~~Use~~UNITED ~~these links to rapidly review the document~~STATES SECURITIES ~~TABLE~~AND OFEXCHANGE ~~CONTENTS~~ COMMISSION

~~UNITED STATES SECURITIES AND EXCHANGE COMMISSION~~ Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file no. 333-59054-01

Chevron Phillips Chemical Company LLC ~~(Exact name of the Registrant as specified in its charter)~~

~~Delaware~~ (~~State~~Exact name ~~or other jurisdiction~~ of ~~incorporation~~the orRegistrant ~~organization)~~as ~~73-1590261~~specified ~~(I.R.S.~~in ~~Employer~~its ~~Identification Number~~charter)

10001 Six Pines Drive The Woodlands, TX 77380-1498 (Address of principal executive offices, including zip code)

Delaware		73-1590261
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

10001 Six Pines Drive The Woodlands, TX 77380-1498
(Address of principal executive offices, including zip code)

(832) 813-4100
(Registrant’s telephone number, including area code)

NONE
(Former name, former address and former fiscal year if changed since last report)

(832) 813-4100 (Registrant's telephone number, including area code)

NONE (Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ~~ý No~~ o No ý

~~Chevron~~Indicate ~~Phillips~~by ~~Chemical~~check ~~Company~~mark ~~LLC~~whether the registrant is an accelerated filer ~~Index~~ (as defined in Rule 12b-2 of the Act).

		Page
Part I. Financial Information (Unaudited)
	Item 1. Financial Statements
	Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2002 and 2001	3
	Condensed Consolidated Balance Sheet at September 30, 2002 and December 31, 2001	4
	Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	25
	Item 4. Controls and Procedures	25
Part II. Other Information
	Item 1. Legal Proceedings	25
	Item 2. Changes in Securities and Use of Proceeds	26
	Item 5. Other Information	26
	Item 6. Exhibits and Reports on Form 8-K	26

Yes o No ý

Chevron Phillips Chemical Company LLC

Index

			Page
Part I.	Financial Information (Unaudited)

	Item 1.	Financial Statements

		Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2003 and 2002	3

		Condensed Consolidated Balance Sheet at June 30, 2003 and December 31, 2002	4

		Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2003 and 2002	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

	Item 4.	Controls and Procedures	25

Part II.	Other Information

	Item 1.	Legal Proceedings	25

	Item 5.	Other Information	26

	Item 6.	Exhibits and Reports on Form 8-K	26

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Chevron Phillips Chemical Company LLC ~~Condensed Consolidated Statement of Operations (Unaudited)~~

			Three months ended September 30,						Nine months ended September 30,
Millions
			2002			2001			2002			2001
Revenue
	Net sales		$	1,429		$	1,367		$	3,963		$	4,713
	Equity in income (loss) of affiliates, net			11			(5	)		19			(11	)
	Other income			13			12			40			191
		Total revenue		1,453			1,374			4,022			4,893
Costs and Expenses
	Cost of goods sold			1,319			1,326			3,654			4,557
	Selling, general and administrative			98			89			287			378
	Asset impairments			6			42			6			42
	Research and development			11			18			35			46
		Total costs and expenses		1,434			1,475			3,982			5,023
Income (Loss) Before Interest and Taxes				19			(101	)		40			(130	)
	Interest income			1			2			5			7
	Interest expense			(18	)		(23	)		(50	)		(84	)
Income (Loss) Before Taxes				2			(122	)		(5	)		(207	)
	Income taxes			(1	)		(45	)		(5	)		(48	)
Net Income (Loss)				1			(167	)		(10	)		(255	)
	Distributions on members' preferred interests			(6	)		—			(6	)		—
Income (Loss) Attributed to Members' Interests			$	(5	)	$	(167	)	$	(16	)	$	(255	)

Condensed Consolidated Statement of Operations

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
*Millions*	2003			2002			2003			2002
Revenue
Net sales	$	1,701		$	1,387		$	3,497		$	2,534
Equity in income of affiliates, net	16			9			22			8
Other income	13			13			31			27
Total revenue	1,730			1,409			3,550			2,569

Costs and Expenses
Cost of goods sold	1,539			1,272			3,314			2,335
Selling, general and administrative	127			98			227			189
Research and development	12			13			23			24
Total costs and expenses	1,678			1,383			3,564			2,548

Income (Loss) Before Interest and Taxes	52			26			(14		)	21

Interest income	3			2			4			4
Interest expense	(19		)	(14		)	(35		)	(32		)

Income (Loss) Before Taxes	36			14			(45		)	(7		)

Income taxes	(1		)	(3		)	(2		)	(4		)

Net Income (Loss)	35			11			(47		)	(11		)

Distributions on members’ preferred interests	(5		)	—			(11		)	—

Income (Loss) Attributed to Members’ Interests	$	30		$	11		$	(58	)	$	(11	)

See Notes to Condensed Consolidated Financial Statements.

Chevron Phillips Chemical Company LLC ~~Condensed Consolidated Balance Sheet (Unaudited)~~

Millions			September 30, 2002			December 31, 2001
ASSETS
Current assets
	Cash and cash equivalents		$	52		$	111
	Accounts receivable, net			784			782
	Inventories			665			638
	Other current assets			36			20
		Total current assets		1,537			1,551
Property, plant and equipment, net				3,970			3,968
Investments in and advances to affiliates				470			259
Other assets and deferred charges				58			82
Total Assets			$	6,035		$	5,860
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
	Accounts payable		$	520		$	449
	Accrued income and other taxes			48			57
	Secured borrowings			300			199
	Other current liabilities			126			115
		Total current liabilities		994			820
Long-term debt				1,214			1,507
Other liabilities and deferred credits				114			99
		Total liabilities		2,322			2,426
Members' preferred interests				250			—
Members' capital				3,464			3,450
Accumulated other comprehensive income (loss)				(1	)		(16	)
Total Liabilities and Members' Equity			$	6,035		$	5,860

Condensed Consolidated Balance Sheet

(Unaudited)

*Millions*	June 30, 2003		December 31, 2002

ASSETS
Current assets
Cash and cash equivalents	$	65	$	39
Accounts receivable, net	870		797
Inventories	679		702
Other current assets	16		23
Total current assets	1,630		1,561

Property, plant and equipment, net	3,901		3,950
Investments in and advances to affiliates	612		515
Other assets and deferred charges	71		83

Total Assets	$	6,214	$	6,109

LIABILITIES AND MEMBERS’ EQUITY

Current liabilities
Accounts payable	$	578	$	596
Accrued income and other taxes	38		53
Secured borrowings and other debt	305		294
Other current liabilities	106		108
Total current liabilities	1,027		1,051

Long-term debt	1,330		1,190
Other liabilities and deferred credits	158		117

Total liabilities	2,515		2,358

Members’ preferred interests	250		250

Members’ capital	3,436		3,494
Accumulated other comprehensive income	13		7

Total Liabilities and Members’ Equity	$	6,214	$	6,109

See Notes to Condensed Consolidated Financial Statements.

Chevron Phillips Chemical Company LLC ~~Condensed Consolidated Statement of Cash Flows (Unaudited)~~

				Nine months ended September 30,
Millions
				2002			2001
Cash Flows From Operating Activities
	Net income (loss)			$	(10	)	$	(255	)
	Adjustments to reconcile net income (loss) to net cash flows provided by operating activities
		Depreciation, amortization and retirements			219			211
		Asset impairments			6			42
		Deferred income taxes			—			44
		Undistributed equity in losses (income) of affiliates, net			(6	)		13
		Changes in operating working capital			13			94
		Other operating cash flow activity			34			71
			Net cash flows provided by operating activities		256			220
Cash Flows From Investing Activities
	Capital and investment expenditures				(253	)		(200	)
	Advances to Qatar Chemical Company Ltd. (Q-Chem)				(169	)		—
	Decrease in other investments				2			20
			Net cash flows used in investing activities		(420	)		(180	)
Cash Flows From Financing Activities
	Decrease in commercial paper, net				(785	)		(747	)
	Increase in secured borrowings, net				101			220
	Decrease in note payable to member, net				—			(50	)
	Proceeds from the issuance of other debt, net				503			509
	Proceeds from the issuance of members' preferred interests				250			—
	Contributions from (distributions to) members, net				29			(14	)
	Post-closing adjustments from (to) members				7			(13	)
			Net cash flows provided by (used in) financing activities		105			(95	)
Net Decrease in Cash and Cash Equivalents					(59	)		(55	)
Cash and Cash Equivalents at Beginning of Period					111			156
Cash and Cash Equivalents at End of Period				$	52		$	101

Condensed Consolidated Statement of Cash Flows

(Unaudited)

	Six months ended June 30,
*Millions*	2003			2002

Cash Flows From Operating Activities
Net income (loss)	$	(47	)	$	(11	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities
Depreciation, amortization and retirements	140			129
Undistributed equity in income of affiliates, net	(17		)	(1		)
Changes in operating working capital	(107		)	17
Other operating cash flow activity	34			18
Net cash flows provided by operating activities	3			152

Cash Flows From Investing Activities
Capital and investment expenditures	(83		)	(176		)
Advances to Qatar Chemical Company Ltd. (Q-Chem)	(76		)	(125		)
Net cash flows used in investing activities	(159		)	(301		)

Cash Flows From Financing Activities
Increase (decrease) in commercial paper, net	140			(501		)
Increase in secured borrowings, net	10			101
Increase in other debt, net	—			502
Contributions from members, net	32			19
Post-closing adjustments from members, net	—			7
Net cash flows provided by financing activities	182			128

Net Increase (Decrease) in Cash and Cash Equivalents	26			(21		)
Cash and Cash Equivalents at Beginning of Period	39			111

Cash and Cash Equivalents at End of Period	$	65		$	90

See Notes to Condensed Consolidated Financial Statements.

Chevron Phillips Chemical Company LLC ~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. General Information

The company, through its subsidiaries, manufactures and markets a wide range of petrochemicals and plastics on a worldwide basis, with manufacturing facilities in existence or under construction in the United States, Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. Chevron Phillips Chemical Company LLC is owned 50% each by ChevronTexaco Corporation (ChevronTexaco) and ConocoPhillips. (collectively, the “members”).

The accompanying unaudited condensed consolidated financial statements ~~included herein~~ include the accounts of Chevron Phillips Chemical Company LLC and its wholly-owned subsidiaries (collectively, "“CPChem"”), and should be read in conjunction with the consolidated financial statements included in CPChem'’s Annual Report on Form 10-K for the year ended December 31, ~~2001~~2002. The financial statements and accompanying Management'’s Discussion and Analysis of Financial Condition and Results of Operations have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "“SEC"”). Some information and footnote disclosures required by generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements include all normal recurring adjustments that CPChem considers necessary for a fair presentation. Certain amounts for prior periods have been reclassified in order to ~~conform~~ conform to the current reporting presentation.

CPChem previously sold certain debt securities pursuant to registration statements filed under the Securities Act of 1933, which subjected CPChem to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934 (the “Act”). These debt securities were not registered under Section 12 of the Act. CPChem’s statutory duty to file reports with the SEC was subsequently and automatically suspended pursuant to certain provisions of the Act.

Note 2. New Accounting Pronouncements

~~CPChem adopted~~In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. ~~144~~ 150, "“Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments that have characteristics of both a liability and of equity. Generally, it requires that an issuer classify such a financial instrument as a liability because the ~~Impairment~~financial orinstrument ~~Disposal~~embodies an obligation of ~~Long-Lived~~the ~~Assets~~issuer. For CPChem," the provisions of SFAS No. 150 are effective January 1, ~~2002~~2004. Because CPChem currently has no financial instruments ~~Implementation~~outstanding that fall within the scope of this new standard, ~~did~~CPChem believes that implementation of this standard will not have a material ~~effect~~impact on consolidated results of operations, financial position or liquidity.

In ~~June 2001,~~ ~~the~~January ~~Financial~~2003, ~~Accounting Standards Board (~~FASB) issued Interpretation ~~SFAS~~ No. ~~143~~46, ~~"Accounting~~“Consolidation ~~for~~of ~~Asset~~Variable ~~Retirement~~Interest ~~Obligations~~Entities,"” ~~which addresses the accounting and reporting~~(FIN ~~requirements~~No. ~~for~~46) ~~legal~~which ~~obligations~~provides ~~associated~~guidance ~~with~~as ~~the~~to ~~retirement~~when ofa ~~long-lived~~company ~~assets.~~is ~~This~~required ~~standard~~to ~~requires~~include ~~that~~in its afinancial ~~liability~~statements ~~for~~the anassets, ~~asset~~liabilities ~~retirement~~and ~~obligation,~~activities ~~measured~~of ata ~~fair value,~~variable beinterest ~~recognized~~entity in(a ~~the~~“VIE”). A ~~period~~VIE ~~in which it~~ is generally ~~incurred if~~ a ~~reasonable~~corporation, ~~estimate~~partnership, oftrust, ~~fair~~or ~~value~~any isother ~~determinable.~~legal ~~That~~structure ~~initial~~used for ~~fair~~business ~~value~~purposes isthat ~~capitalized~~either asdoes ~~part~~not ofhave ~~the~~equity ~~carrying~~investors ~~amount~~with ~~of the~~voting ~~long-lived~~rights ~~asset~~or ~~and~~that ~~subsequently~~has ~~depreciated.~~equity ~~The~~investors ~~liability~~that isdo ~~adjusted~~not ~~each~~provide ~~reporting~~sufficient ~~period~~financial resources for ~~accretion,~~the ~~with~~entity ~~a charge~~ to ~~the~~support ~~statement~~its ~~of operations~~activities. FIN ~~SFAS~~ No. ~~143~~ ~~will~~46 ~~become effective~~requires ~~for~~a ~~CPChem~~VIE ~~beginning~~to ~~January 1,~~be ~~2003.~~consolidated ~~CPChem~~by ~~believes~~a ~~that~~company ~~the~~if ~~implementation~~that company ofis ~~this~~subject ~~new~~to ~~standard will not have~~ a ~~material~~majority ~~impact~~of onthe ~~consolidated~~risk ~~results~~ of ~~operations or financial position.~~ loss

In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities," which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability occurs, and that the liability be measured initially at fair value. The liability is adjusted each reporting period for accretion, with a charge to the statement of operations. This statement replaces Emerging Issues Task Force Issue (EITF) No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." CPChem will apply SFAS No. 146 to exit or disposal activities initiated on or after January 1, 2003.

from the activities of the VIE, is entitled to receive a majority of the residual returns of the VIE, or both. FIN No. 46 also requires disclosures about VIEs that are not required to be consolidated by a company, but in which the company has a significant variable interest. The consolidation requirements of FIN No. 46 apply immediately to VIEs created after January 31, 2003, and for CPChem, will apply to pre-existing VIEs effective December 31, 2004. CPChem is reviewing FIN No. 46 as it applies to CPChem's investments in affiliates to determine what impact, if any, that its implementation will have on CPChem’s financial statements.

