LYONDELLBASELL INDUSTRIES N.V. GENERAL
This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements, and the accompanying notes elsewhere in this report. Unless otherwise indicated, the "Company," "we," "us," "our" or similar words are used to refer toLyondellBasell Industries N.V. together with its consolidated subsidiaries ("LyondellBasell N.V. "). OVERVIEW Results were lower in the second quarter and first six months of 2020 relative to the comparative 2019 periods, primarily reflecting lower margins and volumes in several segments. In the first six months of 2020, we demonstrated the value of our core strengths in operational excellence, cost management and capital discipline by delivering resilient results despite declines in economic activity associated with the global response to COVID-19. Our olefins and polyolefins businesses continued to benefit from strong demand for polymers used in consumer-driven packaging and healthcare applications. As expected, our Intermediates & Derivatives, Refining andAdvanced Polymer Solutions segments were impacted by significant reductions in demand for transportation fuels and polymers utilized in automotive manufacturing and other durable goods markets. We believe the pandemic-driven decline in demand bottomed during the second quarter. As the quarter progressed, demand and prices for polyethylene exports fromNorth America improved and theU.S. ethane feedstock advantage returned during May and June of 2020 with rebounding crude oil prices. We applied our experience with the first quarter progression of events inAsia to manage our global businesses and generate$1.3 billion of cash from operating activities during a challenging second quarter. We also moved quickly to strengthen our balance sheet and bolster liquidity, and believe we remain well-positioned to navigate through these volatile market conditions. During the first six months of 2020, we recognized a lower of cost or market ("LCM") inventory valuation charge of$323 million related to the decline in pricing for many of our raw material and finished goods inventories largely driven by the current economic conditions. Results for our second quarter of 2020 include a LCM inventory valuation benefit of$96 million largely driven by the recovery of market prices of crude oil and refined products sinceMarch 31, 2020 . Further sustained price declines in our finished goods and raw materials could result in future LCM inventory valuation charges during the remainder of 2020. The extent to which further charges may occur is dependent on the pool-specific product prices and composition within each individual dollar value LIFO pool at the balance sheet date. However, if pricing trends improve, some or all of these charges could be reversed in future quarterly interim periods during 2020. Events surrounding the ongoing COVID-19 pandemic, continue to evolve and impact global markets and demand for our products. We assessed accounting matters that generally require consideration of forecasted financial information based on the information reasonably available to us and the uncertain future impacts of COVID-19 and the related economic impacts. We will continue to assess the potential financial statement impacts of COVID-19 and commodity price volatility throughout the duration of the pandemic in accordance with our corporate accounting policies. We remain committed to the health and safety of our employees, contractors and communities and are following governmental policies and recommendations related to the virus. Our manufacturing operations have been designated as an essential industry to support society's needs during the pandemic in the majority of the regions in which we operate. 32 -------------------------------------------------------------------------------- Table of Contents Significant items that affected our results during the second quarter and first six months of 2020 relative to the second quarter and first six months of 2019 include: •O&P-Americas results declined primarily due to a decline in olefin and polyolefins margins; •O&P-EAI results declined due to lower olefin and polyolefins margins; •I&D segment results declined due to margin decreases primarily driven by our intermediate chemicals and oxyfuels and related products businesses; and •APS segment results declined driven by lower compounding and solutions volumes. Other noteworthy items since the beginning of the year include the following: •Launched production at ourU.S. Gulf Coast high-density polyethylene plant usingLyondellBasell's next-generation Hyperzone technology; •Expanding our presence inChina with definitive agreements for an integrated olefins and polyolefins joint venture withLiaoning Bora Enterprise Group using our polyolefin technologies; •InApril 2020 , issued$2,000 million of guaranteed senior notes. Net proceeds from the sale of the notes totaled$1,974 million ; and •InApril 2020 , repaid$500 million outstanding under our Senior Revolving Credit Facility and$500 million outstanding under ourU.S. Receivables Facility. Results of operations for the periods discussed are presented in the table below: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2020 2019 2020 2019 Sales and other operating revenues$ 5,546 $ 9,048 $ 13,040 $ 17,826 Cost of sales 4,894 7,542 11,762 14,988 Selling, general and administrative expenses 288 302 583 589 Research and development expenses 25 27 52 55 Operating income 339 1,177 643 2,194 Interest expense (125) (81) (214) (173) Interest income 4 5 7 11 Other income, net 4 10 4 35 Income from equity investments 61 64 61 128 Provision for (benefit from) income taxes (32) 169 43 372 Income from continuing operations 315 1,006 458 1,823 Loss from discontinued operations, net of tax (1) (3) - (3) Net income$ 314 $ 1,003 $ 458 $ 1,820 33
-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Revenues-Revenues decreased by$3,502 million , or 39%, in the second quarter of 2020 compared to the second quarter of 2019 and by$4,786 million , or 27%, in the first six months of 2020 compared to the first six months of 2019. Average sales prices in the second quarter and the first six months of 2020 were lower for most of our products as sales prices generally correlate with crude oil prices, which decreased relative to the corresponding periods in 2019. These lower prices led to a 37% and 24% decrease in revenue in the second quarter and the first six months of 2020, respectively. Lower sales volumes resulted in a revenue decrease of 1% and 2% relative to the second quarter and first six months of 2019, respectively. Unfavorable foreign exchange impacts also resulted in a revenue decrease of 1% each in the second quarter and the first six months of 2020. Cost of Sales-Cost of sales decreased by$2,648 million , or 35%, in the second quarter of 2020 compared to the second quarter of 2019 and by$3,226 million , or 22%, in the first six months of 2020 compared to the first six months of 2019. This decrease primarily related to lower feedstock and energy costs. During the first six months of 2020, we recognized LCM inventory valuation charges of$323 million related to the decline in pricing for many of our raw material and finished goods inventories sinceDecember 31, 2019 . During the second quarter of 2020, we recognized a LCM inventory valuation benefit of$96 million largely driven by the recovery of market prices of crude oil and refined products during the second quarter. Operating Income-Operating income decreased by$838 million , or 71%, in the second quarter of 2020 compared to the second quarter of 2019 and by$1,551 million , or 71%, in the first six months of 2020 compared to the first six months of 2019. Operating income includes the effects of LCM inventory valuation charges as noted above. In the second quarter of 2020, operating income in our O&P-Americas , I&D, APS, and O&P-EAI segments declined by$397 million ,$348 million ,$174 million , and$145 million , respectively, relative to the second quarter of 2019. The declines were partially offset by the increases of operating income in the amount of$226 million and$8 million in our Refining and Technology segments in the