estimated useful lives.
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