Effective January 1, 2003, CPChem adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses the accounting and reporting requirements for legal obligations associated with the retirement of long-lived assets. This standard requires that a liability for an asset retirement obligation, measured at fair value, be recognized in the period in which it is incurred if a reasonable estimate of fair value is determinable. That initial fair value is capitalized as part of the carrying amount of the long-lived asset and subsequently depreciated. The liability is adjusted each reporting period for accretion, with a charge to the statement of operations. Implementation of this standard did not have a material impact on consolidated results of operations, financial position or liquidity.

Also effective January 1, 2003, CPChem adopted SFAS No. 146, “Accounting for Costs Associated With Exit or Disposal Activities,” which requires that a liability for costs associated with an exit or disposal activity be recognized when the liability occurs, and that the liability be measured initially at fair value. The liability is adjusted each reporting period for accretion, with a charge to the statement of operations. Implementation of this standard did not have a material impact on consolidated results of operations, financial position or liquidity.

In November 2002, FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN No. 45). For guarantees issued or modified on or after January 1, 2003, FIN No. 45 requires a guarantor to recognize, at the inception of a new guarantee or at the modification of an existing guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN No. 45 also expands the disclosures required to be made by a guarantor about its obligations under guarantees issued prior to January 1, 2003. Implementation of FIN No. 45 was effective immediately upon its release. There have been no issuances of new guarantees or modifications of existing guarantees by CPChem in 2003. See Note 5 of Notes to Condensed Consolidated Financial Statements for a discussion of guarantees and commitments. Implementation of FIN No. 45 had no impact on consolidated results of operations, financial position or liquidity.

Note 3. Comprehensive Income (Loss)

	Three months ended September 30,						Nine months ended September 30,
		Three months ended June 30,						Six months ended June 30,
Millions		2003			2002			2003			2002
	2002			2001			2002			2001
Net income (loss)		$	35		$	11		$	(47	)	$	(11	)
Net income (loss)	$	1		$	(167	)	$	(10	)	$	(255	)
Foreign currency translation adjustments		5			19			9			17
Foreign currency translation adjustments		(2	)		9			15			(4	)
Minimum pension liability adjustment		—			—			(3		)	—
Comprehensive income (loss)	$	(1$	)40	$	~~(158~~$	)30	$	5$	(41	$)	~~(259~~$	)6

Note 4. Business Interruption Insurance Settlement

In June 2001, agreement was reached among Phillips Petroleum Company (now ConocoPhillips) and various insurers to settle the business interruption insurance claim associated with the March 2000 incident at CPChem's Houston Chemical Complex K-Resin® styrene-butadiene copolymer plant. After adjusting for previously accrued claims, CPChem recognized $118 million in Other Income as a special item in the second quarter of 2001 in connection with the settlement.

Note 5. Asset Impairments

Asset impairment charges totaling $6 million were recorded in the third quarter of 2002, consisting primarily of a $5 million charge related to CPChem's Colton, California polyethylene pipe facility, part of the Olefins & Polyolefins segment. The facility, written down to its estimated net realizable value, is classified as an asset held for sale and is included in Other Current Assets.

CPChem recorded an asset impairment charge of $42 million in the third quarter of 2001 related to its Puerto Rico facility, part of the Aromatics & Styrenics segment, as a result of the outlook for future margin conditions at that time. The present value of projected future cash flows was used to determine fair value.

Note 6. Taxes

CPChem is treated as a flow-through entity for U.S. income tax purposes whereby each member is taxable on its share of income. However, CPChem is directly liable for U.S. and state income and franchise taxes on certain legal entities and for any foreign taxes incurred. CPChem follows the liability method of accounting for these income taxes.

In the third quarter of 2001, CPChem increased its valuation allowance related to its Puerto Rican subsidiary's deferred tax assets by $44 million. The increase in the valuation allowance, charged to income tax expense, was necessitated, in part, by the ConocoPhillips merger with Tosco Corporation in September 2001, which triggered regulatory limitations on the future utilization of the Puerto Rican subsidiary's pre-merger net operating losses. The valuation allowance was also increased as a result of a change in the outlook for future margin conditions at that time. Uncertainties that may affect the realization of the value of these assets include tax law changes and the future profitability of operations.

Note 7. Investments

CPChem advanced Qatar Chemical Company Ltd. (Q-Chem), a 49%-owned equity investment, $169 million during the first nine months of 2002 under a subordinated loan agreement. Funds received by Q-Chem under the agreement are used towards the cost of construction and start-up of the Qatar complex. Advances bear interest at market-based rates and, upon completion of the complex, are to be repaid from cash available after the payment of debt obligations on Q-Chem's $750 million senior bank debt, subject to certain financial tests. The loan is subordinate to Q-Chem's senior bank debt.

~~Summarized financial~~Note ~~information for Phillips Sumika Polypropylene Company (Phillips Sumika) and Q-Chem, and for all other equity investments in the aggregate follows:~~ 4. Taxes

	Three months ended September 30,						Nine months ended September 30,
Millions
	2002			2001			2002			2001
Phillips Sumika
Revenues	$	64		$	44		$	162		$	142
Income (loss) before income taxes		(2	)		(8	)		(15	)		(29	)
Net income (loss)		(2	)		(8	)		(15	)		(29	)
Q-Chem
Revenues		—			—			—			—
Income (loss) before income taxes		(6	)		(2	)		(16	)		(4	)
Net income (loss)		(6	)		(2	)		(16	)		(4	)
Other equity investments
Revenues		193			145			529			478
Income (loss) before income taxes		32			—			71			3
Net income (loss)		31			(1	)		67			(1	)

CPChem is treated as a flow-through entity for federal income tax purposes, whereby each member is taxable on its respective share of income and losses. However, CPChem is directly liable for federal and state income taxes and franchise taxes on certain separate legal entities and for any foreign taxes incurred. CPChem follows the liability method of accounting for these income taxes.

Note 8 5. ~~Debt~~ Guarantees and Commitments

~~Long-term debt,~~Qatar ~~net~~Chemical ofCompany ~~applicable~~Ltd. ~~debt discounts, as shown on the condensed consolidated balance sheet follows:~~ (Q-Chem)

Millions		September 30, 2002			December 31, 2001
Commercial paper		$	208		$	1,002
7% notes due 2011			500			500
53/8% notes due 2007			500			—
Other			11			11
	Subtotal		1,219			1,513
Unamortized debt discount			(5	)		(6	)
	Total	$	1,214		$	1,507

Qatar Chemical Company Ltd. (Q-Chem), a 49%-owned joint venture, was formed in 1998 to develop a world-scale petrochemical complex in Qatar in the Middle East. The complex is currently undergoing performance testing. Q-Chem has drawn the full $750 million available under its 1999 bank financing agreement for the construction of the complex. CPChem is required to fund any remaining construction costs, initial working capital requirements, and certain debt service and operating reserve fund requirements through advances under a subordinated loan agreement with Q-Chem.

~~On June 21,~~CPChem ~~2002,~~advanced ~~Chevron~~Q-Chem ~~Phillips~~$210 ~~Chemical~~million ~~Company~~in ~~LLC~~2002 ~~and~~under ~~its~~the subordinated ~~wholly-owned~~loan ~~subsidiary~~agreement, ~~Chevron~~of ~~Phillips~~which ~~Chemical Company LP, jointly and severally issued~~ $~~500~~ 125 million ofwas ~~senior unsecured~~advanced ~~53/8% notes~~ in athe ~~private~~first six ~~placement~~months. CPChem ~~The~~advanced ~~notes~~Q-Chem another ~~are~~$76 ~~due~~million in ~~June 2007~~the ~~and~~first ~~interest~~six ismonths ~~payable~~of ~~semiannually,~~2003 ~~with~~under the ~~first interest payment due December 15~~agreement, ~~2002.~~ ~~The~~bringing ~~notes~~total ~~contain~~advances ~~certain~~to ~~covenants~~Q-Chem ~~such~~to as$286 ~~limitations~~million onat ~~liens~~June 30, ~~sale/leaseback transactions~~2003, ~~sales~~excluding interest. CPChem ofexpects ~~assets~~to ~~and~~advance Q-Chem ~~business~~an ~~combinations~~estimated ~~that~~$125 ~~CPChem~~million ~~does~~during ~~not~~the ~~consider~~remainder toof be2003 ~~restrictive~~under ~~to normal~~the ~~operations~~agreement. CPChem ~~Proceeds~~will ~~from~~have ~~this~~no ~~debt~~further obligation ~~issuance~~to ~~were~~make ~~used~~advances tounder ~~retire~~the asubordinated ~~portion~~loan agreement upon completion of ~~outstanding~~the ~~commercial~~facilities, ~~paper~~as ~~obligations~~defined ~~and~~in ~~for~~the ~~general~~bank ~~corporate~~financing ~~purposes~~agreements.

~~In accordance~~If ~~with~~the ~~obligations~~project ~~under~~is ~~the~~not ~~registration~~completed ~~rights~~by ~~agreement~~August ~~entered~~31, ~~into~~2003 under inthe ~~connection~~terms ~~with~~of the ~~private~~bank ~~placement~~financing ~~notes~~completion guarantee, the ~~LLC~~banks ~~and~~have the right LPto ~~filed~~demand apayment ~~joint~~from ~~registration~~each ~~statement~~co-venturer on a pro rata basis to the extent ~~Form S-4~~necessary ~~with~~to cover the ~~SEC~~debt service requirements until August 31, ~~declared~~2004. If ~~effective~~the onproject is not completed by August 19 31, ~~2002~~2004, the banks have the right to ~~register~~demand ~~$500 million~~repayment of ~~exchange~~all ~~notes~~outstanding principal and interest from each co-venturer on a pro rata basis. These ~~The~~dates ~~exchange~~may ~~notes~~be ~~have~~extended ~~terms~~for ~~substantially~~up ~~identical~~to one year due to ~~the~~events of force majeure. ~~private~~After ~~placement~~the ~~notes,~~project ~~except~~is ~~that~~completed, the ~~exchange~~bank ~~notes~~financing ~~are~~is ~~freely~~non-recourse ~~tradeable.~~with respect ~~All~~to ofthe co-venturers, with the ~~holders~~exception of the ~~private~~contingent ~~placement~~obligations described ~~notes~~below. CPChem ~~tendered~~believes ~~their~~that any ~~notes~~funding ~~for~~required ~~the~~under ~~registered~~this ~~exchange~~agreement ~~notes.~~is unlikely to have a material adverse effect on CPChem’s consolidated results of operations, financial position or liquidity.

In addition, after the project is completed, CPChem has agreed to provide up to $75 million of loans to Q-Chem if there is insufficient cash to pay the minimum debt service amount on the bank financing. CPChem believes it is unlikely that funding under this support agreement will be required.

CPChem also agreed to provide loans to Q-Chem for a period of up to 33 months following commencement of commercial operation as defined in the bank financing agreements, if there is insufficient cash to pay the target debt service amount. These loans are limited to an amount not greater than lost operating margins resulting from sales volumes being less than 100% of design capacity. CPChem believes that any funding required under this support agreement is unlikely to have a material adverse effect on CPChem’s consolidated results of operations, financial position or liquidity.

InCPChem has entered into an agency agreement with ~~addition~~Q-Chem to ~~the~~act ~~debt~~as ~~information~~an ~~presented~~agent infor the ~~preceding~~sale ~~table,~~of atsubstantially ~~September 30,~~all ~~2002,~~of Q-Chem’s production. CPChem ~~had~~has ~~$300 million~~also ofentered into ~~borrowings~~an ~~outstanding~~offtake ~~under~~and acredit ~~trade~~risk ~~receivables securitization~~ agreement. ~~These~~with ~~borrowings~~Q-Chem, ~~are~~under ~~classified~~which asCPChem ~~short-term~~is required ~~and~~to ~~are~~purchase, ~~secured~~at bymarket ~~$421 million~~prices, specified amounts of ~~trade~~production ~~receivables.~~if CPChem Atfails ~~December 31,~~to ~~2001,~~sell ~~$199 million~~that product under the terms of ~~borrowings~~the ~~were~~agency agreement. The offtake and credit risk agreement ~~outstanding,~~expires ~~secured~~upon bythe ~~$269 million~~earlier of ~~trade~~the ~~receivables.~~repayment ~~CPChem~~in ~~renewed~~full by Q-Chem of its ~~trade~~$750 ~~receivables~~million bank ~~securitization~~financing, ~~agreement~~scheduled onto ~~May 21~~mature in 2012, ~~2002~~or ~~for~~any anrefinancing ~~additional~~thereof. CPChem ~~364 days~~expects onthat ~~terms similar~~it will be able to ~~those~~sell all the production under the terms of the ~~prior~~agency agreement.

~~On August 29,~~Should ~~2002,~~the ~~CPChem~~Q-Chem ~~entered~~1-hexene ~~into~~unit afail ~~$400 million~~to ~~364-day~~operate ~~credit~~as designed, ~~facility~~CPChem ~~and~~has aguaranteed ~~$400 million~~to ~~three~~compensate Q-~~year~~Chem ~~credit~~for ~~facility.~~any ~~These~~economic ~~credit~~loss ~~agreements~~of ~~contain~~diverting ~~substantially~~surplus ~~the~~ethylene ~~same~~not ~~terms~~used asto ~~CPChem's~~produce ~~$700 million facility that expired on July~~ 1,-hexene ~~2002~~to ~~and~~the ~~its $900 million three~~high-~~year~~density polyethylene ~~credit~~units. CPChem ~~agreement~~believes ~~which CPChem~~the ~~terminated~~risk ~~effective~~of ~~upon~~ the ~~closing~~1-hexene ofunit ~~the~~failing ~~new~~to ~~credit~~operate ~~facilities.~~as designed is remote.

