e424b3
Filed
Pursuant to Rule 424(b)(3)
File No. 333-175077
PROSPECTUS
LYONDELL
CHEMICAL COMPANY
OFFER TO
EXCHANGE
$1,822,500,000
8% Senior Secured Notes Due 2017
303,750,000 8% Senior Secured Notes Due 2017
FOR
$1,822,500,000 8% Senior Secured Notes Due 2017
303,750,000 8% Senior Secured Notes Due 2017
that have been registered under the Securities Act of
1933
The
Exchange Offer:
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The exchange offer is not conditional upon any minimum principal
amount of outstanding dollar denominated 8% Senior Secured
Notes due 2017 (the outstanding dollar notes) and
Euro denominated 8% Senior Secured Notes due 2017 (the
outstanding Euro notes, and together with the
outstanding dollar notes, the outstanding notes)
being tendered for exchange.
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Tenders of outstanding notes may be withdrawn at any time prior
to the expiration of the exchange offer.
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The exchange offer expires at 12:00 a.m., New York City
time, on October 13, 2011, unless extended. We do not
currently intend to extend the expiration date.
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The exchange of outstanding notes will not be a taxable event
for U.S. federal income tax purposes.
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We will not receive any proceeds from the exchange offer.
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The
Exchange Notes
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The terms of the exchange notes to be issued in exchange for the
outstanding dollar notes (the exchange dollar notes)
are identical to the outstanding dollar notes and the terms of
the exchange notes to be issued in the exchange offer for the
outstanding Euro notes (the exchange Euro notes,
together with the exchange dollar notes, the exchange
notes) are identical to the terms of the outstanding
notes, except, in each case, that the exchange notes will be
registered under the Securities Act of 1933 and will not contain
restrictions on transfer, registration rights or provisions for
additional interest.
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The exchange notes are jointly and severally, and fully and
unconditionally, guaranteed by LyondellBasell Industries N.V.
and certain of its subsidiaries.
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Resale of
Exchange Notes
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We intend to list the exchange notes on the Singapore Exchange
Securities Traded Limited (the
SGX-ST).
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Broker-dealers who receive exchange notes pursuant to the
exchange offer acknowledge that they will deliver a prospectus
in connection with any resale of such exchange notes.
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Broker-dealers who acquired outstanding notes as a result of
market-making or other trading activities may use this
prospectus for the exchange offer, as supplemented or amended,
in connection with resales of the exchange notes.
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You should consider carefully
the risk factors beginning on page 12 of this prospectus
before participating in the exchange offer.
Neither the Securities and Exchange Commission, nor any state
securities commission, has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is September 15, 2011
TABLE OF
CONTENTS
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F-1
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ANNEX A: LETTER OF TRANSMITTAL
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A-1
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This prospectus is part of a registration statement we filed
with the Securities and Exchange Commission (the
Commission or SEC). In making your
investment decision, you should rely only on the information
contained or incorporated by reference in this prospectus and in
the accompanying letter of transmittal. We have not authorized
anyone to provide you with any other information. We are not
making an offer to sell these securities or soliciting an offer
to buy these securities in any jurisdiction where an offer or
solicitation is not authorized or in which the person making
that offer or solicitation is not qualified to do so or to
anyone whom it is unlawful to make an offer or solicitation. You
should not assume that the information contained in this
prospectus is accurate as of any date other than its respective
date.
Each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
exchange notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act
of 1933, as amended (the Securities Act). This
prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales
of exchange notes received in exchange for outstanding notes
where such outstanding notes were acquired by such broker-dealer
as a result of market-making activities or other trading
activities. We have agreed that, starting on the expiration date
and ending on the close of business on the first anniversary of
the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in
connection with any such resale. See Plan of
Distribution.
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WHERE TO
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-4
(Reg.
No. 333-175077)
with respect to the securities being offered hereby. This
prospectus does not contain all of the information contained in
the registration statement, including the exhibits and
schedules. You should refer to the registration statement,
including the exhibits and schedules, for further information
about us and the securities being offered hereby. Statements we
make in this prospectus about certain contracts or other
documents are not necessarily complete. When we make such
statements, we refer you to the copies of the contracts or
documents that are filed as exhibits to the registration
statement because those statements are qualified in all respects
by reference to those exhibits. As described below, the
registration statement, including exhibits and schedules, is on
file at the offices of the SEC and may be inspected without
charge or may be obtained without charge to holders of
outstanding notes upon written or oral request made to Lyondell
Chemical Company. To obtain timely delivery of any requested
information, holders of outstanding notes must make any request
no later than five business days prior to the expiration of the
exchange offer. To obtain timely delivery, you must request the
information no later than October 5, 2011.
We are subject to the information requirements of the Securities
Exchange Act of 1934, and in accordance therewith we are
required to file reports, proxy and information statements and
other information with the Securities and Exchange Commission.
You can inspect and copy these materials at the public reference
facilities maintained by the Commission at
100 F Street, N.E., Washington DC 20549. You may
obtain information regarding the operation of the public
reference facilities by calling the Commission at
1-800-SEC-0330.
You can obtain electronic filings made through the Electronic
Data Gathering, Analysis and Retrieval System at the
Commissions web site,
http://www.sec.gov.
We also post materials we have filed with the Commission on our
website at www.lyondellbasell.com as soon as practicable
after filing.
You may request a copy of this information, the exchange offer
registration statement, and the Commission filings at no cost,
by writing or telephoning us at the following address:
Lyondell
Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
(713) 309-7200
Attn: Corporate Secretary
ENFORCEABILITY
OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Lyondell Chemical Company is an entity incorporated under the
laws of the state of Delaware. However, LyondellBasell
Industries N.V. is organized under the laws of The Netherlands.
LyondellBasell Industries N.V. has agreed, in accordance with
the terms of the indenture under which the exchange notes will
be issued, to accept service of process in any suit, action or
proceeding with respect to the indenture or the exchange notes
brought in any federal or state court located in New York City
by an agent designated for such purpose, and to submit to the
jurisdiction of such courts in connection with such suits,
actions or proceedings. However, it may be difficult for
securityholders to enforce judgments of courts of the
U.S. predicated upon the civil liability provisions of the
U.S. federal securities laws against certain of
LyondellBasell Industries N.V.s assets. A judgment of a
U.S. court based solely upon civil liability under those
laws may be unenforceable outside of the U.S. In addition,
awards of punitive damages in actions brought in the
U.S. or elsewhere may be unenforceable in jurisdictions
outside of the U.S.
TRADEMARKS
We own or have rights to trademarks or trade names that we use
in conjunction with the operation of our businesses. In
addition, our names, logos and website names and addresses are
our service marks or trademarks. Some of the more important
trademarks that we own or to which we have rights include
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Alastian®,
Avant®,
CatalloyTM,
Deflex®,
Equistar®,
GlacidoTM,
Hostalen®,
Indure®,
Isomplus®,
LupotechTM, MetoceneTM,
Sequel®,
SpherileneTM,
Spheripol®,
Spherizone®,
SuperflexTM and VacidoTM. Each trademark, trade name or
service mark by any other company appearing in this prospectus
belongs to its holder.
SINGAPORE
EXCHANGE SECURITIES TRADING LIMITED
We intend to apply with the Singapore Exchange Securities
Trading Limited (SGX-ST) for permission to list the
exchange notes on the SGX-ST. Such permission will be granted
when Lyondell Chemical Company has been admitted to the Official
List. Acceptance of applications will be conditional upon issue
of the exchange notes and upon permission being granted to list
all exchange notes of Lyondell Chemical Company.
The SGX-ST assumes no responsibility for the correctness of any
of the statements or opinions made or reports contained in this
prospectus. Admission to the Official List is not to be taken as
an indication of the merits of Lyondell Chemical Company or the
exchange notes.
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CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can
be identified 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 the forward-looking statements on our current
expectations, estimates and projections about ourselves and the
industries in which we operate in general. We caution you these
statements are not guarantees of future performance as they
involve assumptions that, while made in good faith, may prove to
be incorrect, and involve risks and uncertainties we cannot
predict. In addition, we based many of these forward-looking
statements on assumptions about future events that may prove to
be inaccurate. Accordingly, 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:
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if we are unable to comply with the terms of our credit
facilities and other financing arrangements, those obligations
could be accelerated, which we may not be able to repay;
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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;
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our ability to implement business strategies may be negatively
affected or restricted by, among other things, governmental
regulations or policies;
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the cost of raw materials represent a substantial portion of our
operating expenses, and energy costs generally follow price
trends of crude oil and 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;
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industry production capacities and operating rates may lead to
periods of oversupply and low profitability;
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uncertainties associated with worldwide economies create
increased counterparty risks, which could reduce liquidity or
cause financial losses resulting from counterparty exposure;
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the negative outcome of any legal, tax and environmental
proceedings may increase our costs;
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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;
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we may face operating interruptions due to events beyond our
control at any of our facilities, which would negatively impact
our operating results, and because the Houston refinery is our
only North American refining operation, we would not have the
ability to increase production elsewhere to mitigate the impact
of any outage at that facility;
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regulations may negatively impact our business by, among other
things, restricting our operations, increasing costs of
operations or requiring significant capital expenditures;
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we face significant competition due to the commodity nature of
many of our products and may not be able to protect our market
position or otherwise pass on cost increases to our customers;
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we rely on continuing technological innovation, and an inability
to protect our technology, or others technological
developments could negatively impact our competitive
position; and
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we are subject to the risks of doing business at a global level,
including fluctuations in exchange rates, wars, terrorist
activities, political and economic instability and disruptions
and changes in governmental
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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.
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Any of these factors, or a combination of these factors, could
materially affect our future results of operations (including
those of our joint ventures) and the ultimate accuracy of the
forward-looking statements. These forward-looking statements are
not guarantees of future performance, and our actual results and
future developments (including those of our joint ventures) may
differ materially from those projected in 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, all of which are expressly qualified by the
statements in this section, to reflect events or circumstances
after the date of this prospectus.
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PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
may be important to you. You should read the entire prospectus,
including the financial data and related notes and the
information incorporated by reference into this prospectus,
before making an investment decision. In this prospectus, the
terms our, we, us,
LyondellBasell, the Company, and similar
terms refer to LyondellBasell Industries N.V. and include all of
our consolidated subsidiaries unless the context requires
otherwise. When we use Lyondell Chemical or
LCC, we are referring to our wholly owned subsidiary
and the issuer of the outstanding notes and the exchange notes,
Lyondell Chemical Company. Finally, the term you
refers to a holder of the outstanding notes or the exchange
notes.
In this prospectus we refer to the notes to be issued in the
exchange offer as the exchange notes and the notes
issued on April 8, 2010 as the outstanding
notes. We refer to the exchange notes and the outstanding
notes collectively as the notes.
The
Company
Overview
We are the worlds third largest independent chemical
company based on revenues and an industry leader in many of our
product lines. We are a top worldwide producer of propylene
oxide (PO), polyethylene (PE), ethylene
and propylene and the worlds largest producer of
polypropylene and polypropylene compounds (PP
compounds). Additionally, we are a leading provider of
technology licenses and a supplier of catalysts for polyolefin
production. Our refinery in Houston, Texas (the Houston
Refinery) is among North Americas largest full
conversion refineries capable of processing significant
quantities of heavy, high-sulfur crude oil. We participate in
the full petrochemical value chain, from refining to specialized
end uses of petrochemical products, and we believe that our
vertically integrated facilities, broad product portfolio,
manufacturing flexibility, superior technology base and
operational excellence allow us to extract value across the full
value chain.
Emergence
from Chapter 11 Proceedings
We were formed to serve as the parent holding company for
certain subsidiaries of LyondellBasell Industries AF S.C.A.
(LyondellBasell AF) after completion of proceedings
under chapter 11 of title 11 of the
U.S. Bankruptcy Code. LyondellBasell AF and 93 of its
subsidiaries were debtors (the Debtors) in jointly
administered bankruptcy cases (the Bankruptcy Cases)
in the U.S. Bankruptcy Court in the Southern District of
New York (the Bankruptcy Court). Other subsidiaries
of LyondellBasell AF were not involved in the Bankruptcy Cases.
On April 23, 2010, the Bankruptcy Court approved our Third
Amended and Restated Plan of Reorganization and we emerged from
bankruptcy on April 30, 2010 (the date of our emergence
from bankruptcy being the Emergence Date).
Prior to the Emergence Date, we had not conducted any business
operations. Accordingly, unless otherwise noted or suggested by
context, all financial information and data and accompanying
financial statements and corresponding notes, as of and prior to
the Emergence Date, as contained in this prospectus, reflect the
actual historical consolidated results of operations and
financial condition of LyondellBasell AF for the periods
presented and do not give effect to the Plan of Reorganization
or any of the transactions contemplated thereby or the adoption
of fresh-start accounting. Thus, such financial
information may not be representative of our performance or
financial condition after the Emergence Date. Except with
respect to such historical financial information and data and
accompanying financial statements and corresponding notes or as
otherwise noted or suggested by the context, all other
information contained in this prospectus relates to us and our
subsidiaries following the Emergence Date.
As of the Emergence Date, LyondellBasell AFs equity
interests in its indirect subsidiaries terminated and we now own
and operate, directly and indirectly, substantially the same
business as LyondellBasell AF owned and operated prior to
emergence from the Bankruptcy Cases. References herein to
our historical consolidated
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financial information (or data derived therefrom) for periods
prior to May 1, 2010 should be read to refer to the
historical financial information of LyondellBasell AF.
We are the successor to the combination in December 2007 of
Lyondell Chemical Company (Lyondell Chemical) and
Basell AF S.C.A. (Basell), which created one of the
worlds largest private petrochemical companies with
significant worldwide scale and leading product positions.
General
Corporate Information
We are a public company with limited liability (naamloze
vennootschap) incorporated under Dutch law by deed of
incorporation dated October 15, 2009.
Lyondell Chemicals executive offices are located at 1221
McKinney Street, Suite 700, Houston, Texas 77010. Our
telephone number at our Houston office is
(713) 309-7200.
LyondellBassell Industries N.V.s corporate seat is located
at Weena 737, 3013 AM Rotterdam, The Netherlands. Our
website address is www.lyondellbasell.com. The
information in our website is not part of, or incorporated by
reference into, this prospectus.
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The
Exchange Offer
On April 8, 2010, Lyondell Chemical completed the private
offering of the $2,250,000,000 outstanding dollar notes and the
375,000,000 outstanding Euro notes. In December 2010,
Lyondell Chemical redeemed $225,000,000 outstanding dollar notes
and 37,500,000 outstanding Euro notes and in May 2011,
redeemed an additional $202,500,000 outstanding dollar notes and
33,750,000 outstanding Euro notes.
In connection with the private offering, LyondellBasell,
Lyondell Chemical and certain of LyondellBasells
subsidiaries executed a registration rights agreement with the
initial purchasers in the private offering of the outstanding
notes in which we agreed to deliver to you this prospectus with
respect to the outstanding notes and agreed to use our
reasonable best efforts to file and cause to become effective
with the Commission an exchange offer registration statement.
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The Exchange Offer |
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We are offering to exchange your outstanding notes for a like
principal amount of exchange notes, which are identical in all
material respects, except: |
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the exchange notes have been registered under the
Securities Act;
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the exchange notes are not subject to transfer
restrictions or entitled to registration rights; and
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the exchange notes are not entitled to additional
interest provisions applicable to the outstanding notes in some
circumstances relating to the timing of the exchange offer.
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Expiration Date |
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The exchange offer will expire at 12:00 a.m., New York City
time, on October 13, 2011, unless we decide to extend it. |
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Resales of Exchange Notes |
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Based on interpretations by the Commission staff set forth in no
action letters, we believe that after the exchange offer you may
offer and sell the exchange notes without complying with the
registration and prospectus delivery provisions of the
Securities Act so long as: |
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you acquire the exchange notes in the ordinary
course of business;
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you do not have an arrangement with another person
to participate in a distribution of the exchange notes;
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you are not engaged in a distribution of, nor do you
intend to distribute, the exchange notes; and
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if you are a broker-dealer, that you will receive
exchange notes for your own account in exchange for outstanding
notes that were acquired as a result of market-making activities
or other trading activities and that you will deliver a
prospectus (or, to the extent permitted by law, make available a
prospectus) in connection with any resale of such exchange notes.
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When you tender the outstanding notes, we will ask you to
represent to us that: |
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you are not our affiliate as defined in
Rule 405 of the Securities Act;
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you will acquire the exchange notes in the ordinary
course of business; and
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you have not engaged in, do not intend to engage in,
nor have any arrangements or understanding with another person
to participate in, a distribution of the exchange notes.
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If you are unable to make these representations, you will be
required to comply with the registration and prospectus delivery
requirements under the Securities Act in connection with any
resale transaction. |
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If you are a broker-dealer and receive exchange notes for your
own account, you must acknowledge that you will deliver a
prospectus if you resell the exchange notes. By acknowledging
your intent and delivering a prospectus you will not be deemed
to admit that you are an underwriter under the
Securities Act. You may use this prospectus as it is amended
from time to time when you resell exchange notes that were
acquired from market-making or trading activities. Starting on
the expiration date and ending on the close of business on the
first anniversary of the expiration date, we will make this
prospectus available to any broker-dealer for use in connection
with any such resale. See Plan of Distribution. |
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Consequences of Failure to Exchange Outstanding Notes |
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If you do not exchange your outstanding notes during the
exchange offer you will no longer be entitled to registration
rights. You will not be able to offer or sell the outstanding
notes unless they are later registered, sold pursuant to an
exemption from registration or sold in a transaction not subject
to the Securities Act or state securities laws. Other than in
connection with the exchange offer, we do not currently
anticipate that we will register the outstanding notes under the
Securities Act. See The Exchange Offer
Consequences of Failure to Exchange. |
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Condition to the Exchange Offer |
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The registration rights agreement does not require us to accept
outstanding notes for exchange if the exchange offer, or the
making of any exchange by a holder of the outstanding notes,
would violate any applicable law or interpretation of the staff
of the SEC. The exchange offer is not conditioned on a minimum
aggregate principal amount of outstanding notes being tendered.
See The Exchange Offer Conditions. |
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Procedures for Tendering Outstanding Notes |
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We have forwarded to you, along with this prospectus, a letter
of transmittal relating to this exchange offer. Because all of
the outstanding notes are held in book-entry accounts maintained
by the exchange agent at DTC, Euroclear or Clearstream,
Luxembourg, a holder need not submit a letter of transmittal.