second quarter of 2020 compared to the second quarter of 2019. In the first six months of 2020, operating income declined across all of our segments, including$543 million ,$531 million ,$223 million ,$196 million ,$29 million and$18 million declines in our O&P-Americas , I&D, APS, O&P-EAI, Refining and Technology segments, respectively, compared to the first six months of 2019. Income from Equity Investments-Income from our equity investments declined by$3 million , or 5% in the second quarter of 2020 compared to the second quarter of 2019 and by$67 million , or 52%, in the first six months of 2020 compared to the first six months of 2019. The declines were largely as a result of lower sales prices and reduced polyolefin spreads for our joint ventures in our O&P-EAI and O&P-Americas segments. Results for each of our business segments are discussed further in the "Segment Analysis" section below. Income Taxes-We believe our effective income tax rate for 2020 will be lower than the previously provided guidance of mid-teens. Our effective income tax rate for the second quarter of 2020 was -11.3% compared with 14.4% for the second quarter of 2019, and for the first six months of 2020 was 8.6% compared with 16.9% for the first six months of 2019. Our effective income tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, changes in valuation allowances, changes in foreign exchange gains/losses, the amount of exempt income, changes in unrecognized tax benefits associated with uncertain tax positions and changes in tax laws. OnMarch 27, 2020 , theU.S. enacted the Coronavirus Aid, Relief, and Economic Security Act, also known as the "CARES Act," which contains numerous income tax provisions and other stimulus measures. We anticipate that several of the tax measures will favorably impact our income tax on our Consolidated Financial Statements for the year endedDecember 31, 2020 . Based on our analysis as ofJune 30, 2020 , we recorded an overall tax benefit including a remeasurement of our deferred income tax balances. We continue to assess the impact that the CARES Act will have on our Company. 34 -------------------------------------------------------------------------------- Table of Contents Compared with the three months endedJune 30, 2019 , the lower effective tax rate for the three months endedJune 30, 2020 was primarily attributable to a benefit resulting from various provisions of the CARES Act (-28.9%) including the remeasurement of our deferred tax balances resulting in negative tax expense for the quarter. The lower effective tax rate was further reduced by an increased relative impact of exempt income due to decreased pretax income (-9.6%), partially offset by changes in the pretax income in countries with varying statutory tax rates (2.5%) and tax benefits related to prior year research and development activities (5.9%). Compared with the six months endedJune 30, 2019 , the lower effective tax rate for the six months endedJune 30, 2020 was primarily attributable to the increased relative impact of exempt income due to decreased pretax income (-9.0%), the projected benefit resulting from various provisions of the CARES Act (-6.4%), partially offset by the changes in pretax income in countries with varying statutory tax rates (2.7%) and reduced tax benefits related to prior year research and development activities (2.9%). Our exempt income primarily includes interest income, export incentives, and equity earnings of joint ventures. Interest income earned by certain of our European subsidiaries through intercompany financings is taxed at rates substantially lower than theU.S. statutory rate. Export incentives relate to tax benefits derived from elections and structures available forU.S. exports. Equity earnings attributable to the earnings of our joint ventures, when paid through dividends to certain European subsidiaries, are exempt from all or portions of normal statutory income tax rates. We currently anticipate the favorable treatment for interest income, dividends, and export incentives to continue in the near term; however, this treatment is based on current law and tax rulings, which could change. There continues to be increased attention to the tax practices of multinational companies, including certain provisions of H.R.1, also known as theU.S. Tax Cuts and Jobs Act (the "Tax Act"), theEuropean Union's state aid investigations, proposals by theOrganization for Economic Cooperation and Development with respect to base erosion and profit shifting, andEuropean Union tax directives and their implementation. Management does not believe that recent changes in income tax laws, other than those disclosed and reflected in our financial statements, will have a material impact on our Consolidated Financial Statements, although new or proposed changes to tax laws could affect our tax liabilities in the future. Comprehensive Income Comprehensive income (loss) decreased by$591 million in the second quarter of 2020 compared to the second quarter of 2019 and by$1,738 million in the first six months of 2020 compared to the first six months of 2019, primarily due to lower net income and net unfavorable impacts of financial derivative instruments driven by periodic changes in benchmark interest rates. In the second quarter of 2020, these decreases were partially offset by the favorable impact of unrealized net changes in foreign currency translation adjustments, and in the first six months of 2020 supplemented by the unfavorable impact of unrealized net changes in foreign currency translation adjustments. The predominant functional currency for our operations outside of theU.S. is the euro. Relative to theU.S. dollar, the value of the euro increased during the second quarter and decreased for first six months of 2020, resulting in net gains and losses, respectively, as reflected in the Consolidated Statements of Comprehensive Income. The net gains and losses related to unrealized changes in foreign currency translation impacts were partially offset by pre-tax losses of$37 million in the second quarter of 2020 and pre-tax gains of$2 million in the first six months of 2020 which represent the effective portion of our net investment hedges. In the second quarter and first six months of 2020, the cumulative after-tax effects of our derivatives designated as cash flow hedges were net losses of$26 million and$364 million , respectively. Pre-tax gains of$3 million and pre-tax losses of$532 million related to forward-starting interest rate swaps, were driven by periodic changes in benchmark interest rates in the second quarter and first six months of 2020, respectively, primarily due to changes in the economy impacting late in the first quarter. The fluctuations of theU.S. dollar against the euro in the second quarter and first six months of 2020 and periodic changes in benchmark interest rates resulted in pre-tax losses of$69 million and pre-tax gains of$78 million , respectively, related to our cross-currency swaps. Pre-tax gains of$45 million and pre-tax losses of$8 million related to our cross-currency swaps were reclassified from Accumulated other comprehensive loss to Interest expense in the second quarter and first six months of 2020, respectively. The remaining change pertains to our commodity cash flow hedges. 35
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Segment Analysis
We use earnings before interest, income taxes, and depreciation and amortization
("EBITDA") as our measure of profitability for segment reporting purposes. This
measure of segment operating results is used by our chief operating decision
maker to assess the performance of and allocate resources to our operating
segments. Intersegment eliminations and items that are not directly related or
allocated to business operations, such as foreign exchange gains or losses and
components of pension and other postretirement benefits other than service costs
are included in "Other." For additional information related to our operating
segments, as well as a reconciliation of EBITDA to its nearest GAAP measure,
Income from continuing operations before income taxes, see Note 12 to our
Consolidated Financial Statements.