~~Note 9. Members'~~Saudi ~~Preferred~~Chevron ~~Interests~~ Phillips Company

OnSaudi Chevron Phillips Company (Saudi Chevron ~~July 1,~~Phillips) ~~2002,~~is ~~CPChem~~a ~~sold~~50%-owned ~~$250 million~~joint ofventure ~~Members'~~that ~~Preferred~~owns ~~Interests~~facilities in Al Jubail, ~~purchased~~Saudi Arabia. Saudi ~~50%~~Chevron ~~each~~Phillips bywas financed ~~ChevronTexaco~~with loans from commercial banks and ~~ConocoPhillips.~~a ~~Preferred~~Saudi ~~distributions~~Arabian government agency. The loans are ~~cumulative~~payable atin semiannual 9%installments ~~per~~and ~~annum~~mature in 2009. ~~and~~The ~~are~~co-venturers ~~payable~~have ~~quarterly~~a ~~from~~several ~~cash~~obligation ~~earnings,~~of asup ~~defined~~to $25 million each to fund debt service requirements in ~~CPChem's~~the ~~Second~~event ~~Amended~~Saudi ~~and~~Chevron ~~Restated~~Phillips ~~Limited~~has insufficient ~~Liability~~cash ~~Company~~to ~~Agreement~~pay debt service requirements. In ~~The~~addition, ~~securities~~under ~~have~~the noterms ~~stated~~of ~~maturity~~a ~~date~~sales and ~~are~~marketing ~~redeemable~~agreement ~~quarterly~~that runs through 2026, inCPChem ~~increments~~is ofobligated ~~$25 million~~to purchase, ~~when~~at ~~CPChem's~~market ~~ratio~~price, 100% of ~~debt~~production tofrom ~~total~~the ~~capitalization~~plant ~~falls~~less ~~below~~any aquantities ~~stated~~sold ~~level.~~by ~~The~~Saudi ~~Members'~~Chevron ~~Preferred~~Phillips in ~~Interests~~the ~~are~~Middle ~~also~~East. CPChem ~~redeemable~~believes atit is unlikely that any funding under the ~~sole~~debt ~~option~~service obligation will be required ofand ~~CPChem.~~further ~~Proceeds~~believes ~~were~~that ~~used~~it will continue to ~~retire~~be aable ~~portion~~to sell all the production required under the terms of ~~outstanding~~the ~~commercial~~sales ~~paper~~and ~~obligations.~~marketing agreement.

~~Note 10. Termination~~Residual ~~Benefits~~ Lease Guarantee

~~Accrued~~CPChem’s headquarters building is leased under a ~~termination~~synthetic ~~benefits~~lease ~~payable~~agreement ~~totaled~~entered $6into in 2002 that contains a fixed price purchase option and a residual guarantee. ~~million~~ The option price was considered to be the fair market value of the building at ~~December~~the inception of the lease. 31 If CPChem does not exercise the purchase option upon the expiration of the lease in 2007, ~~2001~~CPChem ~~and~~has ~~were~~an ~~paid~~obligation to pay the lessor the shortfall, if any, in the ~~first~~proceeds ~~half~~realized from the sale of ~~2002~~the building to a third party relative to the purchase option price, not to exceed $27 million. CPChem is entitled to receive any proceeds from the sale of the building that are in excess of the purchase option price. While it is not possible to predict with certainty the amount, if any, that CPChem would be required to pay or be entitled to receive should the building be sold to a third party upon the expiration of the lease, CPChem believes that the amount paid or received would not be material to consolidated results of operations, financial position or liquidity.

Note 11. Contingencies

In the case of all known contingencies, CPChem records an undiscounted liability when the loss is probable and the amount is reasonably estimable. These liabilities are not reduced for potential insurance recoveries. If applicable, undiscounted receivables are recorded for probable insurance or other third-party recoveries. Based on currently available information, CPChem believes it is remote that future costs related to known contingent liabilities will exceed current accruals by an amount that would have a material adverse effect on consolidated results of operations, financial position or liquidity.

As facts concerning contingencies become known, CPChem reassesses its position both with respect to accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change include legal matters and contingent liabilities for environmental remediation. Estimated future environmental remediation costs are subject to change due to such factors as the unknown magnitude of cleanup costs, prospective changes in laws and regulations, the unknown timing and extent of remedial actions that may be required and the determination of CPChem's liability in proportion to other responsible parties. Estimated future costs related to legal matters are subject to change as events occur and as additional information becomes available during the administrative and litigation process.

CPChem is a party to a number of legal proceedings pending in various courts or agencies for which, in some instances, no provision has been made. While the final outcome of these proceedings cannot be predicted with certainty, CPChem believes that none of these proceedings, when resolved, will have a material adverse effect on consolidated results of operations, financial position or liquidity.

Note ~~12. Segment~~ ~~Information~~ 6. Investments

~~Effective~~Summarized financial information for Q-Chem and Saudi ~~January 1,~~Chevron ~~2002~~Phillips, ~~CPChem~~and ~~restructured~~for ~~the~~all ~~composition~~other ofequity ~~its~~investments ~~operating~~of ~~segments~~CPChem asin the aggregate, follows:

Olefins & Polyolefins—This segment gathers, buys, sells and fractionates natural gas liquids, and manufactures and markets olefins products such as ethylene and propylene. This segment also manufactures and markets alpha olefins and polyolefin products such as normal alpha olefins, polyethylene, polypropylene and polyethylene pipe.

	Three months ended June 30,						Six months ended June 30,
*Millions*	2003			2002			2003			2002
Q-Chem
Revenues	$	12		$	—		$	12		$	—
Income (loss) before income taxes	(15		)	(5		)	(21		)	(10		)
Net income (loss)	(15		)	(5		)	(21		)	(10		)

Saudi Chevron Phillips
Revenues	117			84			210			138
Income before income taxes	44			15			68			13
Net income	44			15			68			13

Other equity investments
Revenues	171			160			327			296
Income (loss) before income taxes	(1		)	9			—			13
Net income (loss)	(1		)	8			(1		)	10

Aromatics &Note Styrenics—This segment manufactures and markets aromatics products such as benzene, styrene, paraxylene and cyclohexane7. This segmentTrade alsoReceivables manufactures and markets polystyrene and styrene-butadiene copolymer sold under the trademark K-Resin®. Securitization

~~Specialty~~CPChem ~~Products—This~~had ~~segment~~$300 ~~manufactures~~million ~~and~~of ~~markets~~secured aborrowings outstanding ~~variety~~at June 30, 2003 and $290 million of ~~specialty~~secured ~~products~~borrowings outstanding at December 31, ~~including~~2002 ~~organosulfur~~under ~~chemicals~~a ~~and~~trade receivables securitization agreement. These borrowings are classified as ~~high~~short-~~performance~~term ~~polyphenylene~~and ~~sulfide~~were ~~polymers~~secured by $488 million and ~~compounds~~$393 ~~sold~~million ~~under~~of trade receivables, respectively. CPChem renewed its trade receivables securitization agreement on May 22, 2003 for an additional 364 days on terms substantially identical to those of the ~~trademark~~agreement that ~~Ryton™.~~expired during the month.

Financial informationNote by segment follows8. Prior year information has been restated to conform to the current segment reporting presentation. Contingencies

Millions	Olefins & Polyolefins			Aromatics & Styrenics			Specialty Products		Corporate, Other & Eliminations			Total
Three months ended Sept. 30, 2002
Net sales—external	$	867		$	476		$	86	$	—		$	1,429
Net sales—inter-segment		68			37			—		(105	)		—
Income (loss) before interest & taxes		52			(30	)		3		(6	)		19
Three months ended Sept. 30, 2001
Net sales—external		868			410			89		—			1,367
Net sales—inter-segment		44			29			—		(73	)		—
Income (loss) before interest & taxes		(11	)		(94	)		9		(5	)		(101	)
Nine months ended Sept. 30, 2002
Net sales—external		2,357			1,344			262		—			3,963
Net sales—inter-segment		197			95			1		(293	)		—
Income (loss) before interest & taxes		43			(10	)		27		(20	)		40
Nine months ended Sept. 30, 2001
Net sales—external		3,033			1,394			286		—			4,713
Net sales—inter-segment		161			103			—		(264	)		—
Income (loss) before interest & taxes		(39	)		(102	)		26		(15	)		(130	)
Total assets—September 30, 2002		3,578			1,801			461		195			6,035
Total assets—December 31, 2001		3,465			1,679			467		249			5,860

10As facts concerning contingencies become known, CPChem reassesses its position both with respect to accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change include legal matters and contingent liabilities for environmental remediation. Estimated future environmental remediation costs are subject to change due to such factors as the unknown magnitude of cleanup costs, prospective changes in laws and regulations, the unknown timing and extent of remedial actions that may be required and the determination of CPChem’s liability in proportion to that of other responsible parties. Estimated future costs related to legal matters are subject to change as events occur and as additional information becomes available during the administrative and litigation process.

~~Note 13. Condensed Consolidating Financial Statements~~10

~~Condensed consolidating~~CPChem ~~financial~~is ~~statements~~a ~~follow.~~party ~~This~~to ~~information~~a isnumber ~~presented~~of legal proceedings pending in ~~accordance~~various ~~with~~courts ~~SEC~~or ~~rules~~agencies ~~and~~for ~~regulations~~which, asin ~~they~~many ~~relate~~instances, tono provision has been made. While the final ~~outstanding~~outcome ~~debt~~of ~~jointly~~these ~~and~~proceedings ~~severally~~cannot ~~issued~~be bypredicted with certainty, CPChem ~~Chevron~~believes ~~Phillips~~that ~~Chemical~~none ~~Company~~of ~~LLC~~these ~~and~~proceedings, ~~Chevron~~when ~~Phillips~~resolved, ~~Chemical~~will ~~Company~~have ~~LP.~~a material adverse effect on consolidated results of operations, financial position or liquidity.

~~The LLC~~Note ~~is the non-operating parent holding company~~9. ~~The LP is the primary U.S. operating company. "Other Entities" is comprised principally of foreign operations and the holding companies~~ Employee ~~that~~Termination ~~have direct ownership of the LP. These consolidating financial statements were prepared using the equity method of accounting for investments.~~ Benefits

~~Chevron~~Approximately ~~Phillips~~$9 ~~Chemical~~million ~~Company~~was ~~LLC~~recorded as Selling, ~~Condensed~~General ~~Consolidating~~and ~~Statement~~Administrative expense in the second quarter of ~~Operations~~2003 for employee ~~For~~termination ~~the~~benefit ~~three~~costs ~~months~~in ~~ended~~connection ~~September 30~~with announced workforce reductions of approximately 139 positions at various locations. Termination benefits payable, ~~2002~~classified as Other Current ~~(Unaudited)~~ Liabilities, totaled $8 million at June 30, 2003.

Millions			LLC			LP			Other Entities			Eliminations			Total
Revenue
	Net sales		$	—		$	1,291		$	221		$	(83	)	$	1,429
	Equity in income (loss) of affiliates, net			17			—			(7	)		1			11
	Other income			—			21			28			(36	)		13
		Total revenue		17			1,312			242			(118	)		1,453
Costs and Expenses
	Cost of goods sold			—			1,198			193			(72	)		1,319
	Selling, general and administrative			—			118			27			(47	)		98
	Asset impairments			—			5			1			—			6
	Research and development			—			11			—			—			11
		Total costs and expenses		—			1,332			221			(119	)		1,434
Income (Loss) Before Interest and Taxes				17			(20	)		21			1			19
	Interest income			—			—			1			—			1
	Interest expense			(16	)		1			(3	)		—			(18	)
Income (Loss) Before Taxes				1			(19	)		19			1			2
	Income taxes			—			(1	)		—			—			(1	)
Net Income (Loss)				1			(20	)		19			1			1
	Distributions on members' preferred interests			(6	)		—			—			—			(6	)
Income (Loss) Attributed to Members' Interests			$	(5	)	$	(20	)	$	19		$	1		$	(5	)

Note 10. Subsequent Event

11In August 2003, CPChem’s Board of Directors approved the decision to permanently close the research and technology pilot plant facility in Orange, Texas, pending completion of certain research and development projects currently in progress. As a result, it is expected that third quarter 2003 results will include approximately $10 million of charges for related asset write-downs.

Note ~~13. Condensed~~ ~~Consolidating Financial Statements (continued)~~11. Segment Information

~~Chevron~~Financial ~~Phillips~~information ~~Chemical~~by ~~Company~~segment ~~LLC Condensed Consolidating Statement of Operations For the three months ended September 30, 2001 (Unaudited)~~ follows:

Millions			Olefins & Polyolefins	~~LLC~~		Aromatics & Styrenics	LP		Specialty Products	~~Other Entities~~		Corporate, Other & Eliminations	~~Eliminations~~		Consolidated	~~Total~~
Revenue
Three months ended June 30, 2003
	Net sales			$	—		$	1,236		$	185		$	(54	)	$	1,367
Net sales – external			$	1,010		$	590		$	101		$	—		$	1,701
	Equity in income (loss) of affiliates, net				(149	)		18			(73	)		199			(5	)
Net sales – inter-segment			77			34			1			(112		)	—
	Other income				—			22			48			(58	)		12
Income (loss) before interest & taxes			35			20			10			(13		)	52
		Total revenue			(149	)		1,276			160			87			1,374
Three months ended June 30, 2002
Costs and Expenses
Net sales – external			809			487			91			—			1,387
	Cost of goods sold				—			1,153			222			(49	)		1,326
Net sales – inter-segment			74			36			1			(111		)	—
	Selling, general and administrative				—			175			(23	)		(63	)		89
Income (loss) before interest & taxes			(9		)	32			14			(11		)	26
	Asset impairments				—			—			42			—			42
Six months ended June 30, 2003
	Research and development				—			18			—			—			18
Net sales – external			2,036			1,260			201			—			3,497
		Total costs and expenses			—			1,346			241			(112	)		1,475
Net sales – inter-segment			145			76			1			(222		)	—
Income (Loss) Before Interest and Taxes					(149	)		(70	)		(81	)		199			(101	)
Income (loss) before interest & taxes			(40		)	23			20			(17		)	(14		)
	Interest income				2			1			1			(2	)		2
Six months ended June 30, 2002
	Interest expense				(20	)		(2	)		(3	)		2			(23	)
Net sales – external			1,490			868			176			—			2,534
Income (Loss) Before Taxes					(167	)		(71	)		(83	)		199			(122	)
Net sales – inter-segment			129			58			1			(188		)	—
	Income taxes				—			(1	)		(44	)		—			(45	)
Income (loss) before interest & taxes			(9		)	20			24			(14		)	21
Net Income (Loss)				$	(167	)	$	(72	)	$	(127	)	$	199		$	(167	)
Total assets – June 30, 2003			3,704			1,836			491			183			6,214
Total assets – December 31, 2002			3,620			1,815			468			206			6,109

1211

Note 13 12. Condensed Consolidating Financial Statements ~~(continued)~~

~~Chevron~~Condensed ~~Phillips~~consolidating ~~Chemical~~financial ~~Company~~statements ~~LLC Condensed~~follow. This ~~Consolidating~~information ~~Statement~~is ofpresented ~~Operations~~in accordance ~~For~~with SEC rules and regulations as they relate to the ~~nine~~debt ~~months~~jointly ~~ended~~and ~~September 30,~~severally issued ~~2002~~by Chevron Phillips Chemical Company LLC and Chevron Phillips Chemical ~~(Unaudited)~~ Company LP.