However, all holders who exchange their outstanding notes for
exchange notes in accordance with the procedures outlined below
will be deemed to have acknowledged receipt of, and agreed to be
bound by, and to have made all of the representations and
warranties contained in the letter of transmittal. |
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Holders of outstanding dollar notes hold their notes through
DTC. Holders of outstanding Euro notes hold their notes through
Euroclear or Clearstream, Luxembourg, which are participants in
DTC. |
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To tender in the exchange offer, a holder must comply with the
following procedures, as applicable: |
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Holders of outstanding notes through DTC: If
you wish to exchange your outstanding notes and either you or
your registered holder hold your outstanding notes (either
outstanding dollar notes or outstanding Euro notes) in
book-entry form directly through DTC, you must submit an
instruction and follow the procedures for book-entry transfer as
provided under The Exchange Offer Book-Entry
Transfer. |
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Holders of outstanding notes through Euroclear or
Clearstream, Luxembourg: If you wish to exchange
your outstanding notes and either you or your registered holder
hold your outstanding notes (either outstanding dollar notes or
outstanding Euro notes) in book-entry form directly through
Euroclear or Clearstream, Luxembourg, you should be aware that
pursuant to their internal guidelines, Euroclear and
Clearstream, Luxembourg will automatically exchange your
outstanding notes for exchange notes. If you do not wish to
participate in the exchange offer, you must instruct Euroclear
or Clearstream, Luxembourg, as the case may be, to Take No
Action; otherwise your outstanding notes will
automatically be tendered in the exchange offer, and you will be
deemed to have agreed to be bound by the terms of the letter of
transmittal. |
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Only a registered holder of record of outstanding notes may
tender outstanding notes in the exchange offer. If you are a
beneficial owner of outstanding notes that are registered in the
name of a broker, dealer, commercial bank, trust company or
other nominee, you may request your respective broker, dealer,
commercial bank, trust company or other nominee to effect the
above transactions for you. Alternatively, if you are a
beneficial owner and you wish to act on your own behalf in
connection with the exchange offer, you must either make
appropriate arrangements to register ownership of the
outstanding notes in your name or obtain a properly completed
bond power from the registered holder. |
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Special Procedures for Beneficial Owners |
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If you are a beneficial owner of outstanding notes which are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, and you wish to tender
outstanding notes in the exchange offer, you should contact the
registered holder promptly and instruct the registered holder to
tender on your behalf. If you wish to tender on your own behalf,
you must, prior to completing and executing the letter of
transmittal and delivering your outstanding notes, either make
appropriate arrangements to register ownership of the
outstanding notes in your name or obtain a properly completed
bond power from the registered holder. The transfer of
registered ownership may take considerable time and may not be
able to be completed prior to the expiration date. |
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Withdrawal of Tenders |
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You may withdraw your tender of outstanding notes at any time
prior to the expiration date. To withdraw, you must submit a
notice of withdrawal to the exchange agent before
12:00 a.m., New York |
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City time, on the expiration date of the exchange offer. See
The Exchange Offer Withdrawal of Tenders. |
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Acceptance of Outstanding Notes and Delivery of Exchange Notes |
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Subject to the conditions stated in the section The
Exchange Offer Conditions of this prospectus,
we will accept for exchange any and all outstanding notes that
are properly tendered in the exchange offer before
12:00 a.m., New York City time, on the expiration date. The
exchange notes will be delivered promptly after the expiration
date. See The Exchange Offer Terms of the
Exchange Offer; Acceptance of Tendered Notes. |
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Fees and Expenses |
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We will bear expenses related to the exchange offer. See
The Exchange Offer Fees and Expenses. |
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Use of Proceeds |
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The issuance of the exchange notes will not provide us with any
new proceeds. We are making this exchange offer solely to
satisfy our obligations under our registration rights agreement. |
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U.S. Federal Income Tax Consequences |
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The exchange of outstanding notes for exchange notes will not be
a taxable event for U.S. federal income tax purposes. See
United States Federal Income Tax Consequences. |
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Exchange Agent |
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Deutsche Bank Trust Company Americas is the exchange agent
for the exchange offer of the outstanding dollar notes and
Deutsche Bank AG, London Branch is the exchange agent for the
exchange offer of the outstanding Euro notes. The addresses and
telephone numbers of the exchange agents are set forth in the
section captioned The Exchange Offer Exchange
Agent of this prospectus. |
8
Terms of
the Exchange Notes
The exchange notes will be identical to the outstanding notes
except that the exchange notes are registered under the
Securities Act and will not have restrictions on transfer,
registration rights or provisions for additional interest. The
exchange notes will evidence the same debt as the outstanding
notes, and the same indenture will govern the exchange notes and
the outstanding notes.
The following summary contains basic information about the
exchange notes and is not intended to be complete. It does not
contain all information that may be important to you. For a more
complete understanding of the exchange notes, see
Description of the Exchange Notes.
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Issuer |
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Lyondell Chemical Company |
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Securities Offered |
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Up to $1,822.5 million principal amount of 8% Senior
Secured Notes due 2017 and 303.75 million principal
amount of 8% Senior Secured Notes due 2017, which have been
registered under the Securities Act. |
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Maturity Date |
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November 1, 2017. |
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Interest Payment Dates |
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Interest on all exchange notes will be paid semi-annually in
cash in arrears on May 1 and November 1 of each year, commencing
November 1, 2011. |
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Guarantees |
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The outstanding notes are, and the exchange notes will be,
jointly and severally, and fully and unconditionally, guaranteed
by LyondellBasell Industries N.V. and, subject to certain
exceptions, each existing and future wholly owned U.S.
restricted subsidiary of LyondellBasell Industries N.V., other
than any such subsidiary that is a subsidiary of a
non-U.S.
subsidiary (the Subsidiary Guarantors and together
with LyondellBasell Industries N.V., the
Guarantors). For information on the guarantees, see
Description of Exchange Notes The
Guarantees. |
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Security |
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The outstanding notes and guarantees are, and the exchange notes
and guarantees will be, secured by (i) a first priority
lien on substantially all of Lyondell Chemical and each
Subsidiary Guarantors existing and future property and
assets (subject to certain exceptions) other than the assets
securing the U.S. ABL Facility, (ii) a first priority lien
on the capital stock of all U.S. subsidiaries of LyondellBasell
Industries N.V. and each Subsidiary Guarantor (other than any
such subsidiary that is a subsidiary of a
non-U.S.
subsidiary), (iii) a first priority lien on 65% of the
capital stock and 100% of the non-voting capital stock of all
first-tier
non-U.S.
subsidiaries of the Issuer or LyondellBasell Industries N.V. and
(iv) a second-priority lien on our accounts receivables,
inventory, related contracts and other rights, deposit accounts
into which the proceeds of the foregoing are credited and other
assets related to the foregoing and proceeds thereof that secure
the U.S. ABL Facility on a first priority basis, in each case
subject to certain exceptions, permitted liens and release under
certain circumstances. |
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For more information, see Description of Exchange
Notes Security. In addition, pledges of
capital stock or other securities of our subsidiaries will be
limited to the extent
Rule 3-16
of
Regulation S-X
would require the filing of separate financial statements with
the SEC for that subsidiary (such limitation is referred to |
9
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herein as the 3-16 Exemption); provided that the
3-16 Exemption will not apply to the capital stock of Lyondell
Chemical and LyondellBasell Subholdings B.V. See
Description of Exchange Notes Security. |
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Ranking |
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The outstanding notes are, and the exchange notes will be, our
senior obligations and will rank equal in right of payment to
all of our other existing and future senior indebtedness, and
will rank senior in right of payment to all existing and future
subordinated indebtedness. See Description of Exchange
Notes Ranking. |
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Optional Redemption |
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At any time prior to May 1, 2013, we may on any one or more
occasions redeem up to 35% of the original aggregate principal
amount of the exchange notes, at a redemption price of 108.000%
of the principal amount thereof, plus accrued and unpaid
interest and additional interest, if any, to, but not including,
the applicable redemption date, with the net proceeds of one or
more specified equity offerings. |
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In addition, prior to May 1, 2013, we may redeem up to 10%
of the outstanding exchange notes per year, at a redemption
price equal to 103% of the principal amount thereof plus accrued
and unpaid interest and additional interest, if any, to, but not
including, the applicable redemption date. |
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In addition, prior to May 1, 2013, we may redeem the
exchange notes at our option, in whole at any time or in part
from time to time, at a redemption price equal to 100% of the
principal amount thereof plus the applicable make-whole premium
as of, and accrued and unpaid interest, to, but not including,
the applicable redemption date. |
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On or after May 1, 2013, we may redeem all or a part of the
exchange notes, at the redemption prices (expressed as
percentages of principal amount) set forth specified under
Description of Exchange Notes
Redemption Optional Redemption plus accrued
and unpaid interest thereon, if any, to but not including, the
applicable redemption date. For a further discussion, see
Description of Exchange Notes
Redemption Optional Redemption. |
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Change of Control |
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Upon a change of control (as defined in Description of
Exchange Notes Certain Definitions) after the
Emergence Date, we must offer to repurchase the exchange notes
at 101% of the principal amount, plus accrued and unpaid
interest, if any, to the purchase date. |
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Certain Indenture Covenants |
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We issued the outstanding notes, and will issue the exchange
notes, under an indenture with Wilmington Trust FSB, the
trustee. The indenture, among other things, restricts our
ability to: |
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incur additional indebtedness;
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make investments;
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pay dividends and make other restricted payments;
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create certain liens;
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sell assets;
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enter into certain types of transactions with our
affiliates; and
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enter into mergers, consolidations, or sales of all
or substantially all of our assets.
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These covenants are subject to a number of important limitations
and exceptions. See Description of Exchange
notes Certain Covenants. Certain covenants
will be suspended after we have received investment grade
ratings from both Moodys Investors Service, Inc.
(Moodys) and Standard & Poors
Ratings Group (S&P); provided that no default
has occurred and is continuing. |
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SGX-ST Listing |
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We intend to list the exchange notes on the SGX-ST. |
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Risk Factors |
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Investing in the exchange notes involves risks. See Risk
Factors beginning on page 12 for a discussion of
certain factors you should consider in evaluating whether or not
to tender your outstanding notes. |
11
RISK
FACTORS
You should carefully consider each of the risks described
below and the matters addressed under Cautionary Statement
Regarding Forward-Looking Statements, together with all of
the other information contained in this prospectus, including
our consolidated financial statements and related notes,
included elsewhere in the prospectus before deciding to invest
in the notes. The risks described below are not the only risks
facing us or that may materially adversely affect our business.
While all known material risks have been discussed below,
additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial may also materially and
adversely affect our business. If any of the following risks
develop into actual events, our business, financial condition or
results of operations could be materially adversely affected and
you may lose all or part of your investment.
Risks
Relating to the Exchange Notes and the Exchange Offer
If you
fail to exchange your outstanding notes, they will continue to
be restricted securities and may become less
liquid.
Outstanding notes that you do not tender or that we do not
accept will, following the exchange offer, continue to be
restricted securities, and you may not offer to sell them except
under an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We will
issue the exchange notes in exchange for the outstanding notes
in the exchange offer only following the satisfaction of the
procedures and conditions set forth in The Exchange
Offer Procedures for Tendering. Because we
anticipate that most holders of the outstanding notes will elect
to exchange their outstanding notes, we expect that the
liquidity of the market for the outstanding notes remaining
after the completion of the exchange offer will be substantially
limited. Any outstanding notes tendered and exchanged in the
exchange offer will reduce the aggregate principal amount of the
outstanding notes at maturity. Further, following the exchange
offer, if you did not tender your outstanding notes, you
generally will not have any further registration rights, and
such outstanding notes will continue to be subject to certain
transfer restrictions.
You
may not receive the exchange notes in the exchange offer if the
exchange offer procedures are not properly
followed.
We will issue the exchange notes in exchange for your
outstanding notes only if you properly tender the outstanding
notes before expiration of the exchange offer. Neither we nor
the applicable exchange agent is under any duty to give
notification of defects or irregularities with respect to the
tenders of the outstanding notes for exchange. If you are the
beneficial holder of outstanding notes that are held through
your broker, dealer, commercial bank, trust company or other
nominee, and you wish to tender such notes in the exchange
offer, you should promptly contact the person through whom your
outstanding notes are held and instruct that person to tender on
your behalf.
The
value of the noteholders security interest in the
collateral may not be sufficient to satisfy all our obligations
under the exchange notes.
The exchange notes will be secured by (subject to exceptions and
permitted liens) (i) a first priority lien on substantially
all of the Issuers and each Subsidiary Guarantors
existing and future property and assets other than property or
assets securing our U.S. ABL Facility on a first priority
basis, (ii) a first priority lien on the capital stock of
all U.S. subsidiaries of LyondellBasell and each Subsidiary
Guarantor (other than any such subsidiary that is a subsidiary
of a
non-U.S. subsidiary)
and (iii) a first priority lien on 65% of the capital stock
and 100% of the non-voting capital stock of all first-tier
non-U.S. subsidiaries
of the Issuer or of LyondellBasell (subject in the case of the
pledges of certain stock to the 3-16 Exemption). We refer to the
debt having first priority liens on the foregoing collateral as
First Lien Debt. In addition, the exchange notes
will be secured by second priority liens on the accounts
receivables, inventory, contracts and other rights, deposit
accounts with respect to the proceeds of the foregoing are
credited and other assets related to the foregoing and proceeds
thereof that secure the U.S. ABL Facility on a first
priority basis. The U.S. ABL Facility also has a second
priority lien on the assets securing First Lien Debt. The Plan
Roll-up
Notes are
12
secured on a third priority basis by the same collateral that
secures the notes, the Senior Term Loan Facility and the
U.S. ABL Facility, but on a basis junior to that of the
notes, the Senior Term Loan Facility and the U.S. ABL
Facility, as applicable. The indenture governing the notes
permits us to incur additional First Lien Debt and unlimited
junior liens on the collateral securing the notes.
Many of our assets, such as assets owned by our foreign
subsidiaries, are not part of the collateral securing the notes.
In addition, our foreign subsidiaries will be permitted to incur
substantial indebtedness in compliance with the covenants under
the indenture governing the notes and the agreements governing
our other indebtedness. There are no limitations on our ability
to transfer assets and cash flow to our non-Guarantor
subsidiaries under the indenture, although we have no present
intention of transferring any material portion of the notes
collateral in this manner. Upon such a transfer, those assets
would be released automatically from the lien securing the
exchange notes.
The value of the collateral at any time will depend on market
and other economic conditions, including the availability of
suitable buyers for the collateral. By its nature, some or all
of the collateral may be illiquid and may have no readily
ascertainable market value. The value of the assets pledged as
collateral for the notes could be impaired in the future as a
result of changing economic conditions, competition or other
future trends. In the event of a foreclosure, liquidation,
bankruptcy or similar proceeding, no assurance can be given that
the proceeds from any sale or liquidation of the collateral
securing our obligations will be sufficient to pay our
obligations under the exchange notes and any additional First
Lien Debt which may be incurred pursuant to the terms of the
indenture governing the exchange notes, in full or at all. There
also can be no assurance that the collateral will be saleable,
and, even if saleable, the timing of its liquidation would be
uncertain. To the extent that liens, rights or easements granted
to third parties encumber assets located on property owned by
us, such third parties have or may exercise rights and remedies
with respect to the property subject to such liens that could
adversely affect the value of the collateral and the ability of
the collateral agent to foreclose on the collateral.
Accordingly, there may not be sufficient collateral to pay all
or any of the amounts due on the exchange notes. Any claim for
the difference between the amount, if any, realized by holders
of the exchange notes from the sale of the collateral securing
the exchange notes and the obligations under the exchange notes
will rank equally in right of payment with all of our other
unsecured unsubordinated indebtedness and other obligations,
including trade payables.
With respect to some of the collateral, the collateral
agents security interest and ability to foreclose may be
subject to perfection, priority issues, state law requirements
and practical problems associated with the realization of the
trustees security interest or lien in the collateral,
including cure rights, foreclosing on the collateral within the
time periods permitted by third parties or prescribed by laws,
obtaining third-party consents, making additional filings,
statutory rights of redemption and the effect of the order of
foreclosure. If we are unable to obtain these consents or make
these filings, the security interests may be invalid and the
holders will not be entitled to the collateral or any recovery
with respect thereto. We cannot assure you that any such
required consents can be obtained on a timely basis or at all.
These requirements may limit the number of potential bidders for
certain collateral in any foreclosure and may delay any sale,
either of which events may have an adverse effect on the sale
price of the collateral. Therefore, the practical value of
realizing on the collateral may, without the appropriate
consents and filings, be limited.
The
exchange notes will be effectively subordinated to all
liabilities of our non-guarantor subsidiaries and structurally
subordinated to claims of creditors of all of our foreign
subsidiaries.
The exchange notes will be structurally subordinated to
indebtedness and other liabilities of our subsidiaries that are
not the Issuer or Guarantors of the exchange notes. In the event
of a bankruptcy, insolvency, liquidation, dissolution or
reorganization of any of our non-Guarantor subsidiaries, these
non-Guarantor subsidiaries will pay the holders of their debts,
holders of preferred equity interests and their trade creditors
before they will be able to distribute any of their assets to
LyondellBasell Industries N.V. or the Issuer.
The exchange notes will not be guaranteed by any of
LyondellBasell Industries N.V.s
non-U.S. subsidiaries.
LyondellBasell Industries N.V.s
non-U.S. subsidiaries
are separate and distinct legal entities and have no
13
obligation, contingent or otherwise, to pay any amounts due
pursuant to the exchange notes, or to make any funds available
therefor, whether by dividends, loans, distributions or other
payments. Any right that LyondellBasell Industries N.V., the
Issuer or the Subsidiary Guarantors have to receive any assets
of any of the
non-U.S. subsidiaries
of LyondellBasell Industries N.V. upon the liquidation or
reorganization of those subsidiaries, and the consequent rights
of holders of exchange notes to realize proceeds from the sale
of any of those subsidiaries assets, will be effectively
subordinated to the claims of those subsidiaries
creditors, including trade creditors and holders of preferred
equity interests of those subsidiaries.
The indenture, the Senior Term Loan Facility and the
U.S. ABL Facility allow us to incur substantial debt at our
non-Guarantor subsidiaries, all of which would be effectively
senior to the exchange notes and the guarantees to the extent of
the assets of those non-Guarantor subsidiaries. As of
June 30, 2011, our non-Guarantor subsidiaries had
approximately $344 million of outstanding indebtedness,
excluding intercompany liabilities, guarantees of indebtedness
of joint ventures and other indebtedness referred to above,
which would rank effectively senior to the exchange notes
offered hereby, with respect to the assets of such non-Guarantor
subsidiaries. In addition, there are no restrictions in the
indenture governing the exchange notes relating to the transfer
of funds between restricted subsidiaries, including between
Guarantor and non-Guarantor restricted subsidiaries. Holders of
the exchange notes will be structurally subordinated to
creditors of the non-Guarantors and are subject to the foregoing
risks concerning the amount of such structural subordination,
among others.
Repayment
of our debt, including required principal and interest payments
on the exchange notes, is dependent on cash flow generated by
our foreign subsidiaries.
Our foreign subsidiaries own a significant portion of our assets
and conduct a significant portion of our operations.
Accordingly, repayment of our indebtedness, including the
exchange notes, is dependent, to a significant extent, on the
generation of cash flow by our foreign subsidiaries and their
ability to make such cash available to us, by dividend, debt
repayment or otherwise. Our foreign subsidiaries may not be able
to, or may not be permitted to, make distributions to enable us
to make payments in respect of our indebtedness, including the
exchange notes. Each foreign subsidiary is a distinct legal
entity and, under certain circumstances, legal and contractual
restrictions may limit our ability to obtain cash from our
foreign subsidiaries. While the indenture governing the exchange
notes limits the ability of our foreign subsidiaries to incur
consensual restrictions on their ability to pay dividends or
make other intercompany payments to us, these limitations are
subject to certain qualifications and exceptions. In the event
that we are unable to receive distributions from our foreign
subsidiaries we may be unable to make required principal and
interest payments on our indebtedness, including the exchange
notes.