Revenues and the components of EBITDA for the periods presented are reflected in
the table below:
Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2020 2019 2020 2019
Sales and other operating revenues:
O&P-Americas segment $ 1,433 $ 2,114 $ 3,225 $ 4,225
O&P-EAI segment 1,702 2,505 3,926 5,040
I&D segment 1,157 2,062 2,927 3,956
APS segment 705 1,258 1,801 2,597
Refining segment 919 2,180 2,367 4,062
Technology segment 177 173 299 314
Other, including intersegment eliminations (547) (1,244) (1,505) (2,368)
Total $ 5,546 $ 9,048 $ 13,040 $ 17,826
Operating income (loss):
O&P-Americas segment $ 107 $ 504 $ 345 $ 888
O&P-EAI segment 81 226 216 412
I&D segment 24 372 155 686
APS segment (83) 91 (13) 210
Refining segment 116 (110) (198) (169)
Technology segment 104 96 151 169
Other, including intersegment eliminations (10) (2) (13) (2)
Total $ 339 $ 1,177 $ 643 $ 2,194
Depreciation and amortization:
O&P-Americas segment $ 133 $ 117 $ 257 $ 232
O&P-EAI segment 53 52 106 105
I&D segment 74 74 144 146
APS segment 39 30 83 59
Refining segment 49 44 91 87
Technology segment 8 11 17 21
Total $ 356 $ 328 $ 698 $ 650
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Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2020 2019 2020 2019
Income (loss) from equity investments:
O&P-Americas segment $ 7 $ 12 $ 9 $ 23
O&P-EAI segment 51 52 48 103
I&D segment 3 2 5 4
APS segment - (2) (1) (2)
Total $ 61 $ 64 $ 61 $ 128
Other income (loss), net:
O&P-Americas segment $ 1 $ 2 $ 3 $ 8
O&P-EAI segment - 1 4 7
I&D segment - - - 2
APS segment - 1 - 1
Refining segment - - - 1
Other, including intersegment eliminations 3 6 (3) 16
Total $ 4 $ 10 $ 4 $ 35
EBITDA:
O&P-Americas segment $ 248 $ 635 $ 614 $ 1,151
O&P-EAI segment 185 331 374 627
I&D segment 101 448 304 838
APS segment (44) 120 69 268
Refining segment 165 (66) (107) (81)
Technology segment 112 107 168 190
Other, including intersegment eliminations (7) 4 (16) 14
Total $ 760 $ 1,579 $ 1,406 $ 3,007
37-------------------------------------------------------------------------------- Table of Contents Olefins and Polyolefins-Americas Segment Overview-EBITDA declined in the second quarter and first six months of 2020 relative to the second quarter and first six months of 2019 due to lower olefin and polyolefin results in challenging market conditions arising from a low oil price environment and the impact of COVID-19. Ethylene Raw Materials-We have flexibility to vary the raw material mix and process conditions in ourU.S. olefins plants in order to maximize profitability as market prices for both feedstocks and products change. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. Strong supplies fromU.S. shale oil and gas in conjunction with the return ofU.S. ethane feedstock advantages inJune 2020 resulted in ethane being a preferred feedstock in ourU.S. plants. In the second quarter and first six months of 2020 and 2019 approximately 60% of the raw materials used in our North American crackers was ethane. The following table sets forth selected financial information for the O&P-Americas segment including Income from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2020 2019 2020 2019
Sales and other operating revenues
$ 4,225 Income from equity investments 7 12 9 23 EBITDA 248 635 614 1,151 Revenues-Revenues for our O&P-Americas segment decreased by$681 million , or 32%, in the second quarter of 2020 compared to the second quarter of 2019 and by$1,000 million , or 24%, in the first six months of 2020 compared to the first six months of 2019. Average olefins and polyethylene sales prices were lower in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 due to the lower oil price environment and the impact of COVID-19. These lower sales prices were responsible for a revenue decrease of 40% and 30% in the second quarter and first six months of 2020, respectively. Volume increases resulted in a revenue increase of 8% and 6% in the second quarter and first six months of 2020, respectively. EBITDA-EBITDA decreased by$387 million , or 61%, in the second quarter of 2020 compared to the second quarter of 2019 and by$537 million , or 47%, in the first six months of 2020 compared to the first six months of 2019. Lower olefin results led to a 37% decline in EBITDA in the second quarter of 2020 primarily due to ethylene margin declines of approximately$165 per ton driven by lower co-product prices. The decrease in olefin results in the first six months of 2020 compared to the first six months of 2019 resulted in a 13% decrease in EBITDA, largely driven by lower volumes due to a decline in downstream demand as a result of COVID-19. Polyethylene results declined resulting in a 22% and 20% decrease in EBITDA in the second quarter and first six months of 2020, respectively. This decrease was driven by a$277 and$231 per ton reduction in price spreads over ethylene in the second quarter and first six months of 2020, respectively. Decreased polypropylene results led to a 7% decrease in EBITDA in both the second quarter and first six months of 2020, respectively, largely due to a decline in margins attributed to lower price spreads over propylene of$119 and$111 per ton, in the second quarter and first six months of 2020, respectively. Segment results declined$73 million , or 6%, during the first six months of 2020, due to a LCM inventory valuation charge primarily driven by declines in the prices of heavy liquids and ethylene. Second quarter of 2020 results include a LCM inventory valuation benefit of$38 million , or 6%, related to the reversal of LCM inventory valuation charges recognized in the first quarter of 2020, largely driven by recovery of market prices of heavy liquids and ethylene which were partially offset by declines in the price of polymers. 38 -------------------------------------------------------------------------------- Table of Contents Olefins and Polyolefins-Europe,Asia , International Segment Overview-EBITDA for the second quarter and first six months of 2020 decreased compared to the second quarter and first six months of 2019 mainly as a result of lower olefin and polyolefin results. Results were also decreased due to a LCM inventory charges recognized in the second quarter and first six months of 2020. To improve liquidity during the pandemic we have deferred certain planned maintenance which was scheduled for 2020. The following table sets forth selected financial information for the O&P-EAI segment including Income from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2020 2019 2020 2019
Sales and other operating revenues
$ 5,040 Income from equity investments 51 52 48 103 EBITDA 185 331 374 627 Revenues-Revenues decreased by$803 million , or 32%, in the second quarter of 2020 compared to the second quarter of 2019 and by$1,114 million , or 22%, in the first six months of 2020 compared to the first six months of 2019. Average sales prices in the second quarter and first six months of 2020 were lower across most products as sales prices generally correlate with crude oil prices, which on average, decreased compared to the comparative periods in 2019. These lower average sales prices were responsible for revenue decreases of 32% and 21% in the second quarter and first six months of 2020, respectively. Volume improvements resulted in a revenue increase of 2% and 1% in the second quarter and first six months of 2020, respectively. Foreign exchange impacts, which on average, were unfavorable resulted in a revenue decrease of 2% in each of the second quarter and first six months of 2020. EBITDA-EBITDA decreased in the second quarter of 2020 by$146 million , or 44%, compared to the second quarter of 2019 and by$253 million , or 40%, in the first six months of 2020 compared to the first six months of 2019. Lower olefins results led to a 29% and 6% decrease in EBITDA in the second quarter and first six months of 2020, respectively. These decreases were primarily due to decreased ethylene prices, which outpaced the decrease in the weighted average cost of ethylene by$269 and$197 per ton, respectively. Decreased polypropylene results led to a 9% and 10% decrease in EBITDA in the second quarter and first six months of 2020, respectively, largely due to a decline in margins attributed to a reduction in price spreads over propylene by$9 and$38 per ton, in the second quarter and first six months of 2020, respectively. Lower income from our equity investments led to decreases in EBITDA of 9% in the first six months of 2020 mainly attributable to lower margins for our joint ventures inSaudi Arabia andAsia . Results were further reduced by$34 million , or 10%, in the second quarter of 2020 and$70 million , or 11%, in the first six months of 2020 due to LCM inventory valuation charges resulting from a decline in the price of naphtha in the first quarter of 2020 and a decline in the price of polymers in the second quarter of 2020. Unfavorable foreign exchange impacts resulted in a 2% declined in EBITDA in both the second quarter and first six months of 2020. 39
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Intermediates and Derivatives Segment
Overview-EBITDA for our I&D segment was lower in the second quarter and first
six months of 2020 compared to the second quarter and first six months of 2019,
largely driven by decreased demand and margin erosion due to the impacts of
COVID-19, particularly within our intermediate chemicals and oxyfuels related
products.