Millions			LLC			LP			Other Entities			Eliminations			Total
Revenue
	Net sales		$	—		$	3,562		$	611		$	(210	)	$	3,963
	Equity in income (loss) of affiliates, net			37			(17	)		(20	)		19			19
	Other income			—			70			81			(111	)		40
		Total revenue		37			3,615			672			(302	)		4,022
Costs and Expenses
	Cost of goods sold			—			3,293			557			(196	)		3,654
	Selling, general and administrative			—			333			79			(125	)		287
	Asset impairments			—			5			1			—			6
	Research and development			—			35			—			—			35
		Total costs and expenses		—			3,666			637			(321	)		3,982
Income (Loss) Before Interest and Taxes				37			(51	)		35			19			40
	Interest income			—			2			3			—			5
	Interest expense			(47	)		1			(4	)		—			(50	)
Income (Loss) Before Taxes				(10	)		(48	)		34			19			(5	)
	Income taxes			—			(1	)		(4	)		—			(5	)
Net Income (Loss)				(10	)		(49	)		30			19			(10	)
	Distributions on members' preferred interests			(6	)		—			—			—			(6	)
Income (Loss) Attributed to Members' Interests			$	(16	)	$	(49	)	$	30		$	19		$	(16	)

The LLC is the non-operating parent holding company. The LP is the primary U.S. operating company. “Other Entities” is principally comprised of foreign operations and the holding companies that have direct ownership of the LP. These condensed consolidating financial statements were prepared using the equity method of accounting for investments.

13Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Operations For the three months ended June 30, 2003 (Unaudited)

Note 13. Condensed Consolidating Financial Statements (continued)

*Millions*	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	1,494		$	296		$	(89	)	$	1,701
Equity in income of affiliates	55			2			53			(94		)	16
Other income	—			15			10			(12		)	13
Total revenue	55			1,511			359			(195		)	1,730

Costs and Expenses
Cost of goods sold	—			1,339			282			(82		)	1,539
Selling, general and administrative	—			124			22			(19		)	127
Research and development	—			12			—			—			12
Total costs and expenses	—			1,475			304			(101		)	1,678

Income Before Interest & Taxes	55			36			55			(94		)	52

Interest income	—			3			3			(3		)	3
Interest expense	(20		)	(1		)	(1		)	3			(19		)

Income Before Taxes	35			38			57			(94		)	36

Income taxes	—			—			(1		)	—			(1		)

Net Income	35			38			56			(94		)	35

Distributions on members’ preferred interests	(5		)	—			—			—			(5		)

Income Attributed to Members’ Interests	$	30		$	38		$	56		$	(94	)	$	30

~~Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Operations For the nine months ended September 30, 2001 (Unaudited)~~ 12

Millions			LLC			LP			Other Entities			Eliminations			Total
Revenue
	Net sales		$	—		$	4,549		$	911		$	(747	)	$	4,713
	Equity in income (loss) of affiliates, net			(178	)		7			(161	)		321			(11	)
	Other income			—			189			87			(85	)		191
		Total revenue		(178	)		4,745			837			(511	)		4,893
Costs and Expenses
	Cost of goods sold			—			4,427			872			(742	)		4,557
	Selling, general and administrative			—			436			32			(90	)		378
	Asset impairments			—			—			42			—			42
	Research and development			—			46			—			—			46
		Total costs and expenses		—			4,909			946			(832	)		5,023
Income (Loss) Before Interest and Taxes				(178	)		(164	)		(109	)		321			(130	)
	Interest income			2			3			4			(2	)		7
	Interest expense			(79	)		(3	)		(4	)		2			(84	)
Income (Loss) Before Taxes				(255	)		(164	)		(109	)		321			(207	)
	Income taxes			—			(1	)		(47	)		—			(48	)
Net Income (Loss)			$	(255	)	$	(165	)	$	(156	)	$	321		$	(255	)

Note 12. Condensed Consolidating Financial Statements (Continued)

14Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Operations For the three months ended June 30, 2002 (Unaudited)

Note 13. Condensed Consolidating Financial Statements (continued)

*Millions*	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	1,249		$	207		$	(69	)	$	1,387
Equity in income (loss) of affiliates	25			(2		)	1			(15		)	9
Other income	—			19			30			(36		)	13
Total revenue	25			1,266			238			(120		)	1,409

Costs and Expenses
Cost of goods sold	—			1,149			190			(67		)	1,272
Selling, general and administrative	—			117			19			(38		)	98
Research and development	—			13			—			—			13
Total costs and expenses	—			1,279			209			(105		)	1,383

Income (Loss) Before Interest & Taxes	25			(13		)	29			(15		)	26

Interest income	—			1			1			—			2
Interest expense	(14		)	—			—			—			(14		)

Income (Loss) Before Taxes	11			(12		)	30			(15		)	14

Income taxes	—			—			(3		)	—			(3		)

Net Income (Loss)	$	11		$	(12	)	$	27		$	(15	)	$	11

~~Chevron Phillips Chemical Company LLC Condensed Consolidating Balance Sheet September 30, 2002 (Unaudited)~~ 13

Millions			LLC		LP		Other Entities			Eliminations			Total
Current assets
	Cash and cash equivalents		$	—	$	19	$	33		$	—		$	52
	Accounts receivable, net			36		1,046		737			(1,035	)		784
	Inventories			—		553		112			—			665
	Other current assets			2		24		10			—			36
		Total current assets		38		1,642		892			(1,035	)		1,537
Property, plant and equipment, net				—		3,682		288			—			3,970
Investments in and advances to affiliates				5,606		88		5,067			(10,291	)		470
Other assets and deferred charges				7		39		12			—			58
Total Assets			$	5,651	$	5,451	$	6,259		$	(11,326	)	$	6,035
Current liabilities
	Accounts payable		$	720	$	558	$	277		$	(1,035	)	$	520
	Secured borrowings			—		—		300			—			300
	Other current liabilities			14		138		22			—			174
		Total current liabilities		734		696		599			(1,035	)		994
Long-term debt				1,203		11		—			—			1,214
Other liabilities and deferred credits				—		100		14			—			114
		Total liabilities		1,937		807		613			(1,035	)		2,322
Members' preferred interests				250		—		—			—			250
Members' capital				3,464		4,644		5,647			(10,291	)		3,464
Accumulated other comprehensive income (loss)				—		—		(1	)		—			(1	)
Total Liabilities and Members' Equity			$	5,651	$	5,451	$	6,259		$	(11,326	)	$	6,035

Note 12. Condensed Consolidating Financial Statements (Continued)

15Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Operations For the six months ended June 30, 2003 (Unaudited)

Note 13. Condensed Consolidating Financial Statements (continued)

*Millions*	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	3,095		$	614		$	(212	)	$	3,497
Equity in income (loss) of affiliates	(9		)	(1		)	(43		)	75			22
Other income	—			43			42			(54		)	31
Total revenue	(9		)	3,137			613			(191		)	3,550

Costs and Expenses
Cost of goods sold	—			2,937			572			(195		)	3,314
Selling, general and administrative	—			248			50			(71		)	227
Research and development	—			23			—			—			23
Total costs and expenses	—			3,208			622			(266		)	3,564

Income (Loss) Before Interest & Taxes	(9		)	(71		)	(9		)	75			(14		)

Interest income	—			6			4			(6		)	4
Interest expense	(38		)	(1		)	(2		)	6			(35		)

Income (Loss) Before Taxes	(47		)	(66		)	(7		)	75			(45		)

Income taxes	—			—			(2		)	—			(2		)

Net Income (Loss)	(47		)	(66		)	(9		)	75			(47		)

Distributions on members’ preferred interests	(11		)	—			—			—			(11		)

Income (Loss) Attributed to Members’ Interests	$	(58	)	$	(66	)	$	(9	)	$	75		$	(58	)

~~Chevron Phillips Chemical Company LLC Condensed Consolidating Balance Sheet December 31, 2001~~ 14

Millions			LLC		LP		Other Entities			Eliminations			Total
Current assets
	Cash and cash equivalents		$	—	$	71	$	40		$	—		$	111
	Accounts receivable, net			37		944		543			(742	)		782
	Inventories			—		541		97			—			638
	Other current assets			—		17		3			—			20
		Total current assets		37		1,573		683			(742	)		1,551
Property, plant and equipment, net				—		3,681		287			—			3,968
Investments in and advances to affiliates				5,430		86		4,916			(10,173	)		259
Other assets and deferred charges				5		60		17			—			82
Total Assets			$	5,472	$	5,400	$	5,903		$	(10,915	)	$	5,860
Current liabilities
	Accounts and notes payable		$	516	$	472	$	203		$	(742	)	$	449
	Secured borrowings			—		—		199			—			199
	Other current liabilities			10		142		20			—			172
		Total current liabilities		526		614		422			(742	)		820
Long-term debt				1,496		11		—			—			1,507
Other liabilities and deferred credits				—		87		12			—			99
		Total liabilities		2,022		712		434			(742	)		2,426
Members' capital				3,450		4,688		5,485			(10,173	)		3,450
Accumulated other comprehensive income (loss)				—		—		(16	)		—			(16	)
Total Liabilities and Members' Equity			$	5,472	$	5,400	$	5,903		$	(10,915	)	$	5,860

Note 12. Condensed Consolidating Financial Statements (Continued)

16Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Operations For the six months ended June 30, 2002 (Unaudited)

Note 13. Condensed Consolidating Financial Statements (continued)

*Millions*	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	2,271		$	390		$	(127	)	$	2,534
Equity in income (loss) of affiliates	20			(17		)	(13		)	18			8
Other income	—			49			53			(75		)	27
Total revenue	20			2,303			430			(184		)	2,569

Costs and Expenses
Cost of goods sold	—			2,095			364			(124		)	2,335
Selling, general and administrative	—			215			52			(78		)	189
Research and development	—			24			—			—			24
Total costs and expenses	—			2,334			416			(202		)	2,548

Income (Loss) Before Interest & Taxes	20			(31		)	14			18			21

Interest income	—			2			2			—			4
Interest expense	(31		)	—			(1		)	—			(32		)

Income (Loss) Before Taxes	(11		)	(29		)	15			18			(7		)

Income taxes	—			—			(4		)	—			(4		)

Net Income (Loss)	$	(11	)	$	(29	)	$	11		$	18		$	(11	)

~~Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Cash Flows For the nine months ended September 30, 2002 (Unaudited)~~ 15

Millions				LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
	Net income (loss)			$	(10	)	$	(49	)	$	30		$	19		$	(10	)
	Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities
		Depreciation, amortization and retirements			—			208			11			—			219
		Asset impairments			—			5			1			—			6
		Undistributed equity in losses (income) of affiliates, net			2			23			33			(64	)		(6	)
		Changes in operating working capital			194			(41	)		(140	)		—			13
		Other operating cash flow activity			(7	)		40			1			—			34
			Net cash flows provided by (used in) operating activities		179			186			(64	)		(45	)		256
Cash Flows From Investing Activities
	Capital and investment expenditures				—			(240	)		(13	)		—			(253	)
	Advances to Qatar Chemical Company Ltd. (Q-Chem)				—			—			(169	)		—			(169	)
	Decrease (increase) in other investments				(178	)		2			—			178			2
			Net cash flows used in investing activities		(178	)		(238	)		(182	)		178			(420	)
Cash Flows From Financing Activities
	Decrease in commercial paper, net				(785	)		—			—			—			(785	)
	Increase in secured borrowings, net				—			—			101			—			101
	Increase (decrease) in other debt				498			(1	)		6			—			503
	Proceeds from the issuance of members' preferred interests				250			—			—			—			250
	Contributions from members, net				29			—			133			(133	)		29
	Post-closing adjustments from members				7			—			—			—			7
			Net cash flows provided by (used in) financing activities		(1	)		(1	)		240			(133	)		105
Net Decrease in Cash and Cash Equivalents					—			(53	)		(6	)		—			(59	)
Cash and Cash Equivalents at Beginning of Period					—			71			40			—			111
Cash and Cash Equivalents at End of Period				$	—		$	18		$	34		$	—		$	52

Note 12. Condensed Consolidating Financial Statements (Continued)

17Chevron Phillips Chemical Company LLC Condensed Consolidating Balance Sheet June 30, 2003

~~Note 13. Condensed Consolidating Financial Statements~~ (~~continued~~Unaudited)

Chevron Phillips Chemical Company LLC Condensed Consolidating Statement of Cash Flows For the nine months ended September 30, 2001 (Unaudited)

*Millions*	LLC		LP		Other Entities		Eliminations			Total
Current assets
Cash and cash equivalents	$	—	$	24	$	41	$	—		$	65
Accounts receivable, net	228		440		700		(498		)	870
Inventories	—		569		110		—			679
Other current assets	2		11		3		—			16
Total current assets	230		1,044		854		(498		)	1,630