There
are circumstances other than repayment or discharge of the
exchange notes under which the collateral securing the exchange
notes and guarantees will be released automatically, without
your consent or the consent of the trustee.
Under various circumstances, collateral securing the exchange
notes will be released automatically, including:
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a sale, transfer or other disposition of such collateral in a
transaction not prohibited under the indenture; and
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with respect to collateral held by a guarantor, upon the release
of such guarantor from its guarantee.
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The guarantee of a subsidiary guarantor will be automatically
released to the extent it is released in connection with a sale
of such subsidiary guarantor in a transaction not prohibited by
the indenture. The indenture also permits us to designate one or
more of our restricted subsidiaries that is a guarantor of the
exchange notes as an unrestricted subsidiary. If we designate a
subsidiary guarantor as an unrestricted subsidiary for purposes
of the indenture governing the exchange notes, all of the liens
on any collateral owned by such subsidiary or any of its
subsidiaries and any guarantees of the exchange notes by such
subsidiary or any of its subsidiaries will be released under the
indenture. Designation of an unrestricted subsidiary will reduce
the aggregate value of the collateral securing the exchange
notes to the extent that liens on the assets of the unrestricted
subsidiary and its subsidiaries are released. In addition, the
creditors of the unrestricted
14
subsidiary and its subsidiaries will have a claim on the assets
of such unrestricted subsidiary and its subsidiaries that is
senior to the claim of the holders of the exchange notes. See
Description of Exchange Notes.
The
collateral securing the exchange notes may be diluted under
certain circumstances.
The collateral that will secure the exchange notes also secures
our obligations under other First Lien Debt. This collateral may
secure on a first-priority basis additional indebtedness that we
incur in the future, subject to restrictions on our ability to
incur debt and liens under the indenture governing the exchange
notes and the Senior Term Loan Facility. Your rights to the
collateral would be diluted by any increase in the indebtedness
secured on a parity basis by this collateral.
The
collateral securing the exchange notes may be subject to
material exceptions, defects and encumbrances that adversely
impact its value.
Any exceptions, defects, encumbrances, liens and other
imperfections on the collateral that secures the First Lien Debt
could adversely affect the value of the collateral securing the
exchange notes as well as the ability of the collateral agent to
realize or foreclose on such collateral. In addition, our
business requires numerous federal, state and local permits and
licenses. Continued operation of properties that are the
collateral for the exchange notes depends on the maintenance of
such permits and licenses may be prohibited. Our business is
subject to substantial regulations and permitting requirements
and may be adversely affected if we are unable to comply with
existing regulations or requirements or changes in applicable
regulations or requirements. In the event of foreclosure, the
transfer of such permits and licenses may be prohibited or may
require us to incur significant cost and expense. Further, we
cannot assure you that the applicable governmental authorities
will consent to the transfer of all such permits. If the
regulatory approvals required for such transfers are not
obtained or are delayed, the foreclosure may be delayed, a
temporary shutdown of operations may result and the value of the
collateral may be significantly decreased.
State
law may limit the ability of the collateral agent, trustee and
the holders of the exchange notes to foreclose on the real
property and improvements included in the
collateral.
The exchange notes will be secured by, among other things, liens
on real property and improvements located in the States of
Florida, Illinois, Iowa, Louisiana and Texas. The laws of those
states may limit the ability of the trustee and the holders of
the exchange notes to foreclose on the improved real property
collateral located in those states. Laws of those states govern
the perfection, enforceability and foreclosure of mortgage liens
against real property interests which secure debt obligations
such as the exchange notes. These laws may impose procedural
requirements for foreclosure different from and necessitating a
longer time period for completion than the requirements for
foreclosure of security interests in personal property. Debtors
may have the right to reinstate defaulted debt (even it is has
been accelerated) before the foreclosure date by paying the past
due amounts and a right of redemption after foreclosure.
Governing laws may also impose security first and one form of
action rules which can affect the ability to foreclose or the
timing of foreclosure on real and personal property collateral
regardless of the location of the collateral and may limit the
right to recover a deficiency following a foreclosure.
The holders of the exchange notes and the trustee also may be
limited in their ability to enforce a breach of the no
liens covenant. Some decisions of state courts have placed
limits on a lenders ability to accelerate debt secured by
real property upon breach of covenants prohibiting the creation
of certain junior liens or leasehold estates may need to
demonstrate that enforcement is reasonably necessary to protect
against impairment of the lenders security or to protect
against an increased risk of default. Although the foregoing
court decisions may have been preempted, at least in part, by
certain federal laws, the scope of such preemption, if any, is
uncertain. Accordingly, a court could prevent the trustee and
the holders of the exchange notes from declaring a default and
accelerating the exchange notes by reason of a breach of this
covenant, which could have a material adverse effect on the
ability of holders to enforce the covenant.
15
Rights
of holders of exchange notes in the collateral may be adversely
affected by the failure to perfect liens on certain collateral
delivered after the issue date or acquired in the
future.
Applicable law requires that certain property and rights
acquired after the grant of a general security interest or lien
can only be perfected at the time such property and rights are
acquired and identified. There can be no assurance that the
trustee or the collateral agent will monitor, or that we will
inform the collateral agent or the administrative agent of, the
future acquisition of property and rights that constitute
collateral, and that the necessary action will be taken to
properly perfect the lien on such after-acquired collateral. The
collateral agent for the exchange notes has no obligation to
monitor the acquisition of additional property or rights that
constitute collateral or the perfection of any security
interests therein. Such failure may result in the loss of the
practical benefits of the liens thereon or of the priority of
the liens securing the exchange notes.
If we, or any Subsidiary Guarantor, were to become subject to a
bankruptcy proceeding, any liens recorded or perfected after the
issue date of the exchange notes would face a greater risk of
being invalidated than if they had been recorded or perfected on
the issue date of the exchange notes. Liens recorded or
perfected after the issue date of the exchange notes beyond the
time period provided for perfecting as permitted under the
U.S. Bankruptcy Code, such as the mortgage described above,
may be treated under bankruptcy law as if they were delivered to
secure previously existing indebtedness. In bankruptcy
proceedings commenced within 90 days of lien perfection, a
lien given to secure previously existing debt is materially more
likely to be avoided as a preference by the bankruptcy court
than if delivered and promptly recorded on the issue date of the
indebtedness. Accordingly, if we or a subsidiary guarantor were
to file for bankruptcy protection after the issue date of the
exchange notes and the liens had been perfected less than
90 days before commencement of such bankruptcy proceeding,
the liens securing the exchange notes may be especially subject
to challenge as a result of having been perfected after their
issue date. To the extent that such challenge succeeded, you
would lose the benefit of the security that the collateral was
intended to provide.
The
pledge of the capital stock or other securities of the
Issuers subsidiaries that secure the exchange notes will
automatically be released from the lien on it and will no longer
constitute collateral for so long as the pledge of such capital
stock or such other securities would require the filing of
separate financial statements with the SEC for such
subsidiary.
The exchange notes and the guarantees will be secured by a
pledge of the stock of some of our subsidiaries. Under the SEC
regulations in effect as of the issue date of the exchange
notes, if the par value, book value as carried by us or market
value (whichever is greatest) of the capital stock or other
securities of a subsidiary pledged as part of the collateral for
any class of securities registered or to be registered is
greater than or equal to 20% of the aggregate principal amount
of the exchange notes then outstanding, such a subsidiary would
be required to provide separate financial statements in filings
with the SEC. Therefore, the indenture and the collateral
documents provide that any capital stock and other securities of
any of our subsidiaries will be excluded from the collateral for
so long as the pledge of such capital stock or other securities
to secure the exchange notes would cause such subsidiary to be
required to file separate financial statements with the SEC
pursuant to
Rule 3-16
of
Regulation S-X
(as in effect from time to time). We have agreed that the 3-16
Exemption will not apply to the pledges of stock of Lyondell
Chemical and LyondellBasell Subholdings B.V. and we will file
separate financial statements for those entities, if required to
do so.
As a result, it may be more difficult, costly and time-consuming
for holders of the exchange notes to foreclose on the assets of
a subsidiary than to foreclose on its capital stock or other
securities, so the proceeds realized upon any such foreclosure
could be significantly less than those that would have been
received upon any sale of the capital stock or other securities
of such subsidiary. See Description of Exchange
Notes Security.
16
In the
event of bankruptcy, the ability of the holders of the exchange
notes to exercise remedies in respect of the collateral will be
subject to certain bankruptcy law limitations.
The ability of holders of exchange notes to realize upon the
collateral will be subject to certain bankruptcy law limitations
in the event of our bankruptcy following the issuance of the
exchange notes. Under applicable federal bankruptcy laws, upon
the commencement of a bankruptcy case, an automatic stay goes
into effect which, among other things, stays:
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the commencement or continuation of any action or proceeding
against the debtor that was or could have been commenced before
the commencement of the bankruptcy case to recover a claim
against the debtor that arose before the commencement of the
bankruptcy case;
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any act to obtain possession of, or control over, property of
the bankruptcy estate or the debtor;
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any act to create, perfect or enforce any lien against property
of the bankruptcy estate; and
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any act to collect or recover a claim against the debtor that
arose before the commencement of the bankruptcy case.
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Bankruptcy law could thus prevent, or at a minimum delay, the
collateral agent from repossessing and disposing of, or
otherwise exercising remedies in respect of, the collateral upon
the occurrence of an event of default if a bankruptcy proceeding
were to be commenced by or against us or the Guarantors prior to
the collateral agent having repossessed and disposed of, or
otherwise exercised remedies in respect of, the collateral.
Under the U.S. Bankruptcy Code, a secured creditor such as
the collateral agent is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy
court approval. Moreover, the U.S. Bankruptcy Code permits
the debtor to continue to retain and to use collateral even
though the debtor is in default under the applicable debt
instrument; provided that the secured creditor is given
adequate protection. The meaning of the term
adequate protection may vary according to the
circumstances, but it is intended in general to protect the
value of the secured creditors interest in the collateral.
The court may find adequate protection if the debtor
pays cash or grants additional security, if and at such times as
the court in its discretion determines, for any diminution in
the value of the collateral during the pendency of the
bankruptcy case. In view of the lack of a precise definition of
the term adequate protection and the broad
discretionary powers of a bankruptcy court, it is impossible to
predict how long payments with respect to the exchange notes
could be delayed following commencement of a bankruptcy case,
whether or when the trustee could repossess or dispose of the
collateral or whether or to what extent holders would be
compensated for any delay in payment or loss of value of the
collateral through the requirement of adequate
protection.
The
collateral is subject to casualty risks.
We intend to maintain insurance or otherwise insure against
hazards in a manner appropriate and customary for our business.
There are, however, certain losses that may be either
uninsurable or not economically insurable, in whole or in part.
Insurance proceeds may not compensate us fully for our losses.
If there is a complete or partial loss of any of the collateral,
the insurance proceeds may not be sufficient to satisfy all of
the secured obligations, including the exchange notes and the
guarantees.
In the event of a total or partial loss to any of the mortgaged
facilities, certain items of equipment, fixtures and other
improvements may not be easily replaced. Accordingly, even
though there may be insurance coverage, the extended period
needed to manufacture or construct replacement of such items
could cause significant delays.
17
The
terms of our indenture governing the exchange notes may restrict
our current and future operations, particularly our ability to
respond to changes or to take certain actions.
The indenture governing the exchange notes issued hereby
contains a number of restrictive covenants that impose
significant operating and financial restrictions on us and may
limit our ability to engage in acts that may be in our long-term
best interests, including, among other things, restrictions on
our ability to:
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incur, assume or guarantee additional indebtedness;
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issue redeemable stock and preferred stock;
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pay dividends or distributions or redeem or repurchase capital
stock;
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prepay, redeem or repurchase certain debt;
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make loans and investments;
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incur liens;
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restrict dividends, loans or asset transfers from our
subsidiaries;
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sell or otherwise dispose of assets, including capital stock of
subsidiaries;
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consolidate or merge with or into, or sell substantially all of
our assets to, another person;
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enter into transactions with affiliates; and
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enter into new lines of business.
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In addition, our Senior Term Loan Facility requires us to
maintain specified financial ratios and satisfy other financial
condition tests.
Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we cannot assure you
that we will meet them.
A breach of the covenants under the indenture that governs the
exchange notes offered hereby or under the credit agreement
governing the Senior Term Loan Facility could result in an event
of default under the applicable indebtedness. Such default may
allow the creditors to accelerate the related debt and may
result in the acceleration of any other debt to which a
cross-acceleration or cross-default provision applies. In
addition, an event of default under the credit agreement
governing our Senior Term Loan Facility would permit the lenders
under our Senior Term Loan Facility to terminate all commitments
to extend further credit under that facility. Furthermore, if we
were unable to repay the amounts due and payable under our
Senior Term Loan Facility, those lenders could proceed against
the collateral granted to them to secure that indebtedness. In
the event our lenders or holders of exchange notes accelerate
the repayment of our borrowings, we cannot assure that we and
our subsidiaries would have sufficient assets to repay such
indebtedness. As a result of these restrictions, we may be:
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limited in how we conduct our business;
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unable to raise additional debt or equity financing to operate
during general economic or business downturns; or
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unable to compete effectively or to take advantage of new
business opportunities.
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These restrictions may affect our ability to grow in accordance
with our plans.
In the
event of a bankruptcy of us or any of the Guarantors, holders of
the exchange notes may be deemed to have an unsecured claim to
the extent that our obligations in respect of the exchange notes
exceed the fair market value of the collateral securing the
exchange notes.
In any bankruptcy proceeding with respect to us or any of the
Guarantors, it is possible that the bankruptcy trustee, the
debtor-in-possession
or competing creditors will assert that the fair market value of
the collateral with respect to the exchange notes on the date of
the bankruptcy filing was less than the then-current
18
principal amount of the exchange notes. Upon a finding by the
bankruptcy court that the exchange notes are
under-collateralized, the claims in the bankruptcy proceeding
with respect to the exchange notes would be bifurcated between a
secured claim in an amount equal to the value of the collateral
and an unsecured claim with respect to the remainder of its
claim which would not be entitled to the benefits of security in
the collateral. Other consequences of a finding of
under-collateralization would be, among other things, a lack of
entitlement on the part of the exchange notes to receive
post-petition interest or applicable fees, costs or charges and
a lack of entitlement on the part of the unsecured portion of
the exchange notes to receive adequate protection
under federal bankruptcy laws. In addition, if any payments of
post-petition interest had been made at any time prior to such a
finding of under-collateralization, those payments would be
recharacterized by the bankruptcy court as a reduction of the
principal amount of the secured claim with respect to the
exchange notes.
Insolvency
laws of jurisdictions outside of the U.S. may preclude holders
of the exchange notes from recovering payments due on the
exchange notes.
Although the Issuer is incorporated in Delaware, LyondellBasell
Industries N.V. is organized in The Netherlands. In addition,
LyondellBasell Industries N.V. is party to certain of the key
agreements affecting your rights as holders of the exchange
notes and your ability to recover under the exchange notes are
incorporated in jurisdictions other than the U.S. The
insolvency laws of The Netherlands may not be as favorable to
your interests as creditors as the laws of the U.S. or
other jurisdictions with which you may be familiar.
U.S.
investors in the exchange notes may have difficulties enforcing
certain civil liabilities.
The Issuer is an entity incorporated under the laws of the State
of Delaware. However, LyondellBasell Industries N.V. is
organized under the laws of The Netherlands. LyondellBasell
Industries N.V. has agreed, in accordance with the terms of the
indenture under which the exchange notes will be issued, to
accept service of process in any suit, action or proceeding with
respect to the indenture or the exchange notes brought in any
federal or state court located in New York City by an agent
designated for such purpose, and to submit to the jurisdiction
of such courts in connection with such suits, actions or
proceedings. However, it may be difficult for securityholders to
enforce judgments of U.S. courts predicated upon the civil
liability provisions of the U.S. federal securities laws
against certain of LyondellBasell Industries N.V.s assets.
A judgment of a U.S. court based solely upon civil
liability under those laws may be unenforceable outside of the
U.S. In addition, awards of punitive damages in actions
brought in the U.S. or elsewhere may be unenforceable in
jurisdictions outside of the U.S.
Fraudulent
transfer and other laws may permit a court to void the
guarantees, and if that occurs, you may not receive any payments
on the guarantees.
The issuance of the exchange notes and the guarantees may be
subject to review under federal and state fraudulent transfer
and conveyance statutes if a bankruptcy, liquidation or
reorganization case or a lawsuit, including under circumstances
in which bankruptcy is not involved, were commenced at some
future date by us, by the guarantors or on behalf of our unpaid
creditors or the unpaid creditors of a guarantor. While the
relevant laws may vary from state to state, the incurrence of
the obligations in respect of the exchange notes and the
guarantees, and the granting of the security interests in
respect thereof, will generally be a fraudulent conveyance if
(i) the consideration was paid with the intent of
hindering, delaying or defrauding creditors or (ii) we or
any of our Subsidiary Guarantors, as applicable, received less
than reasonably equivalent value or fair consideration in return
for issuing either the exchange notes or a guarantee, and, in
the case of (ii) only, one of the following is also true:
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we or any of our Subsidiary Guarantors were or was insolvent or
rendered insolvent by reason of issuing the exchange notes or
the guarantees;
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payment of the consideration left us or any of our Subsidiary
Guarantors with an unreasonably small amount of capital to carry
on the business; or
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we or any of our Subsidiary Guarantors intended to, or believed
that we or it would, incur debts beyond our or its ability to
pay as they mature. If a court were to find that the issuance of
the exchange notes or a guarantee was a fraudulent conveyance,
the court could void the payment obligations under the exchange
notes or such guarantee or further subordinate the exchange
notes or such guarantee to presently existing and future
indebtedness of ours or such subsidiary guarantor, require the
holders of the exchange notes to repay any amounts received with
respect to the exchange notes or such guarantee or void or
otherwise decline to enforce the security interests and related
security agreements in respect thereof. In the event of a
finding that a fraudulent conveyance occurred, you may not
receive any repayment on the exchange notes. Further, the
voidance of the exchange notes could result in an event of
default with respect to our other debt and that of our
Subsidiary Guarantors that could result in acceleration of such
debt.
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The measures of insolvency for purposes of fraudulent conveyance
laws vary depending upon the law of the jurisdiction that is
being applied. Generally, an entity would be considered
insolvent if, at the time it incurred indebtedness:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all its assets;
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the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts and liabilities, including contingent
liabilities, as they become absolute and mature; or
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it could not pay its debts as they become due.
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We cannot be certain as to the standards a court would use to
determine whether or not we or the Subsidiary Guarantors were
solvent at the relevant time, or regardless of the standard
used, that the issuance of the exchange notes and the guarantees
would not be subordinated to our or any Subsidiary
Guarantors other debt.
If the guarantees were legally challenged, any guarantee could
also be subject to the claim that, since the guarantee was
incurred for our benefit, and only indirectly for the benefit of
the Subsidiary Guarantor, the obligations of the applicable
subsidiary guarantor were incurred for less than fair
consideration. Therefore, a court could void the obligations
under the guarantees, subordinate them to the applicable
subsidiary guarantors other debt or take other action
detrimental to the holders of the exchange notes. In addition, a
recent bankruptcy court decision in Florida questioned the
validity of a customary savings clause in a guarantee.
The
Issuer may not be able to fulfill its repurchase obligations in
the event of a change of control.