The following table sets forth selected financial information for the I&D
segment including Income from equity investments, which is a component of
EBITDA:
Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2020 2019 2020 2019
Sales and other operating revenues
$ 3,956 Income from equity investments 3 2 5 4 EBITDA 101 448 304 838 Revenues-Revenues decreased by$905 million , or 44%, in the second quarter of 2020 compared to the second quarter of 2019 and by$1,029 million , or 26%, in the first six months of 2020 compared to the first six months of 2019. Lower average sales prices in the second quarter and first six months of 2020 for most products, which reflect the impacts of lower feedstock and energy costs and lower demand, were responsible for a revenue decrease of 29% and 20%, respectively. Lower sales volumes resulted in a 14% and 5% decrease in revenues in the second quarter and first six months of 2020, respectively. Foreign exchange impacts, which on average, were unfavorable resulted in a revenue decrease of 1% in each of the second quarter and first six months of 2020. EBITDA-EBITDA decreased$347 million , or 77%, in the second quarter of 2020 compared to the second quarter of 2019 and by$534 million , or 64%, in the first six months of 2020 compared to the first six months of 2019 primarily driven by lower margins across most businesses. Oxyfuels and related products results declined, resulting in a 33% and 15% decrease in EBITDA in the second quarter and first six months of 2020, respectively. The decline was a result of lower margins as fuel demand significantly declined in response to the pandemic, including lockdowns and the resulting economic slowdown, as well as a decline in crude oil prices. Decreased intermediate chemicals results led to an EBITDA decrease of 29% and 27% in the second quarter and first six months of 2020, respectively. This decrease was a result of lower margins across most businesses, in particular styrene, as market supply increased and demand weakened in 2020. Lower propylene oxide and derivatives results decreased EBITDA by 9% in the second quarter of 2020, driven by lower volumes due to lower demand on construction, automotive and furniture industries which were impacted by COVID-19. Propylene oxide and derivatives results declined 7% in the first six months of 2020, driven by lower margins due to increased market competition. Results of our I&D segment were further reduced by$98 million , or 12%, in the first six months of 2020 due to LCM inventory valuation charges resulting from a decline in the price of various gasoline blending components, butane, benzene and styrene sinceDecember 31, 2019 . Results in the second quarter were reduced by$20 million , or 4%, due to LCM inventory valuation charges resulting from a decline in the price of benzene and styrene, despite price improvements for various gasoline blending components and butane since the first quarter of 2020. 40 -------------------------------------------------------------------------------- Table of Contents Advanced Polymer Solutions Segment Overview-EBITDA for our APS segment decreased in the second quarter and first six months of 2020 relative to the second quarter and first six months of 2019, primarily due to lower compounding and solutions volumes. The following table sets forth selected financial information for the APS segment including losses from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2020 2019 2020 2019
Sales and other operating revenues
$ 2,597 Loss from equity investments - (2) (1) (2) EBITDA (44) 120 69 268 Revenues-Revenues decreased by$553 million , or 44%, in the second quarter of 2020 compared to the second quarter of 2019 and by$796 million , or 31%, in the first six months of 2020 compared to the first six months of 2019. Sales volumes declined in the second quarter and first six months of 2020 stemming from lower market demand for compounding and solutions, including lower automotive and construction demand, which led to a 39% and 26% decrease in revenue in the second quarter and first six months of 2020, respectively. Average sales prices also declined resulting in a 3% decline in revenue in each the second quarter and first six months of 2020. Foreign exchange impacts, which on average, were unfavorable resulted in a revenue decrease of 2% in each of the second quarter and first six months of 2020. EBITDA-EBITDA decreased$164 million , or 137%, in the second quarter of 2020 compared to the second quarter of 2019 and by$199 million , or 74%, in the first six months of 2020 compared to the first six months of 2019. This decrease was driven by decreased compounding and solutions results which resulted in a 72% and 42% decrease in EBITDA in the second quarter and first six months of 2020, respectively. The decrease was largely due to lower volumes driven by reduced automotive demand as a result of economic conditions caused by COVID-19. EBITDA decreased$67 million , or 56%, in the second quarter of 2020 compared to the second quarter of 2019 and by$69 million , or 26%, in the first six months of 2020 compared to the first six months of 2019 due to LCM inventory valuation charges resulting from a decline in the price of polymers. Unfavorable foreign exchange impacts reduced EBITDA by 2% and 1% in the second quarter and first six months of 2020, respectively. Integration costs related to the acquisition of A. Schulman were relatively unchanged in the second quarter and first six months of 2020 relative to the comparative periods in 2019. Refining Segment Overview-EBITDA for our Refining segment increased in the second quarter relative to the second quarter of 2019 due to improved margins on by-products and a favorable mark-to-market gain on crude oil hedging. EBITDA decreased in the first six months of 2020 relative to the first six months of 2019 due to lower volumes and a lower of cost or market inventory charge. The following table sets forth selected financial information and heavy crude oil processing rates for the Refining segment and theU.S. refining market margins for the applicable periods. "Brent" is a light sweet crude oil and is one of the main benchmark prices for purchases of oil worldwide. "Maya" is a heavy sour crude oil grade produced inMexico that is a relevant benchmark for heavy sour crude oils in theU.S. Gulf Coast market. References to industry benchmarks for refining market margins are to industry prices reported by Platts, a division of S&P Global. 41
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Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2020 2019 2020 2019
Sales and other operating revenues