Property, plant and equipment, net	—		3,579		322		—			3,901
Investments in and advances to affiliates	5,767		69		5,270		(10,494		)	612
Other assets and deferred charges	21		958		13		(921		)	71

Total Assets	$	6,018	$	5,650	$	6,459	$	(11,913	)	$	6,214

Current liabilities
Accounts payable	$	73	$	696	$	307	$	(498	)	$	578
Secured borrowings and other debt	—		1		304		—			305
Other current liabilities	11		121		12		—			144
Total current liabilities	84		818		623		(498		)	1,027

Long-term debt	1,320		10		—		—			1,330
Other liabilities and deferred credits	928		117		34		(921		)	158

Total liabilities	2,332		945		657		(1,419		)	2,515

Members’ preferred interests	250		—		—		—			250
Members’ capital	3,436		4,705		5,789		(10,494		)	3,436
Accumulated other comprehensive income	—		—		13		—			13

Total Liabilities and Members’ Equity	$	6,018	$	5,650	$	6,459	$	(11,913	)	$	6,214

Millions				LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
	Net income (loss)			$	(255	)	$	(165	)	$	(156	)	$	321		$	(255	)
	Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities
		Depreciation, amortization and retirements			—			181			30			—			211
		Asset impairments			—			—			42			—			42
		Deferred income taxes			—			—			44			—			44
		Undistributed equity in losses (income) of affiliates, net			266			(7	)		163			(409	)		13
		Changes in operating working capital			414			(55	)		(265	)		—			94
		Other operating cash flow activity			144			45			(118	)		—			71
			Net cash flows provided by (used in) operating activities		569			(1	)		(260	)		(88	)		220
Cash Flows From Investing Activities
	Capital expenditures				—			(192	)		(8	)		—			(200	)
	Decrease (increase) in investments				(237	)		(1	)		(132	)		390			20
			Net cash flows used in investing activities		(237	)		(193	)		(140	)		390			(180	)
Cash Flows From Financing Activities
	Decrease in commercial paper, net				(747	)		—			—			—			(747	)
	Increase in secured borrowings, net				—			—			220			—			220
	Decrease in notes payable to member, net				(50	)		—			—			—			(50	)
	Proceeds from the issuance of other debt				496			13			—			—			509
	Contributions from (distributions to) members, net				(14	)		152			150			(302	)		(14	)
	Post-closing adjustments to members				(13	)		—			—			—			(13	)
Net cash flows provided by (used in) financing activities					(328	)		165			370			(302	)		(95	)
Net Increase (Decrease) in Cash and Cash Equivalents					4			(29	)		(30	)		—			(55	)
Cash and Cash Equivalents at Beginning of Period					—			75			81			—			156
Cash and Cash Equivalents at End of Period				$	4		$	46		$	51		$	—		$	101

18Note 12. Condensed Consolidating Financial Statements (Continued)

Chevron Phillips ~~ITEM~~Chemical 2.Company ~~Management's~~LLC Condensed ~~Discussion~~Consolidating ~~and~~Balance ~~Analysis~~Sheet December of31, ~~Financial Condition and Results of Operations~~ 2002

This discussion should be read in conjunction with the condensed consolidated financial statements and notes preceding this discussion, and with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes included in CPChem's Annual Report on Form 10-K for the year ended December 31, 2001.

*Millions*	LLC		LP		Other Entities		Eliminations			Total
Current assets
Cash and cash equivalents	$	—	$	9	$	30	$	—		$	39
Accounts receivable, net	232		370		636		(441		)	797
Inventories	—		593		109		—			702
Other current assets	2		18		3		—			23
Total current assets	234		990		778		(441		)	1,561

Property, plant and equipment, net	—		3,659		291		—			3,950
Investments in and advances to affiliates	5,688		71		5,216		(10,460		)	515
Other assets and deferred charges	23		995		22		(957		)	83

Total Assets	$	5,945	$	5,715	$	6,307	$	(11,858	)	$	6,109

Current liabilities
Accounts payable	$	57	$	727	$	253	$	(441	)	$	596
Secured borrowings and other debt	—		1		293		—			294
Other current liabilities	12		134		15		—			161
Total current liabilities	69		862		561		(441		)	1,051

Long-term debt	1,180		10		—		—			1,190
Other liabilities and deferred credits	952		93		29		(957		)	117

Total liabilities	2,201		965		590		(1,398		)	2,358

Members’ preferred interests	250		—		—		—			250
Members’ capital	3,494		4,750		5,710		(10,460		)	3,494
Accumulated other comprehensive income	—		—		7		—			7

Total Liabilities and Members’ Equity	$	5,945	$	5,715	$	6,307	$	(11,858	)	$	6,109

~~Results of Operations~~ 17

~~Consolidated~~ Note 12. Condensed Consolidating Financial Statements (Continued)

	Three months ended September 30,						Nine months ended September 30,
Millions
	2002			2001			2002			2001
Income (loss) before interest & taxes	$	19		$	(101	)	$	40		$	(130	)
Less special items benefits (charges), net		(26	)		(50	)*		(36	)		14	*
Income (loss) before interest & taxes, as adjusted	$	45		$	(51	)	$	76		$	(144	)

Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 2003
(Unaudited)

Consolidated income before interest and taxes, excluding special items, for the quarter ended September 30, 2002 improved $96 million compared with the third quarter of 2001, largely due to higher overall margins. Income before interest and taxes for the first nine months of 2002, excluding special items, increased by $220 million compared with the same period in 2001, primarily the result of lower feedstock costs and energy prices.

*Millions*	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income (loss)	$	(47	)	$	(66	)	$	(9	)	$	75		$	(47	)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities
Depreciation, amortization and retirements	—			132			8			—			140
Undistributed equity in losses (income) of affiliates, net	9			1			48			(75		)	(17		)
Changes in operating working capital	(10		)	(54		)	(43		)	—			(107		)
Other operating cash flow activity	(35		)	63			6			—			34
Net cash flows provided by (used in) operating activities	(83		)	76			10			—			3

Cash Flows From Investing Activities
Capital and investment expenditures	—			(61		)	(22		)	—			(83		)
Advances to Q-Chem	—			—			(76		)	—			(76		)
Increase in other investments	(89		)	—			—			89			—
Net cash flows used in investing activities	(89		)	(61		)	(98		)	89			(159		)

Cash Flows From Financing Activities
Increase in commercial paper, net	140			—			—			—			140
Increase in secured borrowings, net	—			—			10			—			10
Contributions from members, net	32			—			89			(89		)	32
Net cash flows provided by financing activities	172			—			99			(89		)	182

Net Increase in Cash and Cash Equivalents	—			15			11			—			26
Cash and Cash Equivalents at Beginning of Period	—			9			30			—			39

Cash and Cash Equivalents at End of Period	$	—		$	24		$	41		$	—		$	65

Special items are nonrecurring or infrequently occurring transactions that CPChem does not consider representative of ongoing operations. Special items charges totaled $36 million in the first nine months of 2002, including $26 million of charges in the third quarter primarily related to asset retirements, the write-off of certain technology projects and asset impairments. Also included in special items for the nine month period were first quarter charges for a pension plan curtailment and accelerated depreciation associated with the retirement of two polyethylene particle loop reactors. 18

~~Special items~~Note in the first nine months of 2001 included a $118 million benefit recorded in the second quarter in connection with the settlement of a business interruption insurance claim associated with the March 2000 incident at the Houston Chemical Complex K-Resin plant12. ~~Special items also included costs associated with the collapse of a styrene column in~~ Condensed ~~February 2001~~Consolidating ~~and~~Financial aStatements ~~$42 million asset impairment charge in the third quarter of 2001 related to the Puerto Rico facility.~~ (Continued)

~~Olefins~~Chevron &Phillips ~~Polyolefins~~ Chemical Company LLC Condensed Consolidating Statement of Cash Flows For the six months ended June 30, 2002 (Unaudited)

	Three months ended September 30,						Nine months ended September 30,
Millions		LLC			LP			Other Entities			Eliminations			Total
Millions
Cash Flows From Operating Activities
	2002			2001			2002			2001
Net income (loss)		$	(11	)	$	(29	)	$	11		$	18		$	(11	)
Income (loss) before interest & taxes	$	52		$	(11	)	$	43		$	(39	)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities
Less special items benefits (charges), net		(6	)		—			(10	)		(21	)
Depreciation, amortization and retirements		—			121			8			—			129
Income (loss) before interest & taxes, as adjusted	$	58		$	(11	)	$	53		$	(18	)
Undistributed equity in losses (income) of affiliates, net		13			23			20			(57		)	(1		)
Changes in operating working capital		(16		)	141			(108		)	—			17
Other operating cash flow activity		124			(105		)	(1		)	—			18
Net cash flows provided by (used in) operating activities		110			151			(70		)	(39		)	152
Cash Flows From Investing Activities
Capital and investment expenditures		—			(171		)	(5		)	—			(176		)
Advances to Q-Chem		—			—			(125		)	—			(125		)
Increase in other investments		(129		)	—			—			129			—
Net cash flows used in investing activities		(129		)	(171		)	(130		)	129			(301		)
Cash Flows From Financing Activities
Decrease in commercial paper, net		(501		)	—			—			—			(501		)
Increase in secured borrowings, net		—			—			101			—			101
Increase (decrease) in other debt		498			(1		)	5			—			502
Contributions from members, net		19			—			90			(90		)	19
Post-closing adjustments from members		7			—			—			—			7
Net cash flows provided by (used in) financing activities		23			(1		)	196			(90		)	128
Net Increase (Decrease) in Cash and Cash Equivalents		4			(21		)	(4		)	—			(21		)
Cash and Cash Equivalents at Beginning of Period		—			71			40			—			111
Cash and Cash Equivalents at End of Period		$	4		$	50		$	36		$	—		$	90

Excluding special items, income before interest and taxes for Olefins & Polyolefins totaled $58 million in the third quarter of 2002 compared to a loss of $11 million in the same period in 2001. Income before interest and taxes totaled $53 million for the nine months ended September 30, 2002 compared to a loss of $18 million in the nine month period in 2001. 19

19ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Special items~~This indiscussion ~~the~~should ~~third~~be ~~quarter~~read ofin ~~2002~~conjunction ~~included~~with athe ~~$5 million~~condensed ~~impairment~~consolidated financial ~~charge~~statements ~~related~~and tonotes ~~CPChem's~~preceding ~~Colton~~this discussion, ~~California~~and ~~polyethylene~~with ~~pipe facility. The facility was written down to its~~Management’s ~~estimated~~Discussion ~~net realizable value~~ and isAnalysis ~~classified~~of asFinancial anCondition ~~asset~~and ~~held~~Results ~~for sale. Third quarter special items also included a benefit for the reversal~~ of ~~certain~~Operations ~~warranty accruals~~ and ~~a $5 million~~ ~~charge for~~ the ~~write-off~~consolidated offinancial ~~several~~statements ~~technology~~and ~~projects.~~notes Aincluded ~~$4 million special item charge was recorded~~ in ~~the~~CPChem’s ~~first~~Annual Report ~~quarter~~on ofForm ~~2002~~10-K for ~~accelerated depreciation associated with~~ the ~~retirement~~ inyear ~~February 2002~~ended ofDecember ~~two polyethylene particle loop reactors at the Orange~~31, ~~Texas facility~~2002.

~~Comparing~~Results ~~the~~of third-quarter periods, operating results increased $69 million primarily due to improved earnings from ethylene and polyethylene, partially offset by lower earnings from normal alpha olefins (NAO). Ethylene results benefited from lower feedstock and energy prices, partially offset by slightly lower sales prices. Polyethylene gross margins increased due to lower ethylene prices and lower energy costs, which more than offset lower sales prices. Decreased earnings from NAO were due to lower sales prices, slightly offset by lower feedstock costs. Operations

Olefins & Polyolefins operating results improved $71 million in the first nine months of 2002 compared with the same period in 2001. Increased polyethylene, NAO and natural gas liquids margins contributed to the improved results. Polyethylene and NAO margins increased due to lower ethylene prices and lower energy costs, partially offset by lower sales prices. Ethylene earnings were down in 2002 primarily due to lower margins and volumes. The margin impact was the result of lower sales prices partially offset by lower feedstock and energy prices.

	Three months ended June 30,						Six months ended June 30,
*Millions*	2003			2002			2003			2002

Income (loss) before interest and taxes
Olefins & Polyolefins	$	35		$	(9	)	$	(40	)	$	(9	)
Aromatics & Styrenics	20			32			23			20
Specialty Products	10			14			20			24
Corporate & Other	(13		)	(11		)	(17		)	(14		)
Consolidated	52			26			(14		)	21
Interest expense, net and income taxes	(17		)	(15		)	(33		)	(32		)
Net income (loss)	$	35		$	11		$	(47	)	$	(11	)

~~Aromatics~~Consolidated &revenues ~~Styrenics~~ increased significantly on higher overall sales prices, comparing the 2003 periods with the same 2002 periods. Significantly higher feedstock costs and natural gas prices in the 2003 periods partially negated the benefit of the higher sales prices. Feedstock costs and natural gas prices trended downward in the second quarter of 2003 compared with earlier in the year.

	Three months ended September 30,						Nine months ended September 30,
Millions
	2002			2001			2002			2001
Income (loss) before interest & taxes	$	(30	)	$	(94	)	$	(10	)	$	(102	)
Less special items benefits (charges), net		(20	)		(50	)		(26	)		34
Income (loss) before interest & taxes, as adjusted	$	(10	)	$	(44	)	$	16		$	(136	)

Included in 2003 results were charges to Selling, General and Administrative expense for CPChem’s share of certain ChevronTexaco and ConocoPhillips legal settlements and accruals relating to CPChem’s facilities ($9 million for the three months and $13 million for the six months) and $9 million of employee termination benefit charges recorded in the second quarter in connection with announced workforce reductions. See Note 9 of Notes to Condensed Consolidated Financial Statements for further discussion of the employee termination benefit charges. Also included in 2003 results was accelerated depreciation related to the previously-announced planned closure of the UDEX benzene extraction unit at CPChem’s Port Arthur, Texas facility in October 2003 ($3 million for the three months and $6 million for the six months).