Upon the occurrence of specific kinds of change of control
events, we will be required to offer to repurchase all
outstanding exchange notes at 101% of their principal amount,
plus accrued and unpaid interest to the purchase date.
Additionally, under the Senior Term Loan Facility, a change of
control (as defined therein) constitutes an event of default
that permits the lenders to accelerate the maturity of
borrowings under the respective agreements and the commitments
to lend would terminate. The source of funds for any purchase of
the exchange notes and repayment of borrowings under our Senior
Term Loan Facility will be our available cash or cash generated
from our subsidiaries operations or other sources,
including borrowings, sales of assets or sales of equity. We may
not be able to repurchase the exchange notes upon a change of
control because we may not have sufficient financial resources
to purchase all of the debt securities that are tendered upon a
change of control and repay our other indebtedness that will
become due. We may require additional financing from third
parties to fund any such purchases, and we cannot assure you
that we would be able to obtain financing on satisfactory terms
or at all. Further, our ability to repurchase the exchange notes
may be limited by law. In order to avoid the obligations to
repurchase the exchange notes and events of default and
potential breaches of the credit agreement governing our new
Senior Term Loan Facility, we may have to avoid certain change
of control transactions that would otherwise be beneficial to
us. Our failure to make the change of control offer or to pay
the change of control purchase price when due would result in a
default under the indenture governing the exchange notes. See
Description of Exchange Notes Change of
Control.
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In addition, certain important corporate events, such as
leveraged recapitalizations, may not, under the indenture
governing the exchange notes, constitute a change of
control that would require us to repurchase the exchange
notes, notwithstanding the fact that such corporate events could
increase the level of our indebtedness or otherwise adversely
affect our capital structure, credit ratings or the value of the
exchange notes. See the section titled Description of
Exchange Notes Change of Control.
In addition, the definition of change of control in the
indenture governing the exchange notes includes a phrase
relating to the sale of all or substantially all of
our assets. There is no precise established definition of the
phrase substantially all under applicable law.
Accordingly, the ability of a holder of exchange notes to
require us to repurchase its exchange notes as a result of a
sale of less than all our assets to another person may be
uncertain.
If an
active trading market does not develop for the exchange notes,
you may not be able to resell them.
There is no established trading market for the exchange notes.
We intend to list the exchange notes on the SGX-ST, but this is
not expected to become an active trading market for the bulk of
the investors in the notes. Accordingly, an active trading
market for the notes may not develop, in which case the market
price and liquidity of the notes may be adversely affected.
In addition, you may not be able to sell your notes at a
particular time or at a price favorable to you. Future trading
prices of the notes will depend on many factors, including:
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our operating performance and financial condition;
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our prospects or the prospects for companies in our industry
generally;
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the interest of securities dealers in making a market in the
notes;
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the market for similar securities; and
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prevailing interest rates.
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Historically, the market for non-investment grade debt has been
subject to disruptions that have caused volatility in the prices
of these securities. It is possible that the market for the
notes will be subject to disruptions. A disruption may have a
negative effect on you as a holder of the notes, regardless of
our prospects or performance.
A
downgrade, suspension or withdrawal of the rating assigned by
any rating agency to the notes or to us could cause the
liquidity or market value of the notes to decline.
We and the notes have been rated by nationally recognized
statistical ratings organizations, and may in the future be
rated by additional rating agencies. Any rating so assigned may
be lowered or withdrawn entirely by a rating agency if, in that
rating agencys judgment, circumstances relating to the
basis of the rating, such as adverse change to our business, so
warrant. Any lowering or withdrawal of a rating by a rating
agency could reduce the liquidity or market value of the notes.
Risks
Relating to Our Business
Economic
downturns and disruptions in financial markets can adversely
affect our business and results of operations.
Our results of operations can be materially affected by adverse
conditions in the financial markets and depressed economic
conditions generally. Economic downturns in the businesses and
geographic areas in which we sell our products substantially
reduce demand for our products and result in decreased sales
volumes. Recessionary environments adversely affect our business
because demand for our products is reduced, particularly from
our customers in industrial markets generally and the automotive
and housing industries specifically.
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Moreover, many of our customers and suppliers rely on access to
credit to adequately fund their operations. Disruptions in
financial markets and economic slowdown can adversely impact the
ability of our customers to finance the purchase of our products
as well as the creditworthiness of those customers. These same
factors may also impact the ability and willingness of suppliers
to provide us with raw materials for our business.
The
cyclicality and volatility of the industries in which we
participate may cause significant fluctuations in our operating
results.
Our business operations are subject to the cyclical and volatile
nature of the supply-demand balance in the chemical and refining
industries. Our future operating results are expected to
continue to be affected by this cyclicality and volatility. The
chemical and refining industries historically have experienced
alternating periods of capacity shortages, causing prices and
profit margins to increase, followed by periods of excess
capacity, resulting in oversupply, declining capacity
utilization rates and declining prices and profit margins.
In addition to changes in the supply and demand for products,
changes in energy prices and other worldwide economic conditions
can cause volatility. These factors result in significant
fluctuations in profits and cash flow from period to period and
over business cycles.
In addition, new capacity additions, especially in Asia and the
Middle East, are expected to lead to a period of oversupply and
lower profitability. The timing and extent of any changes to
currently prevailing market conditions is uncertain and supply
and demand may be unbalanced at any time. As a consequence, we
are unable to accurately predict the extent or duration of
future industry cycles or their effect on our business,
financial condition or results of operations. We can give no
assurances as to any predictions we may make with respect to the
timing, extent or duration of future industry cycles.
Costs
and limitations on supply of raw materials and energy may result
in increased operating expenses.
The costs of raw materials and energy represent a substantial
portion of our operating expenses. Energy costs generally follow
price trends of crude oil and natural gas. These price trends
may be highly volatile and cyclical. In the past, raw material
and energy costs have experienced significant fluctuations that
adversely affected our business segments results of
operations. Moreover, fluctuations in currency exchange rates
can add to this volatility.
We are not always able to pass raw material and energy cost
increases on to our customers. When we do have the ability to
pass on the cost increases, we are not always able to do so
quickly enough to avoid adverse impacts on our results of
operations.
Cost increases also may increase working capital needs, which
could reduce our liquidity and cash flow. Even if we increase
our sales prices to reflect rising raw material and energy
costs, demand for products may decrease as customers reduce
their consumption or use substitute products, which may have an
adverse impact on our results of operations. In addition,
producers in natural gas cost-advantaged regions, such as the
Middle East, benefit from the lower prices of natural gas and
NGLs. Competition from producers in these regions may cause us
to reduce exports from North America and Europe. Any such
reductions may increase competition for product sales within
North America and Europe, which can result in lower margins in
those regions. Additionally, there are a limited number of
suppliers for some of our raw materials and utilities and, in
some cases, the supplies are specific to the particular
geographic region in which a facility is located.
It is also common in the chemical and refining industries for a
facility to have a sole, dedicated source for its utilities,
such as steam, electricity and gas. Having a sole or limited
number of suppliers may limit our negotiating power,
particularly in the case of rising raw material costs. Any new
supply agreements we enter into may not have terms as favorable
as those contained in our current supply agreements.
If our raw material or utility supplies were disrupted, our
businesses may incur increased costs to procure alternative
supplies or incur excessive downtime, which would have a direct
negative impact on plant operations. For example, hurricanes
have in the past negatively affected crude oil and natural gas
supplies, as well as supplies of other raw materials, utilities
(such as electricity and steam), and industrial gases,
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contributing to increases in operating costs and, in some cases,
disrupting production. In addition, hurricane-related disruption
of vessel, barge, rail, truck and pipeline traffic in the
U.S. Gulf Coast area would negatively affect shipments of
raw materials and product.
In addition, with increased volatility in raw material costs,
our suppliers could impose more onerous terms on us, resulting
in shorter payment cycles and increasing our working capital
requirements.
We
sell products in highly competitive global markets and face
significant price pressures.
We sell our products in highly competitive global markets. Due
to the commodity nature of many of our products, competition in
these markets is based primarily on price and, to a lesser
extent, on product performance, product quality, product
deliverability, reliability of supply and customer service.
Generally, we are not able to protect our market position for
these products by product differentiation and may not be able to
pass on cost increases to our customers.
In addition, we face increased competition from companies that
may have greater financial resources and different cost
structures or strategic goals than us. These include large
integrated oil companies (many of which also have chemical
businesses), government-owned businesses, and companies that
receive subsidies or other government incentives to produce
certain products in a specified geographic region. Increased
competition from these companies, especially in our olefin and
refining businesses, could limit our ability to increase product
sales prices in response to raw material and other cost
increases, or could cause us to reduce product sales prices to
compete effectively, which could reduce our profitability.
Competitors that have greater financial resources than us may be
able to invest significant capital into their businesses,
including expenditures for research and development.
In addition, specialty products we produce may become
commoditized over time. Increased competition could result in
lower prices or lower sales volumes, which would have a negative
impact on our results of operations.
Our
ability to source raw materials, including crude oil, may be
adversely affected by political instability, civil disturbances
or other governmental actions.
We obtain a substantial portion of our principal raw materials
from sources in North Africa, the Middle East, and South America
that may be less politically stable than other areas in which we
conduct business, such as Europe or the U.S.
Recently, increased incidents of civil unrest, including
demonstrations which have been marked by violence, have occurred
in some countries in North Africa and the Middle East. Some
political regimes in these countries are threatened or have
changed as a result of such unrest. Political instability and
civil unrest could continue to spread in the region and involve
other areas. Such unrest, if it continues to spread or grow in
intensity, could lead to civil wars, regional conflict, or
regime changes resulting in governments that are hostile to
countries in which we conduct substantial business, such as
Europe, the U.S., or their respective allies.
We source a large portion of our crude oil from Venezuela. From
time to time in the past, the Venezuelan national oil company,
PDVSA, has declared itself in a force majeure situation and
reduced deliveries of crude oil purportedly based on announced
OPEC production cuts. It is impossible to predict how possible
changes in governmental policies may affect our sourcing. Any
significant reduction in Venezuelan crude oil supplies could
negatively impact our ability to procure crude oil, from
Venezuela or other sources, on economically advantageous terms.
Political instability, civil disturbances and actions by
governments in North Africa, the Middle East or South America
are likely to substantially increase the price and decrease the
supply of feedstocks necessary for our operations, which will
have a material adverse effect on our results of operations.
Interruptions
of operations at our facilities may result in liabilities or
lower operating results.
We own and operate large-scale facilities. Our operating results
are dependent on the continued operation of our various
production facilities and the ability to complete construction
and maintenance projects on schedule. Interruptions at our
facilities may materially reduce the productivity and
profitability of a particular
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manufacturing facility, or our business as a whole, during and
after the period of such operational difficulties. In the past,
we had to shut down plants on the U.S. Gulf Coast,
including the temporary shutdown of the Houston Refinery, as a
result of hurricanes striking the Texas coast.
In addition, because the Houston Refinery is our only North
American refining operation, an outage at the refinery could
have a particularly negative impact on our operating results.
Unlike our chemical and polymer production facilities, which may
have sufficient excess capacity to mitigate the negative impact
of lost production at other facilities, we do not have the
ability to increase refining production elsewhere in the U.S.
Although we take precautions to enhance the safety of our
operations and minimize the risk of disruptions, our operations
are subject to hazards inherent in chemical manufacturing and
refining and the related storage and transportation of raw
materials, products and wastes. These potential hazards include:
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pipeline leaks and ruptures;
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explosions;
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fires;
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severe weather and natural disasters;
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mechanical failure;
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unscheduled downtimes;
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supplier disruptions;
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labor shortages or other labor difficulties;
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transportation interruptions;
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remediation complications;
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chemical and oil spills;
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discharges or releases of toxic or hazardous substances or gases;
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storage tank leaks;
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other environmental risks; and
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terrorist acts.
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Some of these hazards may cause severe damage to or destruction
of property and equipment and may result in suspension of
operations or the shutdown of affected facilities.
Our
operations are subject to risks inherent in chemical and
refining businesses, and we could be subject to liabilities for
which we are not fully insured or that are not otherwise
mitigated.
We maintain property, business interruption, product, general
liability, casualty and other types of insurance, including
pollution and legal liability, that we believe are in accordance
with customary industry practices. However, we are not fully
insured against all potential hazards incident to our business,
including losses resulting from natural disasters, war risks or
terrorist acts. Changes in insurance market conditions have
caused, and may in the future cause, premiums and deductibles
for certain insurance policies to increase substantially and, in
some instances, for certain insurance to become unavailable or
available only for reduced amounts of coverage. If we were to
incur a significant liability for which we were not fully
insured, we might not be able to finance the amount of the
uninsured liability on terms acceptable to us or at all, and
might be obligated to divert a significant portion of our cash
flow from normal business operations.
Further, because a part of our business involves licensing
polyolefin process technology, our licensees are exposed to
similar risks involved in the manufacture and marketing of
polyolefins. Hazardous incidents involving our licensees, if
they do result or are perceived to result from use of our
technologies, may harm our
24
reputation, threaten our relationships with other licensees
and/or lead
to customer attrition and financial losses. Our policy of
covering these risks through contractual limitations of
liability and indemnities and through insurance may not always
be effective. As a result, our financial condition and results
of operation would be adversely affected, and other companies
with competing technologies may have the opportunity to secure a
competitive advantage.
Certain
activities related to a former project raise compliance issues
under U.S. law.
We have identified an agreement related to a former project in
Kazakhstan under which a payment was made in late 2008 that
raises compliance concerns under the U.S. Foreign Corrupt
Practices Act (the FCPA). We have engaged outside
counsel to investigate these activities, under the oversight of
a special committee established by the Supervisory Board, and to
evaluate internal controls and compliance policies and
procedures. We made a voluntary disclosure of these matters to
the U.S. Department of Justice in late 2009 and are
cooperating fully with that agency. In this respect, we may not
have conducted our business in compliance with the FCPA and may
not have had policies and procedures in place adequate to ensure
compliance. We cannot reasonably estimate any potential penalty
that may arise from these matters. We have adopted and are
implementing more stringent policies and procedures designed to
ensure compliance. We cannot predict the ultimate outcome of
these matters at this time since our investigations are ongoing.
Violations of these laws could result in criminal and civil
liabilities and other forms of relief that could be material to
us.
Our
non-U.S.
operations conduct business in countries subject to U.S.
economic sanctions and certain activities raise compliance
issues under U.S. law.
Certain of our
non-U.S. subsidiaries
conduct business in countries subject to U.S. economic
sanctions, including Iran. U.S. and EU laws and regulations
prohibit certain persons from engaging in business activities,
in whole or in part, with sanctioned countries, organizations
and individuals.
We have and continue to adopt more significant compliance
policies and procedures to ensure compliance with all applicable
sanctions laws and regulations. In connection with our
continuing review of compliance risks in this area, we made a
voluntary disclosure of certain matters to the
U.S. Treasury Department and intend to continue cooperating
fully with that agency. We cannot at this point in time predict
the outcome of this matter because our investigation is ongoing,
but there is a risk that we could be subject to civil and
criminal penalties.
We have made the decision to terminate all business by us and
our direct and indirect subsidiaries with the government,
entities and individuals in Iran, Syria and Sudan. We have
notified our counterparties in these countries of our decision
and may be subject to legal actions to enforce agreements with
the counterparties. These activities present a potential risk
that could subject us to private legal proceedings that could be
material to us. At this time, we cannot predict the outcome
because our withdrawal activities are ongoing.
Our
operations could be adversely affected by labor
relations.
The vast majority of our employees located in Europe and South
America are represented by labor unions and work councils.
Approximately 900 of our employees located in North America are
represented by labor unions. Of the North American employees,
approximately 50% include our employees that are covered by a
collective bargaining agreement between Houston Refining LP and
the United Steelworkers Union, which expires on January 31,
2012.
Our operations have been in the past, and may be in the future,
significantly and adversely affected by strikes, work stoppages
and other labor disputes.
25
We
cannot predict with certainty the extent of future costs under
environmental, health and safety and other laws and regulations,
and cannot guarantee they will not be material.
We may face liability arising out of the normal course of
business, including alleged personal injury or property damage
due to exposure to chemicals or other hazardous substances at
our current or former facilities or chemicals that we
manufacture, handle or own. In addition, because our products
are components of a variety of other end-use products, we, along
with other members of the chemical industry, are subject to
potential claims related to those end-use products. Any
substantial increase in the success of these types of claims
could negatively affect our operating results.
We (together with the industries in which we operate) are
subject to extensive national, regional, state and local
environmental laws, regulations, directives, rules and
ordinances concerning
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emissions to the air;
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discharges onto land or surface waters or into
groundwater; and
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the generation, handling, storage, transportation, treatment,
disposal and remediation of hazardous substances and waste
materials.
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Many of these laws and regulations provide for substantial fines
and potential criminal sanctions for violations. Some of these
laws and regulations are subject to varying and conflicting
interpretations. In addition, some of these laws and regulations
require us to meet specific financial responsibility
requirements. Any substantial liability for environmental damage
could have a material adverse effect on our financial condition,
results of operations and cash flows.
Although we have compliance programs and other processes
intended to ensure compliance with all such regulations, we are
subject to the risk that our compliance with such regulations
could be challenged. Non-compliance with certain of these
regulations could result in the incurrence of additional costs,
penalties or assessments that could be material.
Our
industry is subject to extensive government regulation, and
existing or future regulations may restrict our operations,
increase our costs of operations or require us to make
additional capital expenditures.
Compliance with regulatory requirements could result in higher
operating costs, such as regulatory requirements relating to
emissions, the security of our facilities, and the
transportation, export or registration of our products. We
generally expect that regulatory controls worldwide will become
increasingly more demanding, but cannot accurately predict
future developments. Increasingly strict environmental laws and
inspection and enforcement policies, could affect the handling,
manufacture, use, emission or disposal of products, other
materials or hazardous and non-hazardous waste. Stricter
environmental, safety and health laws, regulations and
enforcement policies could result in increased operating costs.
Additionally, we are required to have permits for our businesses
and are subject to licensing regulations. These permits and
licenses are subject to renewal, modification and in some
circumstances, revocation. Further, the permits and licenses are
often difficult, time consuming and costly to obtain and could
contain conditions that limit our operations.
We may
incur substantial costs to comply with climate change
legislation and regulatory initiatives.
There has been a broad range of proposed or promulgated state,
national and international laws focusing on greenhouse gas
(GHG) reduction. These proposed or promulgated laws
apply or could apply in countries where we have interests or may
have interests in the future. Laws in this field continue to
evolve and, while they are likely to be increasingly widespread
and stringent, at this stage it is not possible to accurately
estimate either a timetable for implementation or our future
compliance costs relating to implementation. Within the
framework of EU emissions trading, we were allocated certain
allowances of carbon dioxide per year for the affected plants of
our European sites for the 2005 to 2007 period. For the second
trading period (2008 to 2012), a number of our plants are
included in the Europe-wide trading system. We expect to incur
additional costs as a result of the existing emissions trading
scheme and could incur additional costs in relation
26
to any future carbon or other greenhouse gas emission trading
schemes. The costs could be higher to the extent that we decide
to sell credits that we need in the future.