$ 4,062 EBITDA 165 (66) (107) (81) Thousands of barrels per day Heavy crude oil processing rates 237 261 231 260 Market margins, dollars per barrel Brent - 2-1-1$ 4.42 $ 12.74 $ 5.87 $ 10.59 Brent - Maya differential 8.85 6.26 9.32 5.69 Total Maya 2-1-1$ 13.27 $ 19.00 $ 15.19 $ 16.28 Revenues-Revenues decreased by$1,261 million , or 58%, in the second quarter of 2020 compared to the second quarter of 2019 and by$1,695 million , or 42%, in the first six months of 2020 compared to the first six months of 2019. Lower product prices led to a revenue decrease of 53% and 38% relative to the second quarter and first six months of 2019, respectively, due to an average crude oil price decrease of approximately$37 per barrel in the second quarter of 2020 and$26 per barrel in the first six months of 2020. In addition, rates on conversion units were lower due to an unplanned outage at our fluid catalytic cracking unit, as well as crude selection and the optimization of refinery operations. Heavy crude oil processing rates decreased during the second quarter and first six months of 2020, leading to a decrease in overall sales volumes of 5% and 4%, respectively. EBITDA-EBITDA increased by$231 million , or 350%, in the second quarter of 2020 compared to the second quarter of 2019 and decreased by$26 million , or 32%, in the first six months of 2020 compared to the first six months of 2019. Results of our Refining segment were reduced by$13 million , or 16%, in the first six months of 2020, due to an LCM inventory valuation charge resulting from a decline in the prices of crude oil and refined products sinceDecember 31, 2019 . Results in the second quarter of 2020 include a LCM inventory valuation benefit of$179 million as market prices recovered sinceMarch 31, 2020 , resulting in a 271% increase in EBITDA. Margins increased by 90% and 11% in the second quarter and first six months of 2020, respectively, primarily due to increased margins of the primary by-products of our crude processing units and a favorable mark-to-market gain on crude oil hedging. This increase was partially offset by unplanned outages at our fluid catalytic cracking unit, which restricted the yield of higher-margin refined products, and a 30% and 7% decrease in the Maya 2-1-1 market margin in the second quarter and first six months of 2020, relative to the comparable periods in 2019, driven primarily by lower refined product cracks. Lower heavy crude oil processing rates resulted in a 11% and 27% decrease in EBITDA relative to the second quarter and first six months of 2019, respectively. 42 -------------------------------------------------------------------------------- Table of Contents Technology Segment Overview-EBITDA for our Technology segment increased in the second quarter of 2020 compared to the second quarter of 2019 due to higher catalyst results, but decreased in the first six months of 2020 compared to the first six months of 2019, primarily due to lower licensing revenues. The following table sets forth selected financial information for the Technology segment: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2020 2019 2020 2019 Sales and other operating revenues$ 177 $ 173 $ 299 $ 314 EBITDA 112 107 168 190 Revenues-Revenues increased by$4 million , or 2%, in the second quarter of 2020 compared to the second quarter of 2019 and decreased by$15 million , or 5%, in the first six months of 2020 compared to the first six months of 2019. Lower licensing revenues were responsible for revenue decreases of 9% and 11% in the second quarter and first six months of 2020 compared to the corresponding periods in 2019. Higher catalyst sales volumes, driven by orders from customers to secure inventory early during the pandemic, resulted in a 10% and 5% increase in revenue in the second quarter and first six months of 2020, respectively. Increases in average catalyst sales prices resulted in revenue increases of 2% and 3% in the second quarter and first six months of 2020, respectively. Foreign exchange impacts, which on average, were unfavorable led to a revenue decrease of 1% and 2% in the second quarter and first six months of 2020, respectively. EBITDA-EBITDA increased by$5 million , or 5%, in the second quarter of 2020 compared to the second quarter of 2019 and decreased by$22 million , or 12%, in the first six months of 2020 compared to the first six months of 2019. Lower licensing revenues were responsible for decreases of 17% and 21% in the second quarter and first six months of 2020 compared to the corresponding periods in 2019 as a result of fewer contracts reaching significant milestones and lower average contract values. Higher catalyst results increased EBITDA by 26% and 13% in the second quarter and first six months of 2020, respectively, driven by orders from customers to secure inventory early during the pandemic. Unfavorable foreign exchange impacts reduced EBITDA by 2% and 1% in the second quarter and first six months of 2020, respectively. 43
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FINANCIAL CONDITIONOperating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:
Six Months Ended
June 30,
Millions of dollars 2020 2019
Source (use) of cash:
Operating activities $ 1,834 $ 1,843
Investing activities (1,727) (456)
Financing activities 1,568 (482)
Operating Activities-Cash of $1,834 million generated by operating activities in
the first six months of 2020 reflected earnings adjusted for non-cash items,
payments for employee bonuses, income taxes, and cash provided by the main
components of working capital-Accounts receivable, Inventories and Accounts
payable.
In the first six months of 2020, the main components of working capital provided
$465 million of cash driven by decreases in Accounts receivable and Inventory,
partially offset by a decrease in Accounts payable. The decrease in Accounts
receivable was primarily driven by lower sales in our Refining, APS and I&D
segments due to unfavorable market conditions. The decrease in Inventory was
primarily driven by company-wide inventory reduction initiatives as well as
lower prices. The decrease in Accounts payable was primarily due to lower cost
of sales resulting from lower production across multiple segments driven by
unfavorable market conditions.
Cash of $1,843 million generated by operating activities in the first six months
of 2019 reflected earnings adjusted for non-cash items, payments for employee
bonuses, income taxes, and cash consumed by the main components of working
capital-Accounts receivable, Inventories and Accounts payable.
In the first six months of 2019, the main components of working capital consumed
$538 million of cash. The increase in Accounts receivable was due to higher
sales volumes in our O&P-EAI segment during the period. Inventories increased
due to inventory build in our Refining and O&P-EAI segments as inventories
returned to more balanced levels and operations improved. Lower feedstock and
energy costs relative to fourth quarter of 2018, partially offset by higher
volumes drove a decrease in Accounts payable.
Investing Activities
Investments-We invest cash in investment-grade and other high-quality
instruments that provide adequate flexibility to redeploy funds as needed to
meet our cash flow requirements while maximizing yield.
In the first six months of 2020 we invested $270 million in debt securities that
are deemed available-for-sale. We also invested $184 million in equity
securities in the first six months of 2020. Our investments in
available-for-sale debt securities and equity securities are classified as
Short-term investments.