~~Aromatics & Styrenics~~Included ~~losses~~in ~~before~~2002 ~~interest~~results ~~and~~was ~~taxes,~~a ~~excluding~~first-quarter ~~special items, were~~ $10 6 million ~~and~~pension ~~$44 million~~plan curtailment ~~for~~charge ~~the~~(included ~~third~~in ~~quarters~~Cost of ~~2002~~Goods ~~and~~Sold) ~~2001,~~related ~~respectively.~~to ~~Excluding~~enhanced ~~special~~benefits ~~items,~~granted ~~income~~to ~~before~~terminated ~~interest~~employees ~~and~~at ~~taxes~~CPChem’s ~~was~~Puerto Rico facility and $16 4 million ~~for~~of accelerated depreciation, also recorded in the first ~~nine~~quarter, associated ~~months~~with ofthe retirement in February 2002 ~~compared~~of totwo apolyethylene ~~$136 million~~particle loop ~~loss~~reactors inat the ~~same~~Orange, ~~period~~Texas ~~in 2001~~facility.

Special items in the third quarter of 2002 consisted primarily of a $12 million charge related to the retirement of paraxylene wash columns at the Pascagoula, Mississippi facility and a $5 million charge for the retirement of equipment rendered obsolete as a result of the modernization project at the St. James, Louisiana styrene plant. Special items in the first nine months of 2002 also included a $6 million pension plan curtailment charge recorded in the first quarter related to enhanced benefits granted to terminated employees at CPChem's Puerto Rico facility. 20

~~Special items~~Olefins ~~in 2001 included a $42 million asset impairment charge in the third quarter related to the Puerto Rico facility. The impairment charge was the result of the outlook for future~~& margin conditions at that time. The present value of projected future cash flows was used to determine fair value. Special items for the nine months also included a $118 million benefit, recorded as Other Income in the second quarter, in connection with the settlement of a business interruption insurance claim associated with the March 2000 incident at the Houston Chemical Complex K-Resin plant, and charges associated with the collapse of the styrene column at the St. James facility in February 2001. Polyolefins

	Three months ended June 30,					Six months ended June 30,
*Millions*	2003		2002			2003			2002

Income (loss) before interest and taxes	$	35	$	(9	)	$	(40	)	$	(9	)

~~Aromatics & Styrenics~~Income ~~operating~~before ~~results~~interest ~~improved in the third quarter of 2002 compared with the same period in 2001 as higher earnings from benzene~~ and ~~styrene~~taxes ~~were~~for ~~partially~~Olefins ~~offset~~& byPolyolefins ~~lower~~totaled ~~earnings~~$35 ~~from~~million ~~paraxylene~~in ~~operations.~~the ~~Earnings~~second ~~from~~quarter ~~benzene~~of ~~improved~~2003 ~~primarily~~compared asto a ~~result~~$9 ofmillion ~~higher~~loss ~~sales prices and volumes, and lower operating costs~~ in the prior-year ~~2002~~ period. Higher ~~Styrene earnings improved~~revenues, primarily due to ~~higher~~improved ~~production~~overall ~~and~~average sales ~~volumes~~prices, ~~and~~were ~~improved~~partially ~~gross~~offset by ~~margins,~~higher asfeedstock ~~styrene~~and ~~production~~utility ~~at the St~~costs. ~~James facility was restored in October~~ ~~2001~~ Included ~~following the column collapse~~ in ~~February 2001.~~ ~~Paraxylene~~second-quarter ~~results~~2003 ~~declined~~earnings ~~due~~was toa ~~lower~~$9 ~~feedstock~~million ~~margins~~charge ~~primarily~~for CPChem’s ~~due~~share toof ~~lower~~certain ~~selling~~ChevronTexaco ~~prices.~~and ~~Aromatics &~~ConocoPhillips ~~Styrenics~~legal ~~results also benefited in the 2002 period from~~settlements ~~lower~~and ~~depreciation~~accruals ~~due~~relating to ~~the~~CPChem’s ~~retirement of benzene and cyclohexane assets at the Puerto Rico facility in December 2001~~facilities.

~~Operating results~~Results ~~for~~from ~~Aromatics & Styrenics improved $152 million during~~ the ~~first~~ethylene ~~nine~~and ~~months~~polyethylene ofproduct ~~2002~~lines ~~compared with the same 2001 period. This improvement included the reversal of a~~improved ~~$25 million~~significantly ~~lower-of-cost-or-market inventory reserve established~~ in the ~~fourth~~three ~~quarter~~months ofended ~~2001.~~June ~~The~~30, ~~reserve~~2003 ~~was~~compared ~~reversed~~with asthe ~~a result of improved~~same ~~market~~period ~~conditions and prices. Earnings from styrene were higher~~ in 2002, ~~despite~~partially ~~lower~~offset ~~average~~by ~~sales~~lower ~~prices~~earnings asfrom ~~production~~normal atalpha ~~the St~~olefins (NAO). Ethylene ~~James~~sales ~~facility~~volumes ~~was~~were down, ~~restored~~but inmargins ~~late 2001. Earnings from benzene~~ improved ~~in 2002~~ as ~~a result of~~ higher sales ~~volumes and~~ prices, ~~lower~~more ~~operating~~than ~~costs,~~offset ~~and improved results from Saudi Chevron Phillips Company (Saudi Chevron Phillips), an equity investment.~~increased ~~Aromatics &~~feedstock ~~Styrenics results also benefited in 2002 from lower expenses associated with the cessation of benzene~~ and ~~cyclohexane~~utility ~~operations at the Puerto Rico facility in the first quarter of~~costs. ~~2001~~Polyethylene ~~and~~margins ~~lower~~increased ~~depreciation in 2002~~ due to ~~the~~sales ~~impairment~~prices ~~and~~outpacing ~~subsequent~~higher feedstock ~~retirement~~costs. Lower ofpolyethylene sales ~~those~~volumes ~~assets~~partially inoffset ~~December 2001.~~the ~~The~~impact ~~shutdown~~ of the ~~motor~~higher ~~fuels reformer at the Puerto Rico facility in March 2001 also contributed to improved results~~margins. Results ~~Polystyrene~~for ~~and~~NAO ~~cumene results~~ declined due to lower ~~selling~~sales volumes ~~prices~~ and ~~higher product costs~~margins.

~~Following~~Olefins & Polyolefins losses before interest and taxes totaled $40 amillion ~~successful~~for ~~phased-in~~the ~~start~~six upmonths ended June 30, ~~the~~2003 ~~force~~compared ~~majeure~~with ~~status~~$9 million for the first six months of ~~CPChem's~~2002. Higher feedstock ~~K-Resin~~and ~~styrene-butadiene~~energy ~~copolymer~~costs ~~plant~~more atthan offset increased revenues. Results in 2003 included $13 million of charges for the ~~Houston~~ChevronTexaco ~~Chemical~~and ~~Complex~~ConocoPhillips ~~was~~legal ~~lifted~~settlements onand ~~May 1,~~accruals. Results in 2002. included $4 million of accelerated depreciation associated with the retirement of the two polyethylene particle loop reactors.

~~Specialty~~Margins ~~Products~~ were lower in the 2003 six-month period for the polyethylene and NAO product lines. The lower margins were primarily due to higher feedstock costs and significantly higher energy costs, partially offset by higher overall average sales prices. In addition, earnings were impacted by lower sales volumes for ethylene, polyethylene and NAO. Feedstock and energy costs were negatively influenced by unseasonably low U.S. natural gas inventory levels, the war in Iraq and geopolitical events in Venezuela and Nigeria.

	Three months ended September 30,				Nine months ended September 30,
Millions
	2002		2001		2002		2001
Income (loss) before interest & taxes	$	3	$	9	$	27	$	26
Less special items benefits (charges), net		—		—		—		2
Income (loss) before interest & taxes, as adjusted	$	3	$	9	$	27	$	24

Aromatics & Styrenics

Income before interest and taxes for Specialty Products was $3 million in the third quarter of 2002 compared with $9 million in the prior year period, and $27 million in the first nine months of 2002 compared with $24 million in the same period in 2001. Lower sales volumes and higher expenses for specialty chemicals contributed to the reduction in earnings in the 2002 quarter compared with the prior year period.

	Three months ended June 30,				Six months ended June 30,
*Millions*	2003		2002		2003		2002

Income before interest and taxes	$	20	$	32	$	23	$	20

~~Corporate~~Income before interest and ~~Other~~ taxes for Aromatics & Styrenics totaled $20 million in the three months ended June 30, 2003 compared with $32 million in the 2002 period. Increases in sales revenues and equity earnings in the 2003 period were partially offset by higher feedstock and utility costs. Included in 2003 results was $3 million of accelerated depreciation related to the planned closure of the UDEX benzene extraction unit in October 2003. Results in the 2002 period included a $14 million benefit related to the reversal of a lower-of-cost-or-market inventory reserve initially established in 2001. The reserve was partially reversed in the first quarter of 2002, with the remainder reversed in the following quarter as a result of improved market conditions and prices.

	Three months ended September 30,						Nine months ended September 30,
Millions
	2002			2001			2002			2001
Income (loss) before interest & taxes	$	(6	)	$	(5	)	$	(20	)	$	(15	)
Less special items benefits (charges), net		—			—			—			(1	)
Income (loss) before interest & taxes, as adjusted	$	(6	)	$	(5	)	$	(20	)	$	(14	)

21Improvements in the benzene and polystyrene product lines in the second quarter of 2003 compared with the prior-year period were partially offset by lower results from the styrene and K-Resin® styrene-butadiene copolymer product lines. Higher feedstock and utility costs reduced styrene earnings. Lower feedstock margins, higher utility costs and lower equity earnings from K R Copolymer Co. Ltd. drove results downward for the K-Resin product line. Benzene earnings improved due to significantly higher equity earnings from Saudi Chevron Phillips. Higher benzene sales prices and volumes offset increased feedstock and utility costs. Results from polystyrene showed improvement, primarily attributable to significantly higher sales prices.

~~Interest~~Aromatics ~~expense. Interest~~& ~~expense~~Styrenics ~~was~~income ~~$18 million~~before interest and taxes totaled $50 23 million, ~~respectively,~~ for the ~~three~~first ~~and~~six ~~nine~~months ~~month~~in ~~periods~~2003 ~~ended September 30, 2002,~~ compared with $~~23 million~~20 ~~and $84~~ million for the same period ~~periods~~ in ~~2001~~2002. Higher ~~The~~sales ~~decreases~~revenues and ~~resulted~~equity ~~from~~earnings ~~lower~~in ~~average~~2003 ~~debt~~were ~~balances~~partially offset by higher feedstock and ~~lower~~utility costs. Included ~~rates~~in on2003 ~~outstanding~~results was $6 ~~variable-rate~~million ~~debt,~~of ~~primarily~~accelerated depreciation related to the ~~commercial~~planned ~~paper~~closure of the UDEX unit. Results in the 2002 period included a $25 million benefit for the full reversal of the lower-of-cost-or-market inventory reserve and ~~trade~~a ~~receivables~~$6 ~~securitization~~million ~~programs.~~pension plan curtailment charge related to enhanced benefits granted to terminated employees at CPChem’s Puerto Rico facility.

~~Income~~Earnings ~~Taxes. In~~were ~~the~~higher ~~third~~in ~~quarter~~the of2003 ~~2001,~~six-month ~~CPChem~~period ~~increased~~primarily ~~its~~as ~~valuation~~a ~~allowance~~result of ~~related~~higher toearnings ~~its~~in ~~Puerto~~the ~~Rican~~benzene, ~~subsidiary's~~polystyrene ~~deferred~~and ~~tax assets~~paraxylene ~~by $44 million~~product lines. Higher ~~The~~average ~~increase~~realized sales prices in ~~the~~these ~~valuation~~product ~~allowance~~lines, ~~charged~~particularly ~~to income tax expense, was necessitated,~~ in ~~part~~benzene, byand ~~the~~increased ~~ConocoPhillips~~sales volumes ~~merger~~of ~~with~~benzene ~~Tosco~~and ~~Corporation~~paraxylene ~~in September 2001,~~were ~~which~~partially ~~triggered~~offset ~~regulatory~~by ~~limitations~~higher onfeedstock costs ~~the~~and ~~future~~energy ~~utilization~~prices. Significantly higher ofequity ~~the~~earnings ~~Puerto~~from ~~Rican~~Saudi ~~subsidiary's~~Chevron ~~pre-merger~~Phillips ~~net~~also ~~operating~~contributed ~~losses.~~to ~~The~~the overall ~~valuation~~improvement ~~allowance~~in ~~was also~~earnings. ~~increased~~Earnings asfrom astyrene ~~result~~were oflower ain ~~change~~2003 inas ~~the~~increased ~~outlook~~product ~~for~~and utility ~~future~~costs ~~margin~~more ~~conditions~~than atoffset ~~that~~higher ~~time~~sales prices. Lower ~~Uncertainties~~equity ~~that~~earnings ~~may~~from ~~affect~~K ~~the~~R ~~realization~~Copolymer ofCo. ~~the~~Ltd., ~~value~~lower feedstock ofmargins ~~these~~and ~~assets~~higher ~~include~~utility ~~tax~~costs ~~law~~primarily ~~changes~~drove ~~and~~results ~~the~~downward for ~~future~~the ~~profitability~~K-Resin ofproduct ~~operations~~line.

~~Outlook~~ Specialty Products

Excess manufacturing capacity in many sectors of the chemicals market, feedstock and energy price volatility, and the weakened U.S. economy continue to negatively impact CPChem, generally resulting in lower margins and operating rates, and reduced product demand in most business lines. Although CPChem expects existing industry and market conditions to be a challenge for the near term, there is a continuing focus on reducing costs, improving efficiencies and ensuring safe and reliable operations.