In the U.S., the Environmental Protection Agency (the
EPA) has promulgated federal GHG regulations under
the Clean Air Act affecting certain sources. The EPA has issued
mandatory GHG reporting requirements which could lead to further
obligations. The recent EPA action could be a precursor to
further federal regulation of carbon dioxide emissions and other
greenhouse gases, and may affect the outcome of other climate
change lawsuits pending in U.S. federal courts in a manner
unfavorable to our industry. In any event, additional regulation
is likely to be forthcoming at the U.S. federal level or
the state level with respect to GHG emissions, and such
regulation could result in the creation of additional costs in
the form of taxes or required acquisition or trading of emission
allowances.
Compliance with these or other changes in laws, regulations and
obligations that create a GHG emissions trading scheme or GHG
reduction policies generally could significantly increase our
costs or reduce demand for products we produce. Depending on the
nature of potential regulations and legislation, any future laws
and regulations could result in increased compliance costs or
additional operating restrictions, and could have a material
adverse effect on our business and results of operations.
Legislation
and regulatory initiatives could lead to a decrease in demand
for our products.
New or revised governmental regulations and independent studies
relating to the effect of our products on health, safety and the
environment may affect demand for our products and the cost of
producing our products. Initiatives by governments and private
interest groups will potentially require increased toxicological
testing and risk assessments of a wide variety of chemicals,
including chemicals used or produced by us. For example, in the
United States, the National Toxicology Program (NTP)
is a federal interagency program that seeks to identify and
select for study chemicals and other substances to evaluate
potential human health hazards. In the European Commission,
REACh is regulation designed to identify the intrinsic
properties of chemical substances, assess hazards and risks of
the substances, and identify and implement the risk management
measures to protect humans and the environment.
Assessments by the NTP, REACh or similar programs or regulations
in other jurisdictions may result in heightened concerns about
the chemicals we use or produce and may result in additional
requirements being placed on the production, handling, labeling
or use of those chemicals. Such concerns and additional
requirements could also increase the cost incurred by our
customers to use our chemical products and otherwise limit the
use of these products, which could lead to a decrease in demand
for these products. Such a decrease in demand could have an
adverse impact on our business and results of operations.
We
operate internationally and are subject to exchange rate
fluctuations, exchange controls, political risks and other risks
relating to international operations.
We operate internationally and are subject to the risks of doing
business on a global level, including fluctuations in currency
exchange rates, transportation delays and interruptions, war,
terrorist activities, epidemics, pandemics, political and
economic instability and disruptions, restrictions on the
transfer of funds, the imposition of duties and tariffs, import
and export controls, changes in governmental policies, labor
unrest and current and changing regulatory environments. Recent
demonstrations and popular unrest in portions of the Middle East
are examples of these events.
These events could reduce the demand for our products, decrease
the prices at which we can sell our products, disrupt production
or other operations, require substantial capital and other costs
to comply,
and/or
increase security costs or insurance premiums, all of which
could reduce our operating results. In addition, we obtain a
substantial portion of our principal raw materials from
international sources that are subject to these same risks. Our
compliance with applicable customs, currency exchange control
regulations, transfer pricing regulations or any other laws or
regulations to which we may be subject could be challenged.
Furthermore, these laws may be modified, the result of which may
be to prevent or limit subsidiaries from transferring cash to us.
27
Furthermore, we are subject to certain existing, and may be
subject to possible future, laws that limit or may limit our
activities while some of our competitors may not be subject to
such laws, which may adversely affect our competitiveness.
In addition, we generate revenues from export sales and
operations that may be denominated in currencies other than the
relevant functional currency. Exchange rates between these
currencies and functional currencies in recent years have
fluctuated significantly and may do so in the future. Future
events, which may significantly increase or decrease the risk of
future movement in currencies in which we conduct our business,
cannot be predicted. We also may hedge certain revenues and
costs using derivative instruments to minimize the impact of
changes in the exchange rates of those currencies compared to
the respective functional currencies. It is possible that
fluctuations in exchange rates will result in reduced operating
results.
Significant
changes in pension fund investment performance or assumptions
relating to pension costs may adversely affect the valuation of
pension obligations, the funded status of pension plans, and our
pension cost.
Our pension cost is materially affected by the discount rate
used to measure pension obligations, the level of plan assets
available to fund those obligations at the measurement date and
the expected long-term rate of return on plan assets.
Significant changes in investment performance or a change in the
portfolio mix of invested assets may result in corresponding
increases and decreases in the valuation of plan assets,
particularly equity securities, or in a change of the expected
rate of return on plan assets. Any change in key actuarial
assumptions, such as the discount rate, would impact the
valuation of pension obligations, affecting the reported funded
status of our pension plans as well as the net periodic pension
cost in the following fiscal years.
Certain of our current pension plans are underfunded. As of
December 31, 2010, our pension plans were underfunded by
$1,173 million. Any declines in the fair values of the
pension plans assets could require additional payments by us in
order to maintain specified funding levels.
Our pension plans are subject to legislative and regulatory
requirements of applicable jurisdictions, which could include,
under certain circumstances, local governmental authority to
terminate the plan.
We may
be required to record material charges against our earnings due
to any number of events that could cause impairments to our
assets.
We may be required to reduce production at or idle facilities
for extended periods of time or exit certain businesses as a
result of the cyclical nature of our industry. Specifically,
oversupplies of or lack of demand for particular products or
high raw material prices may cause us to reduce production. We
may choose to reduce production at certain facilities because we
have off-take arrangements at other facilities, which makes any
reductions or idling unavailable at those facilities. Any
decision to permanently close facilities or exit a business
likely would result in impairment and other charges to earnings.
Temporary outages at our facilities can last for several
quarters and sometimes longer. These outages could cause us to
incur significant costs, including the expenses of maintaining
and restarting these facilities. In addition, even though we may
reduce production at facilities, we may be required to continue
to purchase or pay for utilities or raw materials under
take-or-pay
supply agreements.
Many
of our businesses depend on our intellectual property. Our
future success will depend in part on our ability to protect our
intellectual property rights, and our inability to do so could
reduce our ability to maintain our competitiveness and
margins.
We have a significant worldwide patent portfolio of issued and
pending patents. These patents, together with proprietary
technical know-how, are significant to our competitive position,
particularly with regard to PO, performance chemicals,
petrochemicals, and polymers, including process technologies
such as Spheripol, Spherizone, Hostalen,
Spherilene, Lupotech T and Lupotech G and
Avant catalyst family technology rights. We rely on the
patent, copyright and trade secret laws of the countries in
which we operate to protect our
28
investment in research and development, manufacturing and
marketing. However, we may be unable to prevent third parties
from using our intellectual property without authorization.
Proceedings to protect these rights could be costly, and we may
not prevail.
The protection afforded by patents varies from country to
country and depends upon the type of patent and its scope of
coverage. While a presumption of validity exists with respect to
patents issued to us, our patents may be challenged,
invalidated, circumvented or rendered unenforceable. As patents
expire, the products and processes described and claimed under
those patents become generally available for use by competitors.
Our continued growth strategy may bring us to regions of the
world where intellectual property protection may be limited and
difficult to enforce. In addition, patent rights may not prevent
our competitors from developing, using or selling products that
are similar or functionally equivalent to our products.
Moreover, our competitors or other third parties may obtain
patents that restrict or preclude our ability to lawfully
produce or sell our products in a competitive manner, which
could result in significantly lower revenues, reduced profit
margins or loss of market share.
We also rely upon unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and
maintain our competitive position. While it is our policy to
enter into confidentiality agreements with our employees and
third parties to protect our intellectual property, these
confidentiality agreements may be breached, may not provide
meaningful protection or adequate remedies may not be available.
Additionally, others could obtain knowledge of our trade secrets
through independent development or other access by legal or
illegal means.
The failure of our patents or confidentiality agreements to
protect our processes, apparatuses, technology, trade secrets or
proprietary know-how could result in significantly lower
revenues, reduced profit margins and cash flows
and/or loss
of market share. We also may be subject to claims that our
technology, patents or other intellectual property infringes on
a third partys intellectual property rights. Unfavorable
resolution of these claims could result in restrictions on our
ability to deliver the related service or in a settlement that
could be material to us.
We may
not be able to fully or successfully implement our ongoing plans
to improve and globally integrate our business processes and
functions.
We continue to seek ways to drive greater productivity,
flexibility and cost savings. In particular, we are working
towards the improvement and global integration of our business
processes and functions. As part of these efforts, we have been
centralizing certain functions, implementing new information
technology, and integrating our existing information technology
systems.
Our ongoing implementation of organizational improvements is
made more difficult by our need to coordinate geographically
dispersed operations. Inabilities and delays in implementing
improvements can negatively affect our ability to realize
projected or expected cost savings. In addition, the process of
organizational improvements may cause interruptions of, or loss
of momentum in, the activities of our businesses. It may also
result in the loss of personnel or other labor issues. These
issues, as well as any information technology systems failures,
also could impede our ability to timely collect and report
financial results in accordance with applicable laws and
regulations.
Shared
control or lack of control of joint ventures may delay decisions
or actions regarding the joint ventures.
A portion of our operations are conducted through joint
ventures, where control may be exercised by or shared with
unaffiliated third parties. We cannot control the actions of our
joint venture partners, including any nonperformance, default or
bankruptcy of joint venture partners. The joint ventures that we
do not control may also lack adequate internal controls systems.
In the event that any of our joint venture partners do not
observe their obligations, it is possible that the affected
joint venture would not be able to operate in accordance with
our business plans. As a result, we
29
could be required to increase our level of commitment in order
to give effect to such plans. Differences in views among the
joint venture participants also may result in delayed decisions
or in failures to agree on major matters, potentially adversely
affecting the business and operations of the joint ventures and
in turn our business and operations.
Litigation
or governmental proceedings could result in material adverse
consequences, including judgments or settlements.
We are involved in civil litigation in the ordinary course of
our business and from
time-to-time
are involved in governmental proceedings relating to the conduct
of our business. The timing of the final resolutions to these
types of matters is often uncertain. Additionally, the possible
outcomes or resolutions to these matters could include adverse
judgments or settlements, either of which could require
substantial payments, adversely affecting our liquidity and
earnings.
Our
capital requirements could limit or cause us to change our
growth and development plans.
At June 30, 2011, we have approximately $5.9 billion
of total consolidated debt. Our debt and the limitations imposed
on us by our financing arrangements could:
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require us to dedicate a substantial portion, or all, of our
cash flow from operations to payments of principal and interest
on our debt;
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make us more vulnerable during downturns , which could limit our
ability to take advantage of significant business opportunities
and react to changes in our business and in market or industry
conditions; and
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put us at a competitive disadvantage relative to competitors
that have less debt.
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If our cash flow from operations and capital resources were
reduced, we may be forced to reduce or delay investments and
capital expenditures or other planned uses of our cash due to
our substantial debt service obligations. We could choose to
sell assets, seek additional capital or restructure or refinance
our indebtedness, but there can be no assurances that we would
be able to do so on terms we deem acceptable, if at all.
Additionally, our debt instruments may limit our ability to
effect such actions.
Our debt or other financing arrangements contain a number of
restrictive covenants that impose operating and financial
restrictions on us. There also is a minimum fixed charge
coverage ratio contained in our U.S. ABL Facility that is
applicable if availability under the facility falls below
certain levels. We currently are in compliance with all of our
restrictive and financial covenants; however, the ability to
meet financial requirements can be affected by events beyond our
control and, over time, these covenants may not be satisfied.
A breach of covenants of or the failure to pay principal and
interest when due under our debt or other financing could result
in a default or cross-default under all or some of those
instruments. Any such default could result in an acceleration of
all amounts outstanding under all facilities, and could relieve
counterparties of their obligations to fund or otherwise make
advances. Without waivers from the parties to our financing
arrangements, any such default would have a material adverse
effect on our ability to continue to operate.
A
substantial portion of our shares are owned by a few persons,
and their interests in LyondellBasell Industries N.V. may
conflict with other stakeholders interests.
As of June 22, 2011, two of our shareholders collectively
own approximately 45% of our outstanding ordinary shares. Under
Dutch law, there are no quorum requirements for shareholder
voting and most matters are approved or adopted by a majority of
votes cast. As a result, as long as these shareholders or any
other substantial shareholder own, directly or indirectly, a
substantial portion of our outstanding shares, they will be able
to significantly influence all matters requiring shareholder
approval, including amendments to our Articles of Association,
the election of directors, significant corporate transactions,
dividend payments and other
30
matters. These shareholders may have interests that conflict
with other stakeholders, including holders of the exchange
notes, and actions may be taken that other stakeholders do not
view as beneficial.
Additionally, these shareholders are party to a nomination
agreement that entitles each of the shareholders cause our
Supervisory Board to nominate for election members to our
Supervisory Board for so long as the shareholder owns specified
percentages of our ordinary shares.
U.S.
anti-inversion rules may apply to LyondellBasell Industries N.V.
resulting in certain adverse U.S. federal income tax
consequences.
The U.S. Internal Revenue Service (IRS) could
seek to apply Section 7874 of the IRC to treat
LyondellBasell Industries N.V. as a U.S. corporation for
U.S. federal income tax purposes or, alternatively, it
could seek to impose U.S. federal income tax on certain
income of our U.S. subsidiaries. Such an application would
be based upon the value of stock issued in our emergence from
Chapter 11 that the former creditors and shareholders of
our top U.S. holding company and its direct and indirect
subsidiaries received by reason of holding claims against those
entities.
Treatment as a U.S. corporation could result in
significantly increased U.S. federal income tax liability
to us. Application of the alternative could impose
U.S. federal income tax on our U.S. subsidiaries.
Although no assurance can be given that the IRS would not take a
contrary position regarding Section 7874s application
or that such position, if asserted, would not be sustained, we
believe that the stock issued in connection with our emergence
from the Bankruptcy Cases that is attributable to the value of
the claims against our companies outside the U.S. Group
makes a Section 7874 inapplicable to us. In addition, we
believe that strong arguments can be made that Section 7874
should not in any event apply to us because of the substantial
business activities that we and our affiliates conduct and have
historically conducted in The Netherlands.
31
USE OF
PROCEEDS
The exchange offer is intended to satisfy our obligations under
the registration rights agreement. We will not receive any
proceeds from the issuance of the exchange notes in the exchange
offer. In consideration for issuing the exchange notes as
contemplated by this prospectus, we will receive outstanding
notes in a like principal amount. The form and terms of the
exchange notes are identical in all respects to the form and
terms of the outstanding notes, except the exchange notes will
be registered under the Securities Act and will not contain
restrictions on transfer, registration rights or provisions for
additional interest. Outstanding Notes surrendered in exchange
for exchange notes will be retired and cancelled and will not be
reissued. Accordingly, the issuance of exchange notes will not
result in any change in outstanding indebtedness.
32
HISTORICAL
AND SELECTED FINANCIAL INFORMATION
See Managements Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of factors
that will enhance an understanding of this data.
The following selected financial data of the Company and its
predecessor, LyondellBasell AF, should be read in conjunction
with the Consolidated Financial Statements and related notes
thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations,
below. The selected financial data of the Company and the
Predecessor were derived from their consolidated financial
statements. Those financial statements were prepared from the
books and records of LyondellBasell AF for periods through
April 30, 2010 and of the Company upon emergence from
bankruptcy after that date. As discussed elsewhere in this
prospectus, we became the successor parent holding company of
the subsidiaries of LyondellBasell AF and the reporting entity
upon completion of the bankruptcy proceedings. Financial
information is reported for the Company as the successor on a
basis different from financial information of the predecessor,
LyondellBasell AF. As a result of the application of fresh-start
accounting and restructuring activities pursuant to the Plan of
Reorganization, the Successor period is not comparable to the
Predecessor period.