We received proceeds of $511 million in the first six months of 2019 upon the
sale and maturity of certain of our available-for-sale debt securities.
Additionally, in the first six months of 2020 and 2019 we received proceeds of
$1 million and $332 million , respectively, on the sale of our investments in
equity securities.
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Capital Expenditures-The following table summarizes capital expenditures for the
periods presented:
Six Months Ended
June 30,
Millions of dollars 2020 2019
Capital expenditures by segment:
O&P-Americas $ 394 $ 533
O&P-EAI 76 103
I&D 658 417
APS 23 27
Refining 37 96
Technology 56 34
Other 4 11
Consolidated capital expenditures
In the first six months of 2020 and 2019, our capital expenditures included construction related to our PO/TBA plant at ourHouston, Texas facility, turnaround activities at several sites and other plant improvement projects. Additionally, in the first six months of 2019, our capital expenditures included construction related to our Hyperzone polyethylene plant at ourLa Porte, Texas facility. The higher level of capital expenditures in the first six months of 2020 relative to the same period in 2019 was primarily driven by an increase in our I&D segment largely due to the construction of our PO/TBA plant partially offset by a decrease in our O&P-Americas segment related to our Hyperzone polyethylene plant. To reduce operational and financial risk associated with the ongoing COVID-19 pandemic and the significant drop in the price of oil, we are postponing selected growth projects and planned maintenance, including slowing construction activities on our PO/TBA plant. We currently expect that these actions will reduce our 2020 capital expenditures by approximately 20% from our prior guidance of$2.4 billion to our current outlook of$1.9 billion , including investments in ourU.S. and European PO joint ventures. Financing Activities-In the first six months of 2020 and 2019, we made payments of$4 million and$512 million to acquire approximately 0.1 million and 5.6 million, respectively, of our outstanding ordinary shares. We also made dividend payments totaling$701 million and$760 million in the first six months of 2020 and 2019, respectively. For additional information related to our share repurchases and dividend payments, see Note 10 to the Consolidated Financial Statements. InJanuary 2020 , we amended the terms of certain forward-starting interest rate swaps to extend their maturities. Concurrently with the amendment of the swaps, we posted collateral of$238 million related to the liability position held with our counterparties as of the amendment date. For additional information see Note 7 to the Consolidated Financial Statements. InMarch 2020 , we borrowed$500 million from our Senior Revolving Credit Facility and$500 million from ourU.S. Receivables Facility to increase our liquidity. InApril 2020 ,LYB International Finance III, LLC ("LYB Finance III"), a wholly owned finance subsidiary ofLyondellBasell Industries N.V. issued$500 million of 2.875% guaranteed notes due 2025 (the "2025 Notes") at a discounted price of 99.911%,$500 million of 3.375% guaranteed notes due 2030 (the "2030 Notes") at a discounted price of 99.813% and$1,000 million of 4.2% guaranteed notes due 2050 (the "2050 Notes") at a discounted price of 99.373%. Net proceeds from the sale of the notes totaled$1,974 million .
We used the net proceeds from the sale of the notes for general corporate
purposes, including to increase our liquidity and manage short-term debt
maturities. We invested funds that were not immediately needed for these
purposes in short-term investments, including marketable securities.
Additionally, in
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In May 2020 , we terminated and cash settled $2,000 million in notional value of
our cross-currency interest rate swaps, designated as cash flows hedges,
maturing in 2021 and 2024. Upon termination of the swaps, we received $346
million from our counterparties.
In February 2019 , LYB Americas Finance Company LLC , a wholly owned subsidiary of
LyondellBasell Industries N.V. , entered into a 364-day, $2,000 million senior
unsecured term loan credit agreement and borrowed the entire amount. The
proceeds of this term loan, which is fully and unconditionally guaranteed by
LyondellBasell Industries N.V. , were used for general corporate purposes and to
redeem the remaining $1,000 million outstanding of our 5% Senior Notes due 2019
at par.
Through the issuance and repurchase of commercial paper instruments under our
commercial paper program, we received net proceeds of $212 million in the first
six months of 2020 and made net repayments of $128 million in the first six
months of 2019. Additional information related to commercial paper can be found
in the Liquidity and Capital Resources section below and in Note 6 to the
Consolidated Financial Statements.
In February 2019 , we purchased the non-controlling interest in our subsidiary
that holds our La Porte, Texas methanol facility for $63 million .
Liquidity and Capital Resources
Overview
As a result of COVID-19, we are taking actions to manage our financial risk. In
April 2020 , we announced that we reduced our budgeted 2020 capital expenditures
by $500 million , bringing our total budget to $1.9 billion . We increased
liquidity by $2 billion through the issuance of guaranteed senior notes in April
2020 . Additionally, we continue to focus on cost savings while minimizing
working capital.
We intend to continue to declare and pay quarterly dividends, with the goal of
increasing the dividend over time, after giving consideration to our cash
balances and expected results from operations. Our focus on funding our
dividends while remaining committed to a strong investment grade balance sheet
continues to be the foundation of our capital deployment strategy.
Cash and cash equivalents, cash from our short-term investments, cash from
operating activities, proceeds from the issuance of debt, or a combination
thereof, may be used to fund the purchase of shares under our share repurchase
authorization.
We plan to fund our ongoing working capital, capital expenditures, debt service
and other funding requirements with cash from operations, which could be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors, many of which are beyond our control. We believe
that our current liquidity availability and cash from operating activities
provide us with sufficient financial resources to meet our anticipated capital
requirements and obligations as they come due. Further, we believe the current
economic environment will not have an adverse effect on our ability to be in
compliance with our debt covenants.
Cash and Liquid Investments
As of June 30, 2020 , we had Cash and cash equivalents and marketable securities
classified as Short-term investments totaling $3,203 million .
At June 30, 2020 , we held $775 million of cash in jurisdictions outside of the
U.S. , principally in the United Kingdom . There are currently no legal or
economic restrictions that would materially impede our transfers of cash.
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Credit Arrangements
At June 30, 2020 , we had total debt, including current maturities, of $14,336
million , and $196 million of outstanding letters of credit, bank guarantees and
surety bonds issued under uncommitted credit facilities.
We had total unused availability under our credit facilities of $2,541 million
at June 30, 2020 , which included the following:
•$2,017 million under our $2,500 million Senior Revolving Credit Facility, which
backs our $2,500 million commercial paper program. Availability under this
facility is net of outstanding borrowings, outstanding letters of credit
provided under the facility and notes issued under our commercial paper program.