	Three months ended June 30,				Six months ended June 30,
*Millions*	2003		2002		2003		2002

Income before interest and taxes	$	10	$	14	$	20	$	24

~~It is~~Income ~~currently~~before ~~expected~~interest ~~that~~and ~~the~~taxes ~~previously~~for ~~announced~~Specialty ~~700-~~Products was $10 million~~-pound-per-year,~~ in ~~high~~the three-~~density~~month ~~polyethylene~~period ~~plant~~ended June 30, ~~currently~~2003 ~~under~~compared ~~construction~~with ~~and~~$14 million in the ~~owned~~same ~~equally~~period byin ~~CPChem~~2002, and BP$20 ~~Solvay~~million ~~Polyethylene~~and ~~North~~$24 ~~America~~million ~~(BP~~for ~~Solvay)~~the six-month periods in 2003 and 2002, isrespectively. Higher sales ~~expected~~volumes toof ~~reach~~Specialty ~~mechanical~~Chemicals ~~completion~~and inhigher ~~late~~sales ~~December 2002.~~prices ~~The~~of ~~plant,~~Ryton® polyphenylene ~~located~~sulfide atpolymers ~~CPChem's~~partially ~~Cedar~~offset ~~Bayou~~the impact of increased product ~~facility~~costs in ~~Baytown,~~the ~~Texas,~~second isquarter ~~expected~~of 2003. Lower foreign currency exchange gains also contributed to bethe decline in earnings ~~production~~ in the ~~first~~second quarter of 2003,. Higher ~~with~~overall ~~CPChem~~sales prices and BPincreased ~~Solvay~~sales ~~each~~volumes ~~marketing~~of ~~their~~Specialty Chemicals ~~share~~partially ofoffset ~~production.~~increased product costs in the 2003 six-month period.

~~Commissioning of~~Corporate ~~the~~and ~~Q-Chem I facility, a project in which CPChem owns a 49% interest, is expected to begin during the fourth quarter of 2002.~~ Other

Liquidity and Capital Resources

	Three months ended June 30,						Six months ended June 30,
*Millions*	2003			2002			2003			2002

Income (loss) before interest and taxes	$	(13	)	$	(11	)	$	(17	)	$	(14	)

~~CPChem's cash~~Corporate ~~balance~~and atOther ~~September 30,~~results ~~2002~~in ~~was~~2003 included $52 9 million, of ~~which~~employee termination ~~$33 million~~benefit ~~was~~charges ~~held~~recorded byin ~~foreign~~the ~~subsidiaries,~~second ~~compared~~quarter ~~with~~in aconnection ~~$111 million~~with announced ~~cash~~workforce ~~balance at~~reductions. Results ~~December 31,~~in ~~2001,~~2002 ofincluded ~~which~~ $37 6 million ~~was~~of ~~held~~second-quarter byexpenses ~~foreign~~related ~~subsidiaries. CPChem's objective is~~ to ~~minimize~~a ~~cash~~one-time charge ~~balances through effective management of its commercial paper program~~ for ~~daily~~ ~~operating~~employee ~~requirements.~~benefit ~~For~~costs ~~the first nine months of 2002, cash requirements for capital~~ and ~~investment~~expenses ~~expenditures,~~incurred ~~including advances to Q-Chem, were~~ in ~~excess~~connection ofwith ~~cash provided by~~the ~~operating~~relocation ~~and~~of ~~financing~~CPChem’s ~~activities~~headquarters.

~~Operating Activities~~ 22

~~Cash provided~~Interest byexpense. Interest ~~operating~~expense ~~activities~~was ~~totaled~~$19 million and $~~256~~ 14 million ~~during~~for the ~~first~~three-month ~~nine~~periods ~~months~~in of2003 and 2002, ~~compared~~respectively, ~~with~~and $~~220~~ 35 million ~~during~~and $32 million for the ~~same~~six-month ~~period~~periods in ~~2001~~2003 and 2002. The ~~Excluding~~increases ~~operating~~in ~~working~~the 2003 periods resulted ~~capital changes,~~primarily ~~cash~~from ~~provided~~the byeffects ~~operating~~of ~~activities~~the ~~totaled~~issuance of $~~243~~ 500 million ~~and~~of ~~$126 million~~53/8% notes in ~~the~~June ~~respective~~2002, ~~periods.~~whose ~~The~~proceeds ~~increase~~were ~~was~~used ~~primarily~~to ~~due~~retire toa ~~improved~~portion ~~operating~~of ~~results~~outstanding commercial paper obligations that carried lower interest rates. Lower overall debt balances and lower interest rates on commercial paper and secured debt outstanding in 2003 partially offset the effects of the June 2002 debt issuance.

22Outlook

~~Investing~~The chemicals industry continues to be challenged ~~Activities~~to effectively utilize capacity and manage costs, while at the same time addressing the need for margin improvement. Extreme natural gas and natural gas liquids price volatility was experienced during the first quarter of 2003. Energy and feedstock prices have recently become more stable, but remain at elevated levels. It is anticipated that chemical demand will continue to recover in 2003 along with global economic growth. At the same time, announced and anticipated industry capacity reductions, coupled with limited near-term new investment, should help alleviate some of the excess capacity in the industry and promote future margin improvements as operating rates gradually trend up.

~~Capital and~~CPChem ~~investment~~is ~~expenditures~~addressing ~~totaled~~prevailing ~~$253 million~~market ~~during~~conditions by ~~the~~continuing ~~first~~to ~~nine~~ensure ~~months~~safe ofand ~~2002,~~reliable ~~including a $45 million equity investment in Phillips Sumika~~operations, ~~compared~~while ~~with $200 million~~at ~~of capital and investment expenditures in~~ the ~~prior~~same ~~year period. Approximately $148 million of 2002 expenditures were invested in Olefins & Polyolefins,~~time ~~$83 million~~focusing inon ~~Aromatics &~~cost ~~Styrenics~~stewardship, ~~$13 million~~improving inefficiencies ~~Specialty~~and ~~Products~~prudently operating and ~~the~~managing ~~remaining~~its ~~$9 million in corporate-level expenditures~~assets. ~~In addition, CPChem advanced~~ New ~~$169 million to Q~~world-~~Chem~~scale investments in ~~the~~feedstock-advantaged ~~first~~regions ~~nine~~with ~~months~~access ~~of 2002 under a subordinated loan agreement. See Note 7 of Notes~~ to ~~Condensed Consolidated Financial Statements for further~~growing ~~discussion~~markets, ofsuch as the ~~advances to~~ Q-Chem. ~~CPChem~~I ~~expects to invest approximately $300 million for capital projects and investments in 2002 and~~complex, inare ~~addition,~~expected to ~~advance Q-Chem~~enhance ~~approximately~~future ~~$235 million in 2002 under the subordinated loan agreement~~earnings.

~~Excluding expenditures~~The ~~associated~~Q-Chem ~~with~~I ~~investment activities~~complex, ita isproject ~~expected~~in ~~that~~which ~~2003~~CPChem owns ~~capital~~a ~~expenditures~~49% ~~will~~interest, beis incurrently ~~the~~undergoing ~~same~~performance ~~range~~testing. A as50%-owned ~~2002~~high-density ~~capital~~polyethylene ~~expenditures. In addition~~plant, located at CPChem’s ~~expects~~Cedar ~~to advance~~Bayou ~~Q-Chem~~facility anin ~~additional~~Baytown, ~~$135 million~~Texas, became operational in the second quarter of 2003. CPChem’s ~~under~~Ryton ~~the~~compounding ~~subordinated~~facility ~~loan~~in ~~agreement~~La Porte, Texas, which ~~would~~has ~~bring~~a ~~total~~gross ~~advances~~production ~~outstanding~~capacity ~~under~~of ~~the~~15 ~~agreement~~million topounds ~~approximately~~per ~~$370 million~~year byof ~~year-~~Ryton compounds, became operational at the end of March 2003.

CPChem ~~announced~~’s ~~plans~~cumene inunit ~~2002 for a 50%-owned joint venture project~~ at ~~Al Jubail, Saudi Arabia (~~the ~~"Jubail~~Port ~~Chevron~~Arthur ~~Phillips~~facility was ~~project").~~idled ~~The~~in ~~project,~~the ~~expected~~second toquarter ~~cost~~of ~~approximately~~2003 ~~$1 billion, is~~until ~~planned~~market toconditions ~~produce benzene, styrene and propylene~~improve. This ~~The~~action ~~project~~is ~~will~~in beaddition ~~constructed on a site adjacent~~ to the ~~existing aromatics complex owned by Saudi Chevron Phillips. Final approval of the~~ ~~project~~previously-announced isplanned ~~anticipated~~closure in ~~the~~October ~~fourth~~2003 ~~quarter~~ of ~~2003,~~the ~~with~~UDEX ~~operational~~benzene extraction ~~start-up~~unit ~~expected~~at inthe ~~2006~~facility. Operations Itat ~~is expected that~~ the ~~Jubail~~olefins ~~Chevron~~complex ~~Phillips~~and ~~project~~the ~~will~~existing becyclohexane ~~financed~~unit ~~primarily through~~at ~~limited~~the ~~recourse~~facility ~~loans~~are ~~from Saudi government agencies and commercial banks~~continuing.

InLiquidity ~~addition,~~and ~~Saudi~~Capital Chevron Phillips is increasing its cyclohexane capacity at the existing facility to 620 million pounds per year. The additional capacity is expected to be operational by the first quarter of 2003. CPChem will continue to market the product that is exported from the region. Resources

~~In June 2002,~~ CPChem’s ~~and~~cash ~~Qatar~~balance ~~Petroleum~~at ~~amended the Q-Chem II joint venture agreement signed in~~ June ~~2001~~ to30, ~~provide~~2003 ~~for~~was ~~the~~$65 ~~construction~~million, of awhich ~~larger~~$41 million ~~ethane~~was ~~cracker~~held ~~than~~by ~~was previously~~foreign ~~planned~~subsidiaries. This ~~The~~compares ~~amended agreement also provides that the ethane cracker will be developed jointly~~ with ~~QATOFIN,~~ a ~~joint~~ ~~venture~~$39 ofmillion ~~Atofina~~cash SAbalance ~~and~~at ~~QAPCO.~~December ~~In connection with this change in the project scope~~31, ~~CPChem and Qatar Petroleum entered into a joint venture agreement in June~~ 2002, ~~with Atofina SA and~~of ~~QAPCO~~which to$30 ~~jointly~~million ~~develop~~was ~~the~~held ~~ethane~~by ~~cracker~~foreign subsidiaries. CPChem’s ~~Final~~objective ~~approval of the project~~ is ~~anticipated~~to inminimize ~~mid-2004,~~cash ~~with~~balances ~~start-up~~through ~~expected in 2007. Preliminary financing plans for the project include~~effective ~~limited~~management ~~recourse~~of ~~loans~~its ~~from~~ commercial ~~banks~~paper ~~and~~program ~~export~~for ~~credit~~daily ~~agencies.~~operating requirements.

~~CPChem announced~~Operating plans in October 2002 to build a new cyclohexane production facility at its Port Arthur, Texas plant. Construction is set to begin in the next few months, with completion and start-up scheduled for early 2004. The project will increase the cyclohexane capacity of the facility by approximately 587 million pounds per year. Activities

~~Financing~~Cash provided by operating activities ~~Activities~~totaled $3 million during the first half of 2003 compared with $152 million during the same period in 2002. The decrease was driven by a net increase of $124 million in non-cash working capital and lower income primarily due to higher energy and feedstock prices experienced in the 2003 period.

Cash provided by financing activities totaled $105 million in the first nine months of 2002 compared with cash used in financing activities of $95 million in the prior year period. The increase was primarily due to the sale of $250 million of Members' Preferred Interests on July 1, 2002. 23

23Investing Activities

~~On June 21,~~Capital ~~2002,~~and ~~Chevron~~investment ~~Phillips~~expenditures ~~Chemical~~totaled ~~Company~~$83 ~~LLC~~million ~~and~~during ~~Chevron~~the first ~~Phillips~~six ~~Chemical~~months ~~Company~~of LP2003, ~~jointly~~compared ~~and~~with ~~severally issued~~ $~~500~~ 176 million ofin ~~senior~~the ~~unsecured~~prior-year period. Approximately ~~53/8%~~$45 ~~notes~~million of in2003 aexpenditures ~~private~~were ~~placement.~~invested ~~Proceeds~~in ~~from~~Olefins ~~this~~& ~~debt~~Polyolefins, ~~issuance~~$29 ~~were~~million ~~used~~in Aromatics to& ~~retire~~Styrenics, a$8 ~~portion~~million ofin ~~outstanding~~Specialty ~~commercial~~Products ~~paper~~and ~~obligations~~the ~~and~~remaining $1 ~~for~~million ~~general~~in corporate-level ~~purposes~~expenditures. In ~~All~~addition, ofCPChem ~~the~~advanced ~~holders~~$76 ofmillion ~~the~~to ~~private placement~~Q-Chem ~~notes~~in ~~subsequently~~the ~~tendered~~first ~~their~~half ~~notes~~of 2003, ~~for~~excluding ~~registered~~interest, ~~exchange~~under ~~notes~~a ~~with~~subordinated ~~terms~~loan ~~substantially~~agreement. CPChem ~~identical~~expects to ~~the~~invest ~~private~~approximately ~~placement~~$260 million ~~notes,~~in ~~except~~capital ~~that~~and ~~the~~investment ~~exchange~~expenditures ~~notes~~in ~~are~~2003. In ~~freely~~addition, ~~tradeable.~~CPChem expects to advance ~~See~~Q-Chem ~~Note 8~~a total of ~~Notes~~approximately to$200 ~~Condensed~~million ~~Consolidated~~in ~~Financial~~2003 ~~Statements~~under ~~for~~the ~~further~~subordinated loan ~~discussion~~agreement.

~~In March 2001,~~See ~~Chevron~~Note ~~Phillips~~5 ~~Chemical Company LLC and Chevron Phillips Chemical Company LP jointly and severally issued $500 million~~ of ~~senior~~Notes ~~unsecured~~to 7%Condensed ~~notes~~Consolidated inFinancial aStatements ~~private~~for ~~placement.~~further ~~Proceeds~~discussion ~~were~~of ~~used~~the toadvances ~~repay~~and acommitments ~~$100 million note payable~~ to ~~ChevronTexaco,~~Q-Chem ~~to retire a portion of outstanding commercial paper obligations~~ and for ~~general corporate purposes. Almost~~a ~~all~~discussion of ~~the~~a ~~holders~~contingent offunding ~~the~~commitment ~~private placement notes subsequently tendered their notes for registered exchange notes with terms substantially identical~~ to ~~the~~Saudi ~~private~~Chevron ~~placement notes, except that the exchange notes are freely tradeable~~Phillips.