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Successor
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Predecessor
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Six Months
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May 1
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May 1
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January 1
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Ended
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through
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through
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through
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June 30,
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December 31,
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June 30,
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April 30,
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For the Year Ended December 31,
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2011
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2010
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2010
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2010
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2009
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2008
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2007(a)
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2006
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In millions of dollars
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Results of Operations Data:
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Sales and other operating revenues
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$
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26,294
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|
$
|
27,684
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|
|
$
|
6,772
|
|
|
|
$
|
13,467
|
|
|
$
|
30,828
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|
|
$
|
50,706
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|
|
$
|
17,120
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|
|
$
|
13,175
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Interest expense
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|
|
(340
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)
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|
(545
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)
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(132
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)
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|
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|
(713
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)
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|
(1,795
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)
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|
|
(2,476
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)
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|
|
(353
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)
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|
|
(332
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)
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Income (loss) from equity investments(b)
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|
|
131
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|
|
|
86
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|
|
|
27
|
|
|
|
|
84
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|
|
|
(181
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)
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|
|
38
|
|
|
|
162
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|
|
|
130
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|
Income (loss) from continuing operations(c)
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|
|
1,463
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|
|
|
1,516
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|
|
|
347
|
|
|
|
|
8,504
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|
|
|
(2,872
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)
|
|
|
(7,343
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)
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|
|
661
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|
|
|
396
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Earnings per share from continuing operations:
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Basic
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|
2.58
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|
|
|
2.68
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|
|
|
0.60
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Diluted
|
|
|
2.56
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|
|
|
2.67
|
|
|
|
0.60
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|
|
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|
|
|
|
|
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|
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Income (loss) from discontinued operations, net of tax
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|
|
|
|
|
|
64
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|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
15
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|
|
|
|
|
|
|
|
|
Earnings per share from discontinued operations:
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|
|
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|
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|
|
|
|
|
|
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Basic
|
|
|
|
|
|
|
0.11
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Diluted
|
|
|
|
|
|
|
0.11
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|
|
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|
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|
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|
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|
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|
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|
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|
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Balance Sheet Data:
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|
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|
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|
|
|
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Total assets
|
|
|
28,475
|
|
|
|
25,302
|
|
|
|
23,783
|
|
|
|
|
|
|
|
|
27,761
|
|
|
|
28,651
|
|
|
|
39,728
|
|
|
|
9,549
|
|
Short-term debt
|
|
|
50
|
|
|
|
42
|
|
|
|
557
|
|
|
|
|
|
|
|
|
6,182
|
|
|
|
774
|
|
|
|
2,415
|
|
|
|
779
|
|
Long-term debt(d)
|
|
|
5,815
|
|
|
|
6,040
|
|
|
|
6,753
|
|
|
|
|
|
|
|
|
802
|
|
|
|
23,195
|
|
|
|
22,000
|
|
|
|
3,364
|
|
Cash and cash equivalents
|
|
|
4,687
|
|
|
|
4,222
|
|
|
|
3,753
|
|
|
|
|
|
|
|
|
558
|
|
|
|
858
|
|
|
|
560
|
|
|
|
830
|
|
Accounts receivable
|
|
|
4,901
|
|
|
|
3,747
|
|
|
|
3,533
|
|
|
|
|
|
|
|
|
3,287
|
|
|
|
2,585
|
|
|
|
4,165
|
|
|
|
2,041
|
|
Inventories
|
|
|
5,577
|
|
|
|
4,824
|
|
|
|
4,372
|
|
|
|
|
|
|
|
|
3,277
|
|
|
|
3,314
|
|
|
|
5,178
|
|
|
|
1,339
|
|
Working capital
|
|
|
6,479
|
|
|
|
5,810
|
|
|
|
5,379
|
|
|
|
|
|
|
|
|
4,436
|
|
|
|
3,237
|
|
|
|
5,019
|
|
|
|
1,900
|
|
Liabilities subject to compromise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Six Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
For the Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007(a)
|
|
|
2006
|
|
In millions of dollars
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
1,247
|
|
|
|
2,957
|
|
|
|
1,105
|
|
|
|
|
(925
|
)
|
|
|
(787
|
)
|
|
|
1,090
|
|
|
|
1,180
|
|
|
|
1,034
|
|
Investing activities
|
|
|
(651
|
)
|
|
|
(312
|
)
|
|
|
(110
|
)
|
|
|
|
(224
|
)
|
|
|
(611
|
)
|
|
|
(1,884
|
)
|
|
|
(11,899
|
)
|
|
|
(535
|
)
|
Expenditures for property, plant and equipment
|
|
|
(482
|
)
|
|
|
(466
|
)
|
|
|
(113
|
)
|
|
|
|
(226
|
)
|
|
|
(779
|
)
|
|
|
(1,000
|
)
|
|
|
(411
|
)
|
|
|
(263
|
)
|
Financing activities
|
|
|
(299
|
)
|
|
|
(1,194
|
)
|
|
|
133
|
|
|
|
|
3,315
|
|
|
|
1,101
|
|
|
|
1,083
|
|
|
|
10,416
|
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Results of operations and cash flow data reflect the acquisition
of Lyondell Chemical from December 21, 2007. Balance sheet
data include Lyondell Chemical balances as of December 31,
2007. Results of operations and cash flow data for the year
ended December 31, 2006 do not reflect Lyondell Chemical,
and balance sheet data as of December 31, 2006 does not
reflect Lyondell Chemical. |
|
(b) |
|
Loss from equity investments for the year ended
December 31, 2009 includes pre-tax charges of
$228 million for impairment of the carrying value of our
investments in certain joint ventures. |
|
(c) |
|
Income from continuing operations for the eight months ended
December 31, 2010 and the four months ended April 30,
2010, respectively, included an after-tax charge of
$15 million and after-tax income of $8,640 million
related to reorganization items. Loss from continuing operations
for the year ended December 31, 2009 included after-tax
charges of $1,925 million related to reorganization items
and $11 million for impairments of goodwill and other
assets and $228 million for the impairment of the carrying
value of our investments in certain joint ventures, partially
offset by $78 million of involuntary conversion gains
related to insurance proceeds for damages sustained in 2005 at a
polymers plant in Münchsmünster, Germany. Loss from
continuing operations for the year ended December 31, 2008
included after-tax charges of $4,982 million related to the
impairment of goodwill, $816 million to adjust the value of
inventory to market value and $146 million, primarily for
impairment of the carrying value of the Berre Refinery, all of
which were partially offset by $51 million of involuntary
conversion gains related to insurance proceeds for damages
sustained at the Münchsmünster polymers plant. Income
from continuing operations for the year ended December 31,
2007 included after-tax benefits of $130 million from the
$200 million
break-up fee
related to a proposed merger with the Huntsman group, partially
offset by after tax-charges of $95 million related to the
in-process research and development acquired in the acquisition
of Lyondell Chemical, and $13 million related to asset
impairments of the carrying value of a plant in Canada and
capitalized engineering costs for a new polymers plant in
Germany. Income from continuing operations for the year ended
December 31, 2006 included after-tax asset impairment
charges of $27 million primarily for goodwill related to a
2005 acquisition of an ethylene business in France. After-tax
amounts included herein generally have been tax effected using
the U.S. statutory rate of 35%. |
|
(d) |
|
Includes current maturities of long-term debt. |
34
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of
earnings to fixed charges for the periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Six Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
For the Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Ratio of earnings to fixed charges(a)
|
|
|
6.40x
|
|
|
|
3.71
|
x
|
|
|
3.49x
|
|
|
|
|
10.47
|
x
|
|
|
|
|
|
|
|
|
|
|
3.44x
|
|
|
|
|
(a) |
|
For the years 2009 and 2008, earnings were insufficient to cover
fixed charges by $4,076 million and $8,131 million,
respectively. |
We computed our consolidated ratios of earnings to fixed charges
by dividing earnings available for fixed charges by fixed
charges. For this purpose, earnings available for fixed charges
consists of earnings before income taxes, undistributed earnings
from affiliated companies non-controlling interests,
cumulative effect of accounting changes, and fixed charges,
excluding capitalized interest. Fixed charges are interest,
whether expensed or capitalized, amortization of debt expense
and discount on premium relating to indebtedness, and such
portion of rental expense that can be demonstrated to be
representative of the interest factor in the particular case.
We did not have any preferred stock outstanding and there were
no preferred stock dividends paid or accrued during the periods
presented above.
35
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Historical and Selected Financial
Information and the financial statements and related notes
included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties,
and actual results could differ materially from those discussed
in the forward-looking statements as a result of numerous
factor. The forward looking statements are dependent upon
events, risks and uncertainties that may be outside our control.
Our actual results could differ materially from those discussed
in these forward looking statements.
GENERAL
This discussion should be read in conjunction with the
information contained in our Consolidated Financial Statements,
and the notes thereto contained elsewhere in this prospectus.
When we use the terms we, us,
our or similar words in this discussion, unless the
context otherwise requires, we are referring to LyondellBasell
Industries N.V. and its consolidated subsidiaries. We also refer
to the Company as LyondellBasell N.V., the
Successor Company, and the Successor.
In addition to comparisons of our operating results with the
same period in the prior year, we have included, as additional
disclosure, certain trailing quarter comparisons of
second quarter 2011 operating results to first quarter 2011
operating results and fourth quarter 2010 operating results to
third quarter 2010 operating results. Our businesses are highly
cyclical, in addition to experiencing some less significant
seasonal effects. Trailing quarter comparisons may offer
important insight into current business direction.
References to industry benchmark prices or costs, including the
weighted average cost of ethylene production, are generally to
industry prices and costs reported by CMAI, except that
references to industry benchmarks for refining and oxyfuels
market margins are to industry prices reported by Platts, a
reporting service of The McGraw-Hill Companies and crude oil and
natural gas benchmark price references are to Bloomberg.
OVERVIEW
Our performance is driven by, among other things, global
economic conditions generally and their impact on demand for our
products, raw material and energy prices, and industry-specific
issues, such as production capacity. Our businesses are subject
to the cyclicality and volatility seen in the chemicals and
refining industries generally.
Foreign Currency Translations of
Non-U.S. Denominated
Financial Statements In countries outside of the
United States, we generally generate revenues and incur
operating expenses denominated in local currencies. The
predominant local currency of our operations outside of the
United States is the Euro. The gains and losses that result from
the process of translating foreign functional currency financial
statements to U.S. dollars are included in Accumulated
other comprehensive income (loss) in Stockholders equity.
These translation adjustments may be significant in any given
period, based on the fluctuations of the Euro relative to the
U.S. Dollar. In the quarters ended June 30, 2011 and
March 31, 2011, increases in the value of the
U.S. dollar relative to the Euro resulted in gains of
$124 million and $376 million, respectively. Such
gains, which are reflected in the $500 million gain in
Accumulated other comprehensive income on the consolidated
statement of stockholders equity at June 30, 2011,
represent increases to comprehensive income for the respective
periods.
EMERGENCE
FROM CHAPTER 11 PROCEEDINGS
Bankruptcy Filing On January 6, 2009,
certain of LyondellBasell AFs U.S. subsidiaries and
one of its European holding companies, Basell Germany Holdings
GmbH (Germany Holdings and collectively, the
Initial Debtors) filed voluntary petitions for
relief under chapter 11 of the U.S. Bankruptcy Code.
In addition, voluntary petitions for relief under
chapter 11 of the U.S. Bankruptcy Code were filed by
LyondellBasell AF and its General Partner, LyondellBasell AF GP
S.à.r.l. on April 24, 2009 and by thirteen
36
additional U.S. subsidiaries on May 8, 2009
(collectively with the Initial Debtors, the
Debtors). All 94 of these cases (the
Bankruptcy Cases) were jointly administered under
the caption In re Lyondell Chemical Company, et
al, and the Debtors operated their businesses and
managed their properties as
debtors-in-possession
under the jurisdiction of the U.S. Bankruptcy Court and in
accordance with the applicable provisions of the
U.S. Bankruptcy Code and orders of the U.S. Bankruptcy
Court.
On April 23, 2010, the U.S. Bankruptcy Court confirmed
LyondellBasell AFs Third Amended and Restated Plan of
Reorganization and the Debtors emerged from chapter 11
protection on April 30, 2010 (the Emergence
Date). As a result of the emergence from chapter 11
proceedings, certain prepetition liabilities against the Debtors
were discharged to the extent set forth in the Plan of
Reorganization and otherwise applicable law and the Debtors made
distributions to their creditors in accordance with the terms of
the Plan of Reorganization.
Plan of Reorganization LyondellBasell N.V.
became the successor parent holding company for the subsidiaries
of LyondellBasell AF after completion of the Bankruptcy Cases.
LyondellBasell N.V. is a company with limited liability
(Naamloze Vennootschap) incorporated under Dutch law by
deed of incorporation dated October 15, 2009.
LyondellBasell AF, which was the predecessor parent holding
company, is no longer part of the consolidated LyondellBasell
group subsequent to the Emergence Date.
Under the Plan of Reorganization, the organizational structure
of the Company in North America was simplified by the removal of
90 legal entities. The ultimate ownership of 49 of these
entities (identified as Schedule III Debtors in the Plan of
Reorganization) was transferred to a new owner, the Millennium
Custodial Trust, a trust established for the benefit of certain
creditors, and these entities are no longer part of
LyondellBasell N.V. In addition, certain real properties owned
by the Debtors, including the Schedule III Debtors, were
transferred to the Environmental Custodial Trust, which now owns
and is responsible for these properties. Any associated
liabilities of the entities transferred to and owned by the
Millennium Custodial Trust are the responsibility of those
entities and claims regarding those entities will be resolved
solely using their assets and the assets of the trust. In total,
$250 million of cash was used to fund the two trusts,
including approximately $80 million for the Millennium
Custodial Trust and approximately $170 million for the
Environmental Custodial Trust and to make certain direct
payments to the Environmental Protection Agency and certain
state environmental agencies.
Pursuant to the Plan of Reorganization, administrative and
priority claims, as well as the new money
debtor-in-possession
(DIP) financing that had been incurred during the
bankruptcy proceedings were repaid in full. The lenders of
certain DIP loans representing a
dollar-for-dollar
roll-up or
conversion of previously outstanding senior secured loans
(DIP
Roll-up
Notes) received Senior Secured 11% Notes in the same
principal amount as the DIP
Roll-up
Notes. Holders of senior secured claims received a combination
of LyondellBasell N.V. class A ordinary shares; rights to
purchase class B ordinary shares of LyondellBasell N.V.;
LyondellBasell N.V. warrants to purchase class A ordinary
shares; and cash in exchange for their claims. Pursuant to the
Amended Lender Litigation Settlement approved by the
U.S. Bankruptcy Court on March 11, 2010, allowed
general unsecured claims received a combination of cash and
class A ordinary shares of LyondellBasell N.V.
See Liquidity and Capital Resources below for a
discussion of the emergence financing.
Tax Impact of Reorganization Under the Plan
of Reorganization, LyondellBasell AFs pre-petition debt
securities, revolving credit facility and other obligations were
extinguished. Absent an exception, a debtor recognizes
cancellation of indebtedness income (CODI) upon
discharge of its outstanding indebtedness for an amount of
consideration that is less than its adjusted issue price. The
Internal Revenue Code of 1986, as amended (IRC),
provides that a debtor in a bankruptcy case may exclude CODI
from income, but must reduce certain of its tax attributes by
the amount of any CODI realized as a result of the consummation
of a plan of reorganization. The amount of CODI realized by a
taxpayer is the adjusted issue price of any indebtedness
discharged less the sum of (i) the amount of cash paid,
(ii) the issue price of any new indebtedness issued and
(iii) the fair market value of any other consideration,
including equity, issued. As a result of the market value of our
equity on the Emergence Date, the estimated amount of CODI
exceeded the estimated amount of its tax attributes by
approximately $7,433 million. The actual reduction in tax
attributes does not occur until the first day of the subsequent
tax year, or January 1, 2011.
37
As a result of tax attribute reduction, we do not expect to
retain any U.S. net operating loss carryforwards,
alternative minimum tax credits or capital loss carryforwards.
In addition, we expect that a substantial amount of our tax
basis in depreciable assets will be eliminated. Accordingly, it
is expected that our liability for U.S. income taxes in
future periods will reflect these adjustments and our estimated
cash tax liabilities for the years following 2010 will be
significantly higher than in 2009 or 2010. This situation may be
somewhat postponed by the temporary bonus depreciation
provisions contained in the Job Creation Act of 2010, which
allows current year expensing for certain qualified
acquisitions. As a result of certain prior year limitations on
the deductibility of our interest expense in the U.S., we did
retain approximately $2,500 million of interest carryforwards
which are available to offset future taxable income, subject to
certain limitations.
The Company recorded its adjusted taxes in fresh-start
accounting without adjustment for estimated changes of tax
attributes that could occur from May 1, 2010 to
January 1, 2011, the date of actual reduction of tax
attributes. Any adjustment to our tax attributes as a result of
events or transactions that occurred during the period from
May 1, 2010 to December 31, 2010 is reflected in the
earnings of the Successor Company.
IRC Sections 382 and 383 provide an annual limitation with
respect to the ability of a corporation to utilize its tax
attributes, as well as certain
built-in-losses,
against future U.S. taxable income in the event of a change
in ownership. The emergence from chapter 11 proceedings is
considered a change in ownership for purposes of IRC
Section 382. The limitation under the IRC is based on the
value of the corporation as of the Emergence Date. We do not
expect that the application of these limitations will have a
material affect upon our U.S. federal income tax
liabilities. Germany has similar provisions that preclude the
use of certain tax attributes generated prior to a change of
control. As of the Emergence Date, the Company had tax benefits
associated with excess interest expense carryforwards of
$16 million in Germany that were eliminated as a result of
the emergence. The reversal of tax benefits associated with the
loss of these carryforwards is reflected in the Predecessor
period.
Our current and future provisions for income taxes are
significantly impacted by the initial recognition of, and
changes in, valuation allowances in certain countries and are
dependent upon future earnings and earnings sustainability in
those jurisdictions. Consequently, our effective tax rate of
10.1% in the Successor period is not indicative of future
effective tax rates.
Financial Information Following the
completion of the Bankruptcy Cases, LyondellBasell AFs
equity interests in its indirect subsidiaries terminated and
LyondellBasell N.V., the successor holding company, now owns and
operates, directly and indirectly, substantially the same
business owned and operated by LyondellBasell AF prior to
emergence from bankruptcy. For accounting purposes, the
operations of LyondellBasell AF are deemed to have ceased on
April 30, 2010 and LyondellBasell N.V. is deemed to have
begun operations on that date. Effective May 1, 2010, we
adopted fresh-start accounting. References in the following
discussions to the Company for periods prior to
April 30, 2010, the Emergence Date, are to the Predecessor
Company and, for periods after the Emergence Date, to the
Successor Company.
The accompanying consolidated financial statements present
separately the period prior to April 30, 2010 and the
period after emergence from bankruptcy to recognize the
application of fresh-start accounting. Management believes that
combining the Successor and Predecessor periods for the year
ended December 31, 2010, which is a non-GAAP presentation,
provides a more meaningful comparison of the 2010, 2009 and 2008
results of operations and cash flows when considered with the
effects of fresh-start accounting described below. As a result,
we have combined the periods in our discussion to enable a more
meaningful analysis of year over year results. The effects of
fresh-start accounting are specifically addressed throughout the
discussion to ensure a proper analysis. References in the
following discussion to results for the year ended
December 31, 2010 are to the combined Successor and
Predecessor periods unless otherwise specifically described as
Successor or Predecessor.
The primary impacts of our reorganization pursuant to the Plan
of Reorganization and the adoption of fresh-start accounting on
our results of operations are as follows:
Inventory We adopted the last in, first out
(LIFO) method of accounting for inventory upon
implementation of fresh-start accounting. Prior to the emergence
from bankruptcy, LyondellBasell AF used
38
both the first in, first out (FIFO) and LIFO
methods of accounting to determine inventory cost. For purposes
of evaluating segment results, management reviewed operating
results for LyondellBasell AF determined using current cost,
which approximates results using the LIFO method of accounting
for inventory. Subsequent to the Emergence Date, our operating
results are reviewed using the LIFO method of accounting for
inventory. While determining the impact of the adoption of LIFO
on predecessor periods is not practicable, we believe that the
current cost method used by the Predecessor for segment
reporting is similar to LIFO and the current cost method would
have resulted in a decrease of cost of sales of $29 million
and $199 million for the twelve months ended
December 31, 2009 and four months ended April 30,
2010, respectively.
In addition, on April 30, 2010, pursuant to ASC Topic 852,
Reorganizations, we recorded inventory at fair value. The
increase in inventory of $1,297 million was primarily in
the U.S. and was largely driven by the price of crude oil.
The decline of the per barrel benchmark price of crude oil from
$86.15 at April 30, 2010 to $75.63 at June 30, 2010
contributed to a $333 million lower of cost or market
charge in the second quarter 2010, primarily to our raw
materials and finished goods inventory. In the third quarter
2010, lower market prices, primarily for polypropylene, resulted
in an additional $32 million lower of cost or market charge
to adjust the value of our finished goods inventory to market.
During the fourth quarter 2010, we recorded a $323 million
non-cash credit to reflect the market price recovery of WTI
crude oil, substantially offsetting the second quarter 2010
lower of cost or market adjustment to our raw materials
inventory. The effect of these adjustments to the value of our
inventory is reflected in cost of sales for the Successor period.
Depreciation and amortization expense
Depreciation and amortization expense is lower in the Successor
period as a result of our revaluation of assets for fresh-start
accounting. For additional information on the revaluation of
assets, see Note 4 to the LyondellBasell N.V. Consolidated
Financial Statements for the year ended December 31, 2010.
Depreciation and amortization as reported for all periods
presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
179
|
|
|
$
|
339
|
|
|
$
|
394
|
|
|
$
|
93
|
|
|
|
$
|
116
|
|
|
$
|
464
|
|
|
$
|
1,412
|
|
|
$
|
1,493
|
|
Amortization
|
|
|
35
|
|
|
|
79
|
|
|
|
142
|
|
|
|
33
|
|
|
|
|
18
|
|
|
|
75
|
|
|
|
293
|
|
|
|
356
|
|
Research and development expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4
|
|
|
|
9
|
|
|
|
11
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
8
|
|
|
|
24
|
|
|
|
23
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6
|
|
|
|
12
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
4
|
|
|
|
18
|
|
|
|
45
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224
|
|
|
$
|
439
|
|
|
$
|
558
|
|
|
$
|
129
|
|
|
|
$
|
141
|
|
|
$
|
565
|
|
|
$
|
1,774
|
|
|
$
|
1,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense Lower interest expense in
the Successor period was largely driven by the discharge or
repayment of debt, upon which interest was accruing during the
bankruptcy, through the Companys reorganization on
April 30, 2010 pursuant to the Plan of Reorganization,
partially offset by interest expense on the new debt incurred as
part of the emergence from bankruptcy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Three Months
|
|
Six Months
|
|
May 1
|
|
May 1
|
|
|
April 1
|
|
January 1
|
|
|
|
|
|
|
Ended
|
|
Ended
|
|
through
|
|
through
|
|
|
through
|
|
through
|
|
Twelve Months
|
|
|
June 30,
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
|
|
April 30,
|
|
April 30,
|
|
Ended December 31,
|
|
|
2011
|
|
2011
|
|
2010
|
|
2010
|
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
177
|
|
|
$
|
340
|
|
|
$
|
545
|
|
|
$
|
132
|
|
|
|
$
|
302
|
|
|
$
|
713
|
|
|
$
|
1,795
|
|
|
$
|
2,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Overview
of Results of Operations
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Global market conditions in the second quarter and first six
months of 2011 improved from those experienced in the same
periods in 2010 as general economic activities and demand in the
durable goods sector, particularly the automotive markets, were
higher. As a result, demand and operating rates were higher in
2011 than in 2010.