A small portion of our availability under this facility is impacted by changes
in the euro/U.S. dollar exchange rate. At June 30, 2020 , we had $473 million of
outstanding commercial paper, net of discount, no borrowings or letters of
credit outstanding under this facility; and
•$524 million under our $900 million U.S. Receivables Facility. Availability
under this facility is subject to a borrowing base of eligible receivables,
which is reduced by outstanding borrowings and letters of credit, if any. At
June 30, 2020 , we had no borrowings or letters of credit outstanding under this
facility.
Our $2,500 million Senior Revolving Credit Facility contains customary covenants
and warranties, including specified restrictions on indebtedness and liens. In
addition, we are required to maintain a leverage ratio at the end of every
fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent
four quarters.
The U.S. Receivables Facility is subject to customary warranties and covenants,
including limits and reserves and the maintenance of specified financial ratios.
We are required to maintain a leverage ratio at the end of every fiscal quarter
of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
Performance obligations under the facility are guaranteed by LyondellBasell
Industries N.V.
In April 2020 , we entered into amendments and related documents (collectively,
the "Amendments") to our (i) Senior Revolving Credit Facility, (ii)Term Loan due
2022, and (iii) U.S Receivables Facility (collectively, amended, the "Credit
Agreements"). Among other things, the Amendments amended each Credit Agreement's
gross leverage ratio covenant of 3.50 to 1.0 to permit netting of unrestricted
cash and cash equivalents in excess of $300 million (with certain restriction on
non-US cash) and, in respect of the Senior Revolving Credit Facility and Term
Loan due 2022, restrict certain dividends and other specified restricted
payments.
In April 2020 , we issued the 2025 Notes, the 2030 Notes, and 2050 Notes. The
2025 Notes, 2030 Notes and 2050 Notes may be redeemed before the date that is
one month, three months, or six months, respectively, prior to the scheduled
maturity date at a redemption price equal to the greater of 100% of the
principal amount of the notes redeemed and the sum of the present values of the
remaining scheduled payments of principal and interest (discounted at the
applicable treasury yield plus 40 basis points in the case of the 2025 Notes or
45 basis points in the case of the 2030 Notes and 2050 Notes) on the notes to be
redeemed. The 2025 Notes, 2030 Notes and 2050 Notes may also be redeemed on or
after the date that is one month, three months, or six months, respectively,
prior to the scheduled maturity date of the notes at a redemption price equal to
100% of the principal amount of the notes redeemed plus accrued and unpaid
interest. The notes are also redeemable upon certain tax events.
We may repay or redeem our debt, including purchases of our outstanding bonds in
the open market, using cash and cash equivalents, cash from our short-term
investments, cash from operating activities, proceeds from the issuance of debt,
proceeds from asset divestitures, or a combination thereof. In connection with
any repayment or redemption of our debt, we may incur cash and non-cash charges,
which could be material in the period in which they are incurred.
In accordance with our current interest rate risk management strategy and
subject to management's evaluation of market conditions and the availability of
favorable interest rates among other factors, we may from time to time enter
into interest rate swap agreements to economically convert a portion of our
fixed rate debt to variable rate debt or convert a portion of our variable rate
debt to fixed rate debt.
For additional information, see Note 6 to our Consolidated Financial Statements.
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Share Repurchases
In May 2020 , our shareholders approved a proposal to authorize us to repurchase
up to 34.0 million of our ordinary shares through November 29, 2021 , which
superseded any prior repurchase authorizations. Our share repurchase
authorization does not have a stated dollar amount, and purchases may be made
through open market purchases, private market transactions or other structured
transactions. Repurchased shares could be retired or used for general corporate
purposes, including for various employee benefit and compensation plans. The
maximum number of shares that may yet be purchased is not necessarily an
indication of the number of shares that will ultimately be purchased. In the
first six months of 2020, we purchased approximately 0.1 million shares under
our share repurchase authorization for approximately $4 million .
As of July 29, 2020 , we had approximately 34.0 million shares remaining under
the current authorization. The timing and amounts of additional shares
repurchased, if any, will be determined based on our evaluation of market
conditions and other factors, including any additional authorizations approved
by our shareholders. For additional information related to our share repurchase
authorizations, see Note 10 to the Consolidated Financial Statements.
Capital Budget
As a result of the coronavirus and current market conditions, the Company has
postponed selected growth projects and planned maintenance, including slowing
construction activities on our PO/TBA plant. We currently expect that these
actions will reduce 2020 capital expenditures to $1.9 billion . This represents a
20% decrease compared to our budget as of December 31, 2019 . Our capital
expenditures budget includes approximately $75 million for investments in our
U.S. and European PO joint ventures. Once complete, our world-scale PO/TBA plant
will have the capacity to produce 470 thousand tons of PO and 1.0 million tons
of tertiary butyl alcohol. We expect the project to be complete in the second
half of 2022.
Equity Investment
In March 2020 , we signed a definitive agreement to expand in China through a 50%
joint venture with the Liaoning Bora Enterprise Group ("Bora"). The joint
venture with Bora will operate a 1.1 million ton ethylene cracker and associated
polyolefin derivative complex in Panjin, China . We estimate investing CNY 3.3
billion (approximately $460 million ) in the joint venture and expect
commissioning to begin in the third quarter of 2020.
CURRENT BUSINESS OUTLOOK
Demand for our products is improving with increased economic activity. In June
and July of 2020, we raised operating rates and prices in response to increased
demand for North American polyethylene exports to Asia . During the third quarter
of 2020, we anticipate operating our North American ethylene plants at
approximately 95% of nameplate capacity, and our European crackers are expected
to operate at approximately 90% of nameplate capacity. With increased mobility
and reductions in fuel inventories, we expect improving demand for our refining
and oxyfuels and related products businesses. Accordingly, we anticipate our
operating rates at our refinery to be approximately 85% to 90% of nameplate
capacity during the third quarter of 2020. In response to lower demand for
certain products, we had previously idled production at several small plants in
the Advanced Polymer Solutions segment serving automotive end markets and
reduced production rates at other plants. As demand rebounds for our plastics
used in automotive manufacturing, in July 2020 , we restarted most of our plants
previously idled, and we plan to operate our compounding capacity at rates that
match automotive demand.
We expect the recent startup of our Hyperzone polyethylene capacity, the
establishment of new Asian joint ventures and the integration of our A. Schulman
acquisition will benefit us. We accelerated our plans to reduce capital
expenditures and are aggressively managing our inventories to prioritize
liquidity and maximize cash flow. Our focus on funding the dividend while
remaining committed to a strong investment grade balance sheet continues to be
the foundation of our capital deployment strategy.
Despite the volatile macro-economic environment, we believe our leading portfolio, advantaged positions and disciplined approach will enable us to continue capturing opportunities and delivering resilient results through business cycles.