~~On August 29,~~Financing 2002, CPChem entered into a $400 million 364-day credit facility and a $400 million three-year credit facility. These credit agreements contain substantially the same terms as CPChem's $700 million facility that expired on July 1, 2002 and its $900 million three-year credit agreement which CPChem terminated effective upon the closing of the new credit facilities. Activities

~~CPChem renewed~~Cash ~~its~~provided ~~trade~~by ~~receivables~~financing ~~securitization~~activities ~~agreement~~totaled on$182 ~~May 21,~~million ~~2002~~in ~~for~~the anfirst six ~~additional~~months ~~364 days~~of on2003 ~~terms~~compared ~~similar~~with to$128 ~~those~~million ofin the ~~agreement~~prior-year ~~that expired during the month~~period. The ~~Net additional~~increase ~~funds~~was ~~received~~primarily ~~during~~attributable ~~the~~to ~~first~~a net ~~nine~~increase ~~months~~in ofcommercial ~~2002~~paper ~~under CPChem's trade receivables securitization program totaled $101 million compared with $220 million during the 2001 period~~outstanding.

~~On July 1, 2002,~~ CPChem ~~sold~~had $~~250~~ 300 million of ~~Members'~~secured ~~Preferred~~borrowings ~~Interests~~outstanding at June 30, 2003 ~~purchased~~under ~~50%~~a ~~each~~trade receivables securitization agreement, secured by ~~ChevronTexaco~~$488 million ~~and~~of ~~ConocoPhillips~~trade receivables. CPChem renewed ~~Proceeds~~its ~~were~~trade ~~used~~receivables tosecuritization ~~retire~~agreement aon ~~portion~~May of22, ~~outstanding~~2003 for an ~~commercial~~additional ~~paper~~364 ~~obligations.~~days ~~See~~on ~~Note 9~~terms ofsubstantially ~~Notes~~identical to ~~Condensed~~those ~~Consolidated~~of ~~Financial~~the ~~Statements~~agreement that ~~for~~expired ~~further~~during ~~discussion.~~the month.

~~Other~~ CPChem has a $400 million 364-day credit facility and a $400 million three-year credit facility with a syndicate of banks that are used to provide backup committed credit for the commercial paper program. The 364-day credit facility provides that CPChem may, at its option, extend the date of repayment by one year of any borrowings outstanding on August 28, 2003 under the agreement. There were no borrowings outstanding under either credit agreement at June 30, 2003. As of the date of this report, CPChem had received in excess of $400 million of commitments from banks towards a new $400 million 364-day credit facility that will replace the existing 364-day credit facility that expires on August 28, 2003.

~~Contingencies. See~~Chevron ~~Note 11~~Phillips Chemical Company LLC and Chevron Phillips Chemical Company LP, jointly and severally issued $500 million of ~~Notes~~senior tounsecured ~~Condensed~~53/8% notes ~~Consolidated~~in ~~Financial~~June ~~Statements~~2002. Proceeds ~~for~~were used to retire a ~~discussion~~portion of ~~contingencies.~~outstanding commercial paper obligations and for general corporate purposes.

~~New~~CPChem ~~Accounting~~believes ~~Pronouncements~~cash requirements in 2003 will be funded through a combination of cash on hand, cash flows from operations, commercial paper and/or future debt issuances. ~~See~~ CPChem ~~Note 2~~is not aware of ~~Notes~~any conditions that exist as of the date of this report that would cause any of its debt obligations to ~~Condensed~~be ~~Consolidated~~in ~~Financial~~or ~~Statements~~at ~~for~~risk aof ~~discussion~~default. In addition, CPChem does not have any debt obligations whose maturities would be accelerated as the result of ~~new~~a ~~accounting~~credit ~~pronouncements.~~rating downgrade.

~~CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING INFORMATION~~ Other

~~This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of the federal securities laws~~Contingencies. See ~~Such~~Note ~~statements~~8 ~~can generally be identified with words and phrases such as "believes," "expects," "anticipates," "should," "estimates," "foresees" or other words and phrases~~ of ~~similar~~Notes ~~meaning.~~to ~~Where CPChem expresses an~~Condensed ~~expectation~~Consolidated orFinancial ~~belief~~Statements asfor ~~to future results, there can be no assurance that the expectation or belief will result, be achieved or be accomplished. Where any such forward-looking statement includes~~ a ~~statement~~ discussion of ~~the assumptions or bases underlying such forward-looking statement, CPChem believes such assumptions or bases to be reasonable and to be made in good faith~~contingencies. ~~Assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. The more~~

24New Accounting Pronouncements. See Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements.

~~significant factors~~Subsequent ~~that,~~Event. In ifAugust ~~erroneous~~2003, ~~could~~CPChem’s ~~cause~~Board ~~actual results to differ materially from those expressed include, among others: the timing and duration~~ of ~~periods of expansion and contraction~~Directors ~~within~~approved the ~~chemicals~~decision ~~business,~~to ~~plans~~permanently ~~for~~close the ~~construction,~~research ~~modernization or de-bottlenecking of domestic~~ and ~~foreign~~technology ~~chemical plants, prices of feedstocks and products, force majeure~~pilot ~~events,~~plant ~~accidents,~~facility ~~labor relations, political risks, changes~~ in ~~foreign and domestic laws~~Orange, ~~rules and regulations and the interpretation and enforcement thereof~~Texas, ~~regulatory~~pending ~~decisions~~completion ~~relating to taxes, the environment and human resources, the U.S. economy, results~~ of ~~financing~~certain ~~efforts~~research and development ~~overall~~projects ~~financial~~currently ~~market conditions. All forward-looking statements~~ in ~~this Form~~progress. ~~10-Q are~~ ~~qualified~~As ina ~~their~~result, ~~entirety~~it byis ~~the~~expected ~~cautionary~~that ~~statements~~third ~~contained~~quarter in2003 ~~this~~results ~~section.~~will ~~CPChem~~include approximately ~~does~~$10 ~~not~~million ~~undertake~~of tocharges ~~update,~~for ~~revise~~related orasset ~~correct any of the forward~~write-~~looking information~~downs.

~~ITEM 3. Quantitative and Qualitative Disclosures about Market Risk~~ 24

CPChem's exposureCAUTIONARY toSTATEMENTS marketREGARDING riskFORWARD isLOOKING described in Item 7a of its Annual Report on Form 10-K for the year ended December 31, 2001. CPChem believes its exposure to market risk has not changed materially at September 30, 2002. INFORMATION

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking ~~ITEM~~statements” 4within the meaning of the federal securities laws. Such ~~Controls~~statements can generally be identified with words and ~~Procedures~~ phrases such as “believes,” “expects,” “anticipates,” “should,” “estimates,” “foresees” or other words and phrases of similar meaning. Where CPChem expresses an expectation or belief as to future results, there can be no assurance that the expectation or belief will result, be achieved or be accomplished. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, CPChem believes such assumptions or bases to be reasonable and to be made in good faith. Assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. The more significant factors that, if erroneous, could cause actual results to differ materially from those expressed include, among others: the timing and duration of periods of expansion and contraction within the chemicals business, plans for the construction, modernization, start-up or de-bottlenecking of domestic and foreign chemical plants, prices of feedstocks and products, force majeure events, accidents, labor relations, political risks, terrorist acts, war, changes in foreign and domestic laws, rules and regulations and the interpretation and enforcement thereof, regulatory decisions relating to taxes, the environment and human resources, the global economy, results of financing efforts and overall financial market conditions. All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section. CPChem does not undertake to update, revise or correct any of the forward-looking information.

~~Within~~ITEM 90 days prior to the date of this report, and with the participation of management, CPChem's Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of CPChem's disclosure controls and procedures (as defined in Securities Exchange Act Rule 15d-14)3. ~~Based upon that evaluation, the Chief~~ Quantitative ~~Executive Officer~~ and ~~Chief~~Qualitative ~~Financial~~Disclosures ~~Officer~~about ~~have~~Market concluded that CPChem's disclosure controls and procedures are effective in providing them with timely material information that is required to be disclosed in reports CPChem files under Section 15(d) of the Securities Exchange Act. Risk

~~There were~~CPChem’s noexposure ~~significant~~to ~~changes~~market risk is described in Item ~~CPChem's~~7a ~~internal~~of ~~controls~~its orAnnual inReport ~~other~~on ~~factors~~Form ~~that~~10-K ~~could~~for ~~significantly~~the ~~affect~~year ~~these~~ended ~~controls~~December ~~subsequent~~31, 2002. CPChem believes its exposure to market ~~the~~risk ~~date~~has ofnot ~~the~~changed ~~evaluation.~~materially at June 30, 2003.

ITEM ~~PART II~~4. Controls ~~OTHER INFORMATION~~ and Procedures

As of the end of the period covered by this report, and with the ~~ITEM~~participation 1of management, CPChem’s Chief Executive Officer and Acting Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of CPChem’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)). Based ~~Legal~~upon ~~Proceedings~~ that evaluation, the Chief Executive Officer and Acting Chief Financial Officer have concluded that CPChem’s disclosure controls and procedures are effective in providing them with timely material information that is required to be disclosed in reports CPChem files under Section 13 or 15(d) of the Securities Exchange Act.

~~Governmental~~There ~~Agency~~were ~~Proceedings~~ no changes in CPChem’s internal control over financial reporting (as defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, CPChem’s internal control over financial reporting.

~~The following~~PART are descriptions of legal proceedings, or those known to be contemplated, involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environmentII. OTHER While it is not possible to predict the outcome of an unresolved proceeding, if the proceedings described below were decided adversely to CPChem, there would be no material adverse effect on consolidated results of operations, financial position or liquidity. Nevertheless, such proceedings are reported pursuant to the SEC's regulations. INFORMATION

~~In July 2002,~~ITEM ~~CPChem received a Notice of Enforcement Action from the Texas Commission on Environmental Quality (the "Texas Commission")~~1. Legal The notice alleges air permit violations and violations related to leak detection and repair issues noted during a March 2002 inspection of CPChem's Port Arthur, Texas facility. CPChem has engaged in discussions with the Texas Commission in an effort to resolve all related issues. Proceedings

~~In September 2002,~~Governmental ~~CPChem's Puerto Rico facility received a complaint and penalty assessment from the Environmental Protection~~ Agency (the "EPA") alleging violations of the facility's National Pollutant Discharge Elimination System permit as a result of a June 2002 inspection. CPChem has engaged in discussions with the EPA in an effort to resolve all related issues. Proceedings

25CPChem’s Puerto Rico facility received a complaint and penalty assessment from the Environmental Protection Agency in September 2002 alleging violations of the facility’s National Pollutant Discharge Elimination System permit as a result of a June 2002 inspection. In June 2003, the parties settled this matter, resulting in a civil penalty of $20,075 and CPChem’s agreement to complete a supplemental environmental project with a cost cap commitment of $65,000.

~~ITEM 2. Changes in Securities and Use of Proceeds~~ 25

~~On July 1,~~Other 2002, CPChem sold $250 million of Members' Preferred Interests, purchased 50% each by ChevronTexaco and ConocoPhillips. This sale was not registered under the Securities Act of 1933 (the "Act") in reliance upon the exemption from registration in Section 4(2) of the Act, as a transaction not involving any public offering. The sale was made solely to the current owners of CPChem, without any general or public solicitation. See Part I.—Item 1.—Note 9 of Notes to Condensed Consolidated Financial Statements for further discussion. Proceedings

CPChem is a party to a number of other legal proceedings for which, in ~~ITEM~~many 5instances, no provision has been made. While ~~Other~~the ~~Information~~ final outcome of these proceedings cannot be predicted with certainty, CPChem believes that none of these proceedings, when resolved, will have a material adverse effect on consolidated results of operations, financial position or liquidity.

InITEM accordance with Section 202 of the Sarbanes-Oxley Act of 2002, the Audit Committee of CPChem's Board of Directors approved the performance of certain audit and non-audit services by CPChem's independent auditors, Ernst & Young LLP5. ~~These engagements are primarily for tax-related compliance and advisory services, annual audits of benefit plans, and audits of~~ Other ~~CPChem's subsidiaries.~~ Information

Mr. C. Kent Potter, CPChem’s Senior Vice President, Chief Financial Officer and non-voting member of the Board of Directors, retired effective July ~~ITEM~~28, 62003. Mr. ~~Exhibits~~Greg G. Maxwell, CPChem’s Vice President and ~~Reports~~Controller, onwas ~~Form 8-K~~ appointed Senior Vice President, Chief Financial Officer and Controller effective August 7, 2003.

~~SIGNATURE~~ Mr. Darald W. Callahan resigned as a Class C Director of CPChem’s Board of Directors, effective June 1, 2003, in advance of his retirement from ChevronTexaco on June 30, 2003. Mr. Gary G. Yesavage, currently General Manager of ChevronTexaco’s El Segundo refinery, was elected to succeed Mr. Callahan as a Class C Director effective June 1, 2003.

~~Pursuant~~ITEM to6. Exhibits ~~the~~and Reports ~~requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed~~ on ~~its~~Form ~~behalf by the undersigned thereunto duly authorized.~~ 8-K

~~CHEVRON PHILLIPS CHEMICAL COMPANY LLC Date: November 7, 2002 /s/ GREG G. MAXWELL Greg G. Maxwell Vice President and Controller~~ (~~Chief Accounting Officer~~a) Exhibits

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~CERTIFICATIONS~~ (b) Reports on Form 8-K - none

I, James L. Gallogly, certify that: SIGNATURE

~~Date:~~Pursuant ~~November~~to 7the requirements of the Securities Exchange Act of 1934, ~~2002~~the ~~/s/~~Registrant ~~JAMES~~has L.duly ~~GALLOGLY~~caused ~~James~~this L.report ~~Gallogly~~to ~~President~~be ~~and~~signed on ~~Chief~~its ~~Executive~~behalf ~~Officer~~by the undersigned thereunto duly authorized.

CHEVRON PHILLIPS CHEMICAL COMPANY LLC


Date: August 7, 2003	/s/ Greg G. Maxwell
	Greg G. Maxwell
	Senior Vice President, Chief Financial Officer and Controller

~~I, C. Kent Potter, certify that:~~ 26

Date: November 7, 2002 /s/ C. KENT POTTER C. Kent Potter Senior Vice President and Chief Financial Officer

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