Excluding the impacts of fresh-start accounting, operating
results in the second quarter and first six months 2011
generally reflected higher product margins compared to the same
periods in 2010. The O&P-Americas business segment
benefited from higher product margins driven by lower natural
gas liquid prices relative to the price of crude oil. Higher
operating results in the O&P-EAI and the I&D
businesses were primarily a reflection of higher product margins
and higher sales volumes due to improvement in the global
economy and in the durable goods markets. The Refining and
Oxyfuels business segment results reflected the benefit of
higher refining margins at the Houston refinery. Revenues
associated with licenses granted in prior periods contributed to
higher results in the Technology segment.
2010 Versus 2009 Global market conditions in
2010 improved from the weak conditions experienced throughout
most of 2009 as demand in the durable goods sector, particularly
the automotive markets, was higher than in 2009. As a result,
demand and operating rates were higher in 2010 than in 2009. In
addition, certain of our business segments benefited from
planned and unplanned competitor operating disruptions,
particularly during the second quarter 2010.
Excluding the impacts of fresh-start accounting discussed above
in Emergence from Chapter 11
Proceedings, operating results in 2010 generally reflected
higher product margins and higher sales volumes compared to
2009. Reliable operations and the effect of industry supply
disruptions resulted in higher product margins and higher sales
volumes in the O&P-Americas business segment. Higher
operating results in the O&P-EAI and the I&D
businesses were primarily a reflection of higher sales volumes
and higher product margins due to improvement in the durable
goods markets, especially the automotive market. The Refining
and Oxyfuels business segment results were higher in 2010
primarily due to higher refining margins at the Houston
refinery. Lower licensing revenue contributed to lower results
in the Technology segment.
2009 Versus 2008 Although global market
conditions in 2009 improved compared to late 2008, compared to
the full year 2008, market conditions in 2009 were significantly
weaker. Demand was particularly weak in durable goods market
sectors, including housing and automotive markets. Similarly,
while industry operating rates and sales volumes improved during
the course of 2009 compared to late 2008, for the full year
2009, they were below the levels experienced for the full year
2008, despite the significant decline in business activity late
in 2008.
Refining margins were significantly lower in 2009 as a result of
weak demand for distillates, such as diesel and heating oil.
Heavy crude oil refining margins were also negatively affected
by a contraction in the differential between the price of light
and heavy crude oil. After peaking at a record-setting level in
mid-2008, prices for crude oil and NGLs on average were
significantly lower in 2009. In 2009, chemical product margins
also generally declined because of the weaker pricing
environment and lower average sales prices. An exception was the
U.S. polyethylene market, which experienced strong export
demand and higher product margins during the latter half of 2009.
LyondellBasell AFs underlying operating results in 2009,
compared to 2008, primarily reflected the negative effects of
significantly lower product margins and sales volumes. These
were partly offset by the benefits of lower fixed costs, strong
margins for LyondellBasell AFs propylene oxide and
advanced polyolefin products and higher U.S. polyethylene
margins. A substantial portion of the lower product margins was
due to refining operations, while the lower sales volumes were
concentrated in the base chemicals and polymers products and
reflected the weakness in demand. The lower fixed costs resulted
from LyondellBasell AFs aggressive cost reduction program.
40
Net income in 2009 also reflected charges related to
LyondellBasell AFs planned reorganization under
chapter 11, including professional fees, write offs of
plant asset values, contract rejection claims, employee
severance costs and other costs associated with the
chapter 11 proceedings and plant closures. For a detailed
description of reorganization charges, see Results of
Operations below.
Net income in 2008 included charges for asset impairments,
reflecting declines in the value of inventory, goodwill and
other intangible assets, as markets weakened and product sales
prices and margins declined significantly at the end of 2008.
Results of operations for the Successor and Predecessor periods
discussed in these Results of Operations are
presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
For the Twelve
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
|
$
|
14,042
|
|
|
$
|
26,294
|
|
|
$
|
27,684
|
|
|
$
|
6,772
|
|
|
|
$
|
3,712
|
|
|
$
|
13,467
|
|
|
$
|
30,828
|
|
|
$
|
50,706
|
|
Cost of sales
|
|
|
12,474
|
|
|
|
23,417
|
|
|
|
24,697
|
|
|
|
6,198
|
|
|
|
|
3,284
|
|
|
|
12,405
|
|
|
|
29,372
|
|
|
|
48,780
|
|
Inventory valuation adjustment
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
1,256
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
17
|
|
|
|
5,207
|
|
Selling, general and administrative expenses
|
|
|
247
|
|
|
|
458
|
|
|
|
564
|
|
|
|
129
|
|
|
|
|
91
|
|
|
|
308
|
|
|
|
850
|
|
|
|
1,197
|
|
Research and development expenses
|
|
|
56
|
|
|
|
89
|
|
|
|
99
|
|
|
|
23
|
|
|
|
|
14
|
|
|
|
55
|
|
|
|
145
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,265
|
|
|
|
2,330
|
|
|
|
2,254
|
|
|
|
422
|
|
|
|
|
323
|
|
|
|
690
|
|
|
|
317
|
|
|
|
(5,928
|
)
|
Interest expense
|
|
|
(177
|
)
|
|
|
(340
|
)
|
|
|
(545
|
)
|
|
|
(132
|
)
|
|
|
|
(302
|
)
|
|
|
(713
|
)
|
|
|
(1,795
|
)
|
|
|
(2,476
|
)
|
Interest income
|
|
|
13
|
|
|
|
21
|
|
|
|
17
|
|
|
|
12
|
|
|
|
|
3
|
|
|
|
5
|
|
|
|
18
|
|
|
|
69
|
|
Other income (expense), net
|
|
|
45
|
|
|
|
2
|
|
|
|
(103
|
)
|
|
|
54
|
|
|
|
|
(65
|
)
|
|
|
(263
|
)
|
|
|
319
|
|
|
|
106
|
|
Income (loss) from equity investments
|
|
|
73
|
|
|
|
131
|
|
|
|
86
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
84
|
|
|
|
(181
|
)
|
|
|
38
|
|
Reorganization items
|
|
|
(28
|
)
|
|
|
(30
|
)
|
|
|
(23
|
)
|
|
|
(8
|
)
|
|
|
|
7,181
|
|
|
|
7,388
|
|
|
|
(2,961
|
)
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
|
388
|
|
|
|
651
|
|
|
|
170
|
|
|
|
28
|
|
|
|
|
(1,327
|
)
|
|
|
(1,315
|
)
|
|
|
(1,411
|
)
|
|
|
(848
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
803
|
|
|
$
|
1,463
|
|
|
$
|
1,580
|
|
|
$
|
347
|
|
|
|
$
|
8,496
|
|
|
$
|
8,504
|
|
|
$
|
(2,871
|
)
|
|
$
|
(7,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating results discussed below are reviewed for the
Successor period using the LIFO method of accounting for
inventory and were reviewed for the Predecessor periods on a
current cost basis.
RESULTS
OF OPERATIONS
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Revenues Revenues increased by
$3,558 million, or 34%, in the second quarter 2011 compared
to the second quarter 2010 and $6,055 million, or 30%, in
the first six months of 2011 compared to the first six months of
2010. Higher average product prices were responsible for revenue
increases of 19% and 17%, respectively, in the second quarter
and first six months of 2011, while higher sales volumes added
the remaining 15% and 13%, respectively, compared to the same
periods in 2010. Average product sales prices were higher across
most products and sales volumes increased primarily due to
higher refining volumes and, to a lesser extent, higher sales
volumes for European olefins and styrene.
Cost of Sales The $2,992 million and
$4,805 million increases in cost of sales for the second
quarter and first six months was primarily due to higher raw
material costs, which reflect the effects of higher prices
41
for crude oil and other hydrocarbons compared to the second
quarter and first six months of 2010. Depreciation and
amortization expense was lower by $46 million and
$247 million, respectively, in the second quarter and first
six months of 2011 compared to the combined second quarter and
first six months of 2010, primarily due to the
$7,474 million write-down of Property, plant and equipment
associated with the April 2010 revaluation of our assets in
fresh-start accounting. The 2010 Successor period included a
$333 million non-cash charge to adjust the value of
inventory at June 30, 2010 to market value, which was lower
than the April 30, 2010 value applied during fresh-start
accounting.
SG&A Expenses Selling, general and
administrative (SG&A) expenses in the second
quarter and first six months of 2011 were higher by
$27 million and $21 million, respectively, compared to
the second quarter and first six months of 2010. The increases
reflect charges associated with activities to reorganize certain
functional organizations, partially offset by lower
employee-related expenses as a result of a lower headcount.
R&D Expenses Research and development
(R&D) expenses in the second quarter and first
six months of 2011 increased $19 million and
$11 million, respectively, primarily due to
$16 million of charges related to employee severance and
asset retirement obligations associated with an R&D
facility that is being relocated.
Operating Income The increases in operating
income in the second quarter and first six months of 2011,
compared to the second quarter and first six months of 2010, are
primarily due to higher product margins across most of our
products, and the effect of higher refining and product sales
volumes. Operating results in the second quarter and first six
months of 2011 and the Successor period in 2010 benefited from
lower depreciation and amortization expense of $46 million,
$255 million and $209 million, respectively, primarily
due to the $7,474 million write-down of Property, plant,
and equipment associated with the revaluation of our assets in
fresh-start accounting in April 2010. Results in the 2010
Successor period included a $333 million non-cash charge to
adjust inventory as described above. Operating results for each
of our business segments are reviewed further in the
Segment Analysis section below.
Interest Expense Interest expense was
$257 million and $505 million lower in the second
quarter and first six months 2011 compared to the same periods
in 2010, primarily due to the repayment or discharge of higher
cost debt on the Emergence Date in accordance with the Plan of
Reorganization, upon which interest had been accruing during the
bankruptcy, and the repayment of $1,486 million of debt
since the beginning of the fourth quarter 2010.
Other Income (Expense), net Other income,
net, in the second quarter and first six months of 2011 included
a $41 million gain on the sale of surplus precious metals
and the fair value adjustment of the warrants to purchase our
shares, which reflected a $6 million benefit in the second
quarter 2011 and a negative effect of $59 million in the
first six months of 2011. The first six months of 2011 also
benefited from $7 million of foreign exchange gains.
Other expense, net, in the second quarter and first six months
of 2010 included foreign exchange losses of $14 million and
$218 million, respectively. The foreign exchange losses for
the first six months of 2010 are primarily related to the
revaluation of third party debt of certain of our subsidiaries
due to a decrease in the foreign exchange rates in effect at
June 30, 2010 compared to December 31, 2009. Such debt
was denominated in currencies other than the functional
currencies of these subsidiaries and was refinanced upon
emergence from bankruptcy.
Reorganization Items The Company had
reorganization items expense totaling $28 million and
$30 million in the second quarter and first six months of
2011, respectively, and income from reorganization items of
$7,173 million and $7,380 million in the second
quarter and first six months of 2010. Income from reorganization
items in the 2010 periods included gains totaling
$13,617 million related to settlement of liabilities
subject to compromise, deconsolidation of entities upon
emergence, adjustments related to rejected contracts, and a
reduction of environmental remediation liabilities. These gains
were partially offset by a charge of $6,278 million related
to the changes in net assets resulting from the application of
fresh-start accounting and by several one-time emergence costs,
including the success and other fees earned by certain
42
professionals upon the Companys emergence from
bankruptcy, damages related to the rejection of executory
contracts and plant closure costs.
Income Tax Our effective income tax rate for
the first six months of 2011 was 30.8% resulting in tax expense
of $651 million on pretax income of $2,114 million.
The 2011 effective income tax rate was lower than the
U.S. statutory 35% rate primarily due to the effect of
pretax income in countries with lower statutory tax rates and
tax deductible foreign currency losses which were partially
offset by the non-deductible expenses related to stock warrants.
In the two months Successor period ended June 30, 2010, we
recorded a tax provision of $28 million, representing an
effective tax rate of 7.5% on pre-tax income of
$375 million. In the four months ended April 30, 2010,
the Predecessor recorded a tax benefit of $1,315 million,
representing a negative effective tax rate of 18.3% on pretax
income of $7,189 million. The provision for the 2010
Successor period differs from the statutory 35% rate primarily
due to the fact that in several countries the Company generated
either income with no tax expense or losses where no tax benefit
was recorded due to valuation allowances on our deferred tax
assets in those countries.
Net Income The following table summarizes the
major components contributing to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
Millions of dollars
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
Operating income
|
|
$
|
1,265
|
|
|
$
|
2,330
|
|
|
$
|
422
|
|
|
|
$
|
323
|
|
|
$
|
690
|
|
Interest expense, net
|
|
|
(164
|
)
|
|
|
(319
|
)
|
|
|
(120
|
)
|
|
|
|
(299
|
)
|
|
|
(708
|
)
|
Other income (expense), net
|
|
|
45
|
|
|
|
2
|
|
|
|
54
|
|
|
|
|
(65
|
)
|
|
|
(265
|
)
|
Income from equity investments
|
|
|
73
|
|
|
|
131
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
84
|
|
Reorganization items
|
|
|
(28
|
)
|
|
|
(30
|
)
|
|
|
(8
|
)
|
|
|
|
7,181
|
|
|
|
7,388
|
|
Provision for (benefit from) income taxes
|
|
|
388
|
|
|
|
651
|
|
|
|
28
|
|
|
|
|
(1,327
|
)
|
|
|
(1,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
803
|
|
|
$
|
1,463
|
|
|
$
|
347
|
|
|
|
$
|
8,496
|
|
|
$
|
8,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2011 versus First Quarter 2011
Net income was $803 million in the second quarter 2011
compared to $660 million in the first quarter 2011. Net
income in the first quarter 2011 reflected a net pretax charge
of $59 million related to the fair value adjustment of our
outstanding warrants, partially offset by a $34 million
pretax insurance recovery associated with misappropriation of
assets. The second quarter 2011 reflected pretax charges
totaling $102 million, including $61 million related
to corporate restructurings, $28 million of reorganization
items, $16 million of environmental charges and
$12 million related to the early repayment of debt. These
charges were partially offset by pretax benefits totaling
$47 million, including a $41 million benefit from the
sale of surplus precious metals. Apart from these items, net
income in the second quarter 2011 reflected improvements in
operating results for most of our business segments. These net
benefits were partially offset by lower net operating income for
the technology business segment and a higher provision for
income taxes in the second quarter 2011.
Three
Years Ended December 31, 2010
Revenues We had revenues of
$41,151 million in 2010, $30,828 million in 2009 and
$50,706 million in 2008. Higher average product sales
prices were responsible for nearly all of the 33% revenue
increase in 2010. A slight 1% increase in revenues resulting
from the effect of higher sales volumes in 2010 compared to 2009
was mostly offset by lower licensing revenue in the Technology
business segment. Higher crude-oil and natural gas prices also
contributed to the increase in average sales prices in 2010.
The $19,878 million decrease in 2009 compared to 2008
reflected the effect of significantly lower sales prices and
sales volumes due to lower crude oil and natural gas prices and
weaker demand. Lower average product sales prices and lower
sales volumes were respectively responsible for 36% and 3%
decreases in revenue in 2009 compared to 2008.
Cost of Sales Cost of sales were
$37,102 million in 2010, $29,372 million in 2009 and
$48,780 million in 2008.
43
The $7,730 million increase in cost of sales in 2010 was
primarily due to higher raw material costs, which reflect the
effects of higher crude oil and natural gas liquids-based raw
material prices, as well as the effect of higher sales volumes.
Cost of sales in the Successor period included a
$64 million charge related to a change in estimate related
to a dispute over environmental liability. Lower depreciation
and amortization expense of $630 million due to the
$7,474 million write-down of Property, plant, and equipment
associated with the revaluation of our assets in fresh-start
accounting partially offset the higher costs in the Successor
Period. The Predecessor period in 2010 included a charge of
$23 million for plant closure and other costs related to a
polypropylene plant in Terni, Italy.
The $19,408 million decrease in 2009 compared to 2008 was
primarily due to lower market prices for crude oil, crude
oil-based and natural gas liquids raw materials, lower fixed and
variable costs, and lower sales volumes and operating rates,
reflecting the weak demand.
Inventory Valuation Adjustment The Company
had non-cash inventory valuation adjustments of
$42 million, $127 million and $1,256 million in
the 2010 Successor period, 2009 and 2008, respectively. We
recorded non-cash charges in the 2010 Successor period totaling
$365 million to adjust the value of our raw materials and
finished goods inventory to market as of June 30, 2010 and
September 30, 2010. As discussed above, these lower of cost
or market charges were the result of the decline in the per
barrel benchmark price of crude oil from the Emergence Date to
June 30, 2010 and lower market prices for certain products,
primarily polypropylene. A non-cash credit of $323 million
recorded in the fourth quarter 2010 to reflect the recovery of
market price substantially offset the lower of cost or market
adjustment related to our raw materials inventory. In 2009 and
2008, the Company recorded charges of $127 million and
$1,256 million, respectively, to adjust the value of its
inventory to market, which was lower than the carrying value on
December 31, 2009 and 2008.
Impairments Impairments of $37 million,
$17 million and $5,207 million were recognized by the
Company in 2010, 2009 and 2008, respectively. In the 2010
Successor period, we recognized $28 million of impairment
charges, including a charge of $25 million related to
impairment of the carrying value of assets at the Berre
refinery. Capital spending required for the operation of the
Berre refinery will continue to be impaired until such time as
the discounted cash flow projections for the Berre refinery are
sufficient to recover the assets carrying amount. In 2008,
the Company recognized charges of $4,982 million for
impairment of goodwill related to the December 20, 2007
acquisition of Lyondell Chemical and $225 million primarily
related to the carrying value of its Berre refinery.
SG&A Expenses Selling, general and
administrative (SG&A) expenses were
$872 million in 2010, $850 million in 2009 and
$1,197 million in 2008. The $347 million decrease in
2009 compared to 2008 was primarily the result of LyondellBasell
AFs 2009 cost reduction program, and a favorable effect
from changes in currency exchange rates. Currency exchange rates
had a favorable effect on costs of
non-U.S. operations
as the U.S. dollar strengthened versus the Euro in 2009
compared to 2008. SG&A expenses in 2008 included
$564 million of Lyondell Chemical and Berre refinery
SG&A expense following their acquisitions by LyondellBasell
AF on December 20, 2007 and April 1, 2008,
respectively.