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CRITICAL ACCOUNTING POLICIES
Inventory-Our inventories are stated at the lower of cost or market ("LCM").
Cost is determined using the last-in, first-out ("LIFO") inventory valuation
methodology, which means that the most recently incurred costs are charged to
cost of sales and inventories are valued at the earliest acquisition costs.
Market value is determined based on an assessment of the current estimated
replacement cost and selling price of the inventory.
During the first six months of 2020, we recognized LCM inventory valuation
charges of $323 million related to the decline in pricing for many of our raw
material and finished goods inventories. During the second quarter of 2020, we
recognized a LCM inventory valuation benefit of $96 million , largely driven by
the recovery of market prices of crude oil and refined products during the
quarter. In the first quarter of 2020, market price declines in crude oil, heavy
liquids and ethylene were the primary contributors to the LCM inventory
valuation charges, and representative prices used in the calculation of this LCM
inventory valuation charge were $12.14 /barrel for crude, $13.50 /barrel for heavy
liquids and $205 /ton for ethylene. In the second quarter of 2020, market price
recoveries in crude oil, heavy liquids and ethylene were the primary
contributors to the LCM inventory valuation benefit. Representative prices used
in the calculation of the LCM inventory valuation benefit were $32.22 /barrel for
crude, $40.42 /barrel for heavy liquids and $276 /ton for ethylene.
Since our inventory consists of manufactured products derived from crude oil,
natural gas, natural gas liquids and correlated materials, as well as the
associated feedstocks and intermediate chemicals, our inventory market values
are generally influenced by changes in the benchmark of crude oil and heavy
liquid values and prices for manufactured finished goods. The degree of
influence of a particular benchmark may vary from period to period, as the
composition of the dollar value LIFO pools change. Additionally, an LCM
condition may arise due to a volumetric decline in a particular material that
had previously provided a positive impact within a pool. As a result, market
valuations and LCM conditions are dependent upon the inventory composition at
the balance sheet date. In the measurement of an LCM adjustment, the numeric
input value for determining the crude oil market price includes pricing that is
weighted by volume of inventories held at a point in time, including WTI, Brent
and Maya crude oils.
Currently, ten out of our eleven LIFO inventory pools are "at-risk" for further
adjustment as each impacted LIFO pool has been
reduced to, or close to, the calculated market value at the last balance sheet
measurement date. "At-risk" inventory accounts for
$2.6 billion of our total inventory carrying value as of June 30, 2020 . The
extent to which further adjustment may occur is dependent on the pool specific
product prices and composition within each individual dollar value LIFO pool at
the balance sheet date. Further sustained price declines in our finished goods
and raw materials could result in future LCM inventory valuation charges.
However, if pricing trends reverse, some, or all of these charges could be
reversed in future quarterly interim periods during 2020.
ACCOUNTING AND REPORTING CHANGES
For a discussion of the potential impact of new accounting pronouncements on our
Consolidated Financial Statements, see Note 2 to the Consolidated Financial
Statements.
49-------------------------------------------------------------------------------- Table of Contents CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words "anticipate," "estimate," "believe," "continue," "could," "intend," "may," "plan," "potential," "predict," "should," "will," "expect," "objective," "projection," "forecast," "goal," "guidance," "outlook," "effort," "target" and similar expressions. We based forward-looking statements on our current expectations, estimates and projections of our business and the industries in which we operate. We caution you that these statements are not guarantees of future performance. They involve assumptions about future events that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. Our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following: •the cost of raw materials represents a substantial portion of our operating expenses, and energy costs generally follow price trends of crude oil, natural gas liquids and/or natural gas; price volatility can significantly affect our results of operations and we may be unable to pass raw material and energy cost increases on to our customers due to the significant competition that we face, the commodity nature of our products and the time required to implement pricing changes; •our operations inthe United States ("U.S.") have benefited from low-cost natural gas and natural gas liquids; decreased availability of these materials (for example, from their export or regulations impacting hydraulic fracturing in theU.S. ) could reduce the current benefits we receive; •if crude oil prices fall materially, or decrease relative toU.S. natural gas prices, we would see less benefit from low-cost natural gas and natural gas liquids and it could have a negative effect on our results of operations; •industry production capacities and operating rates may lead to periods of oversupply and low profitability; for example, substantial capacity expansions are underway in theU.S. olefins industry; •we may face unplanned operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failures, unscheduled downtime, supplier disruptions, labor shortages, strikes, work stoppages or other labor difficulties, transportation interruptions, spills and releases and other environmental incidents) at any of our facilities, which would negatively impact our operating results; for example, because theHouston refinery is our only refining operation, we would not have the ability to increase production elsewhere to mitigate the impact of any outage at that facility; •changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate could increase our costs, restrict our operations and reduce our operating results; •our ability to execute our organic growth plans may be negatively affected by our ability to complete projects on time and on budget; •our ability to acquire new businesses and assets and integrate those operations into our existing operations and make cost-saving changes in operations; •uncertainties associated with worldwide economies could create reductions in demand and pricing, as well as increased counterparty risks, which could reduce liquidity or cause financial losses resulting from counterparty default; •uncertainties related to the extent and duration of the pandemic-related decline in demand, or other impacts due to the pandemic in geographic regions or markets served by us, or where our operations are located, including the risk of prolonged recession; 50
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Table of Contents •the negative outcome of any legal, tax and environmental proceedings or changes in laws or regulations regarding legal, tax and environmental matters may increase our costs, reduce demand for our products, or otherwise limit our ability to achieve savings under current regulations; •any loss or non-renewal of favorable tax treatment under agreements or treaties, or changes in laws, regulations or treaties, may substantially increase our tax liabilities; •we may be required to reduce production or idle certain facilities because of the cyclical and volatile nature of the supply-demand balance in the chemical and refining industries, which would negatively affect our operating results; •we rely on continuing technological innovation, and an inability to protect our technology, or others' technological developments could negatively impact our competitive position; •we have significant international operations, and fluctuations in exchange rates, valuations of currencies and our possible inability to access cash from operations in certain jurisdictions on a tax-efficient basis, if at all, could negatively affect our liquidity and our results of operations; •we are subject to the risks of doing business at a global level, including wars, terrorist activities, political and economic instability and disruptions and changes in governmental policies, which could cause increased expenses, decreased demand or prices for our products and/or disruptions in operations, all of which could reduce our operating results; •if we are unable to comply with the terms of our credit facilities, indebtedness and other financing arrangements, those obligations could be accelerated, which we may not be able to repay; and •we may be unable to incur additional indebtedness or obtain financing on terms that we deem acceptable, including for refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses. Any of these factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Our management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements.
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