Operating Income (Loss) The Company had
operating income of $2,944 million and $317 million in
2010 and 2009, respectively, and an operating loss of
$5,928 million in 2008. The results of our underlying
operations improved in 2010, compared to 2009, reflecting higher
product margins and the effect of higher sales volumes as demand
increased due to improved global market conditions, particularly
in the first half of the year compared to the same periods in
2009 when demand was very weak. Operating results in the 2010
Successor period benefited from lower depreciation and
amortization expense of $651 million primarily due to the
$7,474 million write-down of Property, plant, and equipment
associated with the revaluation of our assets in fresh-start
accounting. Operating results in the 2010 Successor period also
included the negative impact of the $64 million non-cash
charge related to a dispute over environmental liability.
Results in 2009 compared to 2008 reflected the benefits of the
Companys cost reduction program, offset by the unfavorable
effects of lower product margins, sales volumes, and currency
exchange rates on
non-U.S. operating
income. Results in 2008 were impacted by charges of
$4,982 million and $225 million, respectively, for
impairment of goodwill related to the December 20, 2007
acquisition of Lyondell Chemical
44
and the carrying value of the Berre refinery; and a charge of
$1,256 million to adjust inventory to market value.
Operating results for each of our business segments are reviewed
further in the Segment Analysis section below.
Interest Expense Interest expense was
$1,258 million in 2010, $1,795 million in 2009 and
$2,476 million in 2008. Interest expense was
$537 million lower in 2010 compared to 2009, primarily due
to the repayment or discharge of debt on the Emergence Date in
accordance with the Plan of Reorganization, upon which interest
was accruing during the bankruptcy, and the repayment of
$1,233 million of debt in the fourth quarter 2010. This
decrease in interest expense was partially offset by interest
expense on the debt incurred as part of the emergence financing
(see Note 15 to LyondellBasell N.V.s Consolidated
Financial Statements for the year ended December 31, 2010)
and $26 million of charges related to the prepayment of
$769 million of debt in December 2010. The prepayment of
debt included $275 million of our 8% senior secured
notes and $494 million of the senior secured term loan
facility in December 2010. We also repaid $464 million
under the accounts receivable securitization facility and
accounts receivable factoring agreement during October and
November of 2010. Interest expense in 2009 was lower, compared
to 2008, primarily due to various debt instruments becoming
subject to compromise as a result of the chapter 11 filing.
Contractual interest expense for the Predecessor periods was
$2,720 million for 2009 and $2,476 million for 2008.
Other Income (Expense), net The Company had
other expense, net, of $366 million in 2010 and other
income, net, of $319 million and $106 million in 2009
and 2008, respectively. Other expense, net, in 2010 included the
negative effect of the fair value adjustment of the warrants to
purchase our shares of $114 million and foreign exchange
losses of $240 million. In 2009 and 2008, the Company
recognized involuntary conversion gains of $120 million and
$79 million, respectively, representing partial insurance
settlements of outstanding insurance claims related to damages
sustained in 2005 at the polymers plant in
Münchsmünster, Germany, and foreign exchange gains of
$123 million and $20 million, respectively, as a
result of changes in currency exchange rates. Other income, net,
in 2009 also included benefits totaling $72 million
resulting from indemnification payments received from previous
plant owners for employee benefit and environmental remediation
costs related to plant closures and a $15 million gain
related to settlement of a U.K. pension claim. The foreign
exchange loss of $240 million in 2010 and gain of
$123 million in 2009 were primarily the result of the
revaluation of third party debt of certain of the Companys
subsidiaries due to changes in the foreign exchange rates in
effect during those periods. Such debt was denominated in
currencies other than the functional currencies of the
subsidiaries and was refinanced upon emergence from bankruptcy.
Income (Loss) from Equity Investments The
Company had income from equity investments totaling
$170 million in 2010, a loss from equity investments of
$181 million in 2009 and income from equity investments of
$38 million in 2008. The loss from equity investments in
2009 included a $228 million charge for impairment of the
carrying value of the Companys investments in certain
joint ventures. Income from equity investments in 2010 benefited
from the operations of our Saudi Ethylene &
Polyethylene Company Ltd. joint venture, which commenced
operations in June 2009, and from a new polypropylene plant
operated by our HMC Polymers Company Ltd. joint venture that
commenced operations in October 2010.
Reorganization Items The Company had income
from reorganization items totaling $7,365 million in 2010
compared to reorganization expense of $2,961 million in
2009. Gains from reorganization items in 2010 included gains
totaling $13,617 million related to settlement of
liabilities subject to compromise, deconsolidation of entities
upon emergence, adjustments related to rejected contracts, and a
reduction of environmental remediation liabilities. These gains
were partially offset by a charge of $6,278 million related
to the changes in net assets resulting from the application of
fresh-start accounting and by several one-time emergence costs,
including the success and other fees earned by certain
professionals upon the Companys emergence from bankruptcy,
damages related to the rejection of executory contracts and
plant closure costs. Reorganization items expense in the 2010
Successor period is primarily related to professional fees. The
2009 period included charges for the write off of assets
associated with a lease rejection; damage claims related to
certain executory contracts; the net write off of unamortized
debt issuance costs, premiums and discounts; environmental
liabilities; professional fees associated with the
chapter 11 proceedings; shutdown costs related primarily to
the
45
shutdown of its olefins plant at Chocolate Bayou, Texas and the
long-term idling of its ethylene glycol facility in Beaumont,
Texas; as well as employee severance and other costs. For
additional information on reorganization items, see Note 3
to LyondellBasell N.V.s Consolidated Financial Statements
for the year ended December 31, 2010.
Income Tax In the eight months ended
December 31, 2010, the Successor recorded a tax provision
of $170 million, representing an effective tax rate of
10.1% on pre-tax income of $1,686 million. In the four
months ended April 30, 2010, the Predecessor recorded a tax
benefit of $1,315 million, representing a negative
effective tax rate of 18.3% on pre-tax income of
$7,191 million. During 2009, the Predecessor recorded a tax
benefit of $1,411 million, representing an effective tax
rate of 32.9% on a pre-tax loss of $4,283 million. The
provision for the 2010 Successor period differs from the
statutory rate primarily due to the adjustment of various
chapter 11 tax-related assets, the release of certain
valuation allowances against our net operating loss
carryforwards in the fourth quarter 2010, due to improved
business results and the completion of a reorganization of our
French subsidiaries. The tax provision for the 2010 Predecessor
period differs from the statutory rate primarily because a
significant portion of the pre-tax gain from the discharge of
pre-petition liabilities, which was partially offset by
restructuring charges for which no tax benefit was provided. The
tax benefit recorded for 2009 was lower than the statutory rate
primarily due to restructuring costs for which no tax benefit
was provided. During 2008, LyondellBasell AF had a tax benefit
of $848 million on a pretax loss of $8,191 million.
The effective income tax rate of 10.4% in 2008 primarily
reflected the effect of goodwill impairment charges, which are
not deductible for tax purposes and the provision of valuation
allowances in jurisdictions where future tax benefits are not
expected to be realized.
Income (Loss) from Continuing Operations
Income from continuing operations was $10,022 million in
2010 and losses from continuing operations were
$2,872 million in 2009 and $7,343 million in 2008. The
following table summarizes the major components contributing to
the income (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
For the Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
2,254
|
|
|
|
$
|
690
|
|
|
$
|
317
|
|
|
$
|
(5,928
|
)
|
Interest expense, net
|
|
|
(528
|
)
|
|
|
|
(708
|
)
|
|
|
(1,777
|
)
|
|
|
(2,407
|
)
|
Other income (expense), net
|
|
|
(103
|
)
|
|
|
|
(263
|
)
|
|
|
319
|
|
|
|
106
|
|
Income (loss) from equity investments
|
|
|
86
|
|
|
|
|
84
|
|
|
|
(181
|
)
|
|
|
38
|
|
Reorganization items
|
|
|
(23
|
)
|
|
|
|
7,388
|
|
|
|
(2,961
|
)
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
|
170
|
|
|
|
|
(1,315
|
)
|
|
|
(1,411
|
)
|
|
|
(848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1,516
|
|
|
|
$
|
8,506
|
|
|
$
|
(2,872
|
)
|
|
$
|
(7,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, the loss from equity investments for the
O&P EAI segment included charges of
$228 million for impairment of the carrying value of the
Companys equity investments in certain joint ventures (see
Note 13 to LyondellBasell N.V.s Consolidated
Financial Statements for the year ended December 31, 2010).
46
The table below summarizes some of the items of special note
with regards to our income (loss) from continuing operations for
the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
For the Twelve Months
|
|
|
|
December 31,
|
|
|
|
April 30,
|
|
|
Ended December 31,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
Pretax charges (benefits):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
$
|
28
|
|
|
|
$
|
9
|
|
|
$
|
245
|
|
|
$
|
5,207
|
|
Reorganization items
|
|
|
23
|
|
|
|
|
(7,388
|
)
|
|
|
2,961
|
|
|
|
|
|
Warrants fair value adjustment
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge related to dispute over environmental liability
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges and premiums related to repayment of debt
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation adjustments
|
|
|
42
|
|
|
|
|
|
|
|
|
127
|
|
|
|
1,256
|
|
Interest rate swap termination Structured Financing
Transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
Hurricane costs
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
55
|
|
Gain related to insurance settlements
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
(79
|
)
|
Provisions for uncollectible accounts receivable
|
|
|
12
|
|
|
|
|
7
|
|
|
|
18
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax income effect
|
|
|
309
|
|
|
|
|
(7,372
|
)
|
|
|
3,236
|
|
|
|
6,541
|
|
Tax effect of above items
|
|
|
(48
|
)
|
|
|
|
(1,260
|
)
|
|
|
(1,133
|
)
|
|
|
(546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
261
|
|
|
|
$
|
(8,632
|
)
|
|
$
|
2,103
|
|
|
$
|
5,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments in 2009 include an adjustment related to prior
periods which increased income from operations and net income
for the three-month period ended December 31, 2009, by
$65 million. The adjustment related to an overstatement of
goodwill impairment in 2008.
Income (Loss) from Discontinued Operations, Net of
Tax The Company had income from discontinued
operations of $64 million in the 2010 Successor period
related to the sale of its Flavor and Fragrance chemicals
business. The Company had a loss from discontinued operations in
the 2010 Predecessor period of $2 million and income from
discontinued operations of $1 million and $15 million,
respectively, in 2009 and 2008 related to the sale of a toluene
di-isocyanate business in September 2008.
Fourth Quarter 2010 versus Third Quarter 2010
Net income was $766 million in the fourth quarter 2010
compared to $467 million in the third quarter 2010. The
$299 million increase in net income was primarily
attributable to the release of
non-U.S. valuation
allowances against net deferred tax assets in the fourth quarter
2010, a net benefit related to reorganization items attributable
to events that occurred during the fourth quarter 2010 and the
gain related to the sale of our Flavor and Fragrance chemicals
business in December 2010, partially offset by lower operating
results attributable to our O&P-EAI and Technology segments
discussed below. The release of the
non-U.S. valuation
allowances was due to improved business results and the
completion of a reorganization of our French subsidiaries.
Segment
Analysis
Our operations are primarily in five reportable segments:
O&P Americas; O&P EAI;
I&D; Refining and Oxyfuels; and Technology. These
operations comprise substantially the same businesses owned and
operated by LyondellBasell AF prior to the Companys
emergence from bankruptcy. However, for accounting purposes, the
operations of LyondellBasell AF are deemed to have ceased on
April 30, 2010 and LyondellBasell N.V. is deemed to have
begun operations on that date. The results of operations for the
Successor are not comparable to the Predecessor due to
adjustments made under fresh-start accounting as
47
described in Emergence from Chapter 11
Proceedings. The impact of these items is addressed in the
discussion of each segments results below.
The following tables reflect selected financial information for
our reportable segments. Operating income (loss) for segment
reporting is on a LIFO basis for the Successor and on a current
cost basis for the Predecessor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
For the Twelve Months Ended December 31,
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&P Americas segment
|
|
$
|
4,010
|
|
|
$
|
7,582
|
|
|
$
|
8,406
|
|
|
$
|
2,004
|
|
|
|
$
|
1,163
|
|
|
$
|
4,183
|
|
|
$
|
8,614
|
|
|
$
|
16,412
|
|
O&P EAI segment
|
|
|
4,264
|
|
|
|
8,208
|
|
|
|
8,729
|
|
|
|
2,140
|
|
|
|
|
1,066
|
|
|
|
4,105
|
|
|
|
9,401
|
|
|
|
13,489
|
|
I&D segment
|
|
|
1,777
|
|
|
|
3,469
|
|
|
|
3,754
|
|
|
|
940
|
|
|
|
|
504
|
|
|
|
1,820
|
|
|
|
3,778
|
|
|
|
6,218
|
|
Refining and Oxyfuels segment
|
|
|
5,833
|
|
|
|
10,553
|
|
|
|
10,321
|
|
|
|
2,403
|
|
|
|
|
1,333
|
|
|
|
4,748
|
|
|
|
12,078
|
|
|
|
18,362
|
|
Technology segment
|
|
|
126
|
|
|
|
265
|
|
|
|
365
|
|
|
|
75
|
|
|
|
|
35
|
|
|
|
145
|
|
|
|
543
|
|
|
|
583
|
|
Other, including intersegment eliminations
|
|
|
(1,968
|
)
|
|
|
(3,783
|
)
|
|
|
(3,891
|
)
|
|
|
(790
|
)
|
|
|
|
(389
|
)
|
|
|
(1,534
|
)
|
|
|
(3,586
|
)
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,042
|
|
|
$
|
26,294
|
|
|
$
|
27,684
|
|
|
$
|
6,772
|
|
|
|
$
|
3,712
|
|
|
$
|
13,467
|
|
|
$
|
30,828
|
|
|
$
|
50,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&P Americas segment
|
|
$
|
509
|
|
|
$
|
930
|
|
|
$
|
1,043
|
|
|
$
|
149
|
|
|
|
$
|
175
|
|
|
$
|
320
|
|
|
$
|
169
|
|
|
$
|
(1,355
|
)
|
O&P EAI segment
|
|
|
207
|
|
|
|
386
|
|
|
|
411
|
|
|
|
114
|
|
|
|
|
44
|
|
|
|
115
|
|
|
|
(2
|
)
|
|
|
220
|
|
I&D segment
|
|
|
235
|
|
|
|
469
|
|
|
|
512
|
|
|
|
109
|
|
|
|
|
34
|
|
|
|
157
|
|
|
|
250
|
|
|
|
(1,915
|
)
|
Refining and Oxyfuels segment
|
|
|
296
|
|
|
|
460
|
|
|
|
241
|
|
|
|
14
|
|
|
|
|
29
|
|
|
|
(99
|
)
|
|
|
(357
|
)
|
|
|
(2,378
|
)
|
Technology segment
|
|
|
23
|
|
|
|
89
|
|
|
|
69
|
|
|
|
23
|
|
|
|
|
8
|
|
|
|
39
|
|
|
|
210
|
|
|
|
202
|
|
Other, including intersegment eliminations
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(22
|
)
|
|
|
13
|
|
|
|
|
18
|
|
|
|
(41
|
)
|
|
|
18
|
|
|
|
(134
|
)
|
Current cost adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
199
|
|
|
|
29
|
|
|
|
(568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,265
|
|
|
$
|
2,330
|
|
|
$
|
2,254
|
|
|
$
|
422
|
|
|
|
$
|
323
|
|
|
$
|
690
|
|
|
$
|
317
|
|
|
$
|
(5,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&P Americas segment
|
|
$
|
8
|
|
|
$
|
11
|
|
|
$
|
16
|
|
|
$
|
3
|
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
7
|
|
|
$
|
6
|
|
O&P EAI segment
|
|
|
61
|
|
|
|
112
|
|
|
|
68
|
|
|
|
25
|
|
|
|
|
28
|
|
|
|
80
|
|
|
|
(172
|
)
|
|
|
34
|
|
I&D segment
|
|
|
4
|
|
|
|
8
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73
|
|
|
$
|
131
|
|
|
$
|
86
|
|
|
$
|
27
|
|
|
|
$
|
29
|
|
|
$
|
84
|
|
|
$
|
(181
|
)
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins
and Polyolefins Americas Segment
Overview In the second quarter and first six
months of 2011, the U.S. ethylene industry benefited from
processing natural gas liquids, which yielded lower cost
ethylene compared to that produced from crude oil-
48
based liquids, which is the predominant feedstock used in the
rest of the world. Ethylene margins remained strong in 2011
primarily due to advantaged prices for ethane, which was the
favored feedstock during the second quarter and first six months
of 2011, and high co-product sales prices. The polyethylene
market decreased as a result of general industry conditions and
because certain customers delayed purchases in anticipation of
lower prices. Increasing prices for propylene throughout the
second quarter and most of the first six months of 2011
pressured the polypropylene market. Operating results for both
2011 periods and the Successor period in 2010 also reflected the
impacts of fresh-start accounting, including the benefit of
lower depreciation and amortization expense related to the
write-down of segment assets. The 2010 Successor period also
includes the negative impact of a non-cash charge to adjust
inventory to market value (see Results of Operations-Cost
of Sales).
Ethylene Raw Materials Benchmark crude oil
and natural gas prices generally have been indicators of the
level and direction of the movement of raw material and energy
costs for ethylene and its co-products in the
O&P Americas segment. Ethylene and its
co-products are produced from two major raw material groups:
|
|
|
|
|
crude oil-based liquids (liquids or heavy
liquids), including naphtha, condensates, and gas oils,
the prices of which are generally related to crude oil
prices; and
|
|
|
|
|
|
natural gas liquids (NGLs), principally ethane and
propane, the prices of which are generally affected by natural
gas prices.
|
Although the prices of these raw materials are generally related
to crude oil and natural gas prices, during specific periods the
relationships among these materials and benchmarks may vary
significantly.
In the U.S., we have significant capability to shift the ratio
of raw materials used in the production of ethylene and its
co-products to take advantage of the relative costs of heavy
liquids and NGLs.
Production economics for the U.S. industry have favored
NGLs during 2011. As a result, we focused on maximizing the use
of NGLs at our U.S. plants. During the second quarter of
2011, approximately 80% of our ethylene production was from
NGLs. A temporary disruption of NGLs supply from one of our
suppliers in the first quarter of 2011 modestly reduced the
amount of our ethylene production from NGLs in the first six
months of 2011 to approximately 75%. Based on current trends and
assuming the price of crude oil remains at a high level, we
would expect production economics in the U.S. to continue
to favor NGLs for the near and mid-term.
The following table shows the average U.S. benchmark prices
for crude oil and natural gas for the applicable periods, as
well as benchmark U.S. sales prices for ethylene and
propylene, which we produce and sell or consume internally, and
certain polyethylene and polypropylene products. The benchmark
weighted average cost of ethylene production, which is reduced
by co-product revenues, is based on CMAIs estimated ratio
of heavy liquid raw materials and NGLs used in
U.S. ethylene production.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Benchmark Price and Percent Change
|
|
|
|
Versus Prior Year Period Average
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Crude oil dollars per barrel
|
|
|
102.34
|
|
|
|
78.05
|
|
|
|
31
|
%
|
|
|
98.50
|
|
|
|
78.46
|
|
|
|
26
|
%
|
Natural gas dollars per million BTUs
|
|
|
4.43
|
|
|
|
4.04
|
|
|
|
10
|
%
|
|
|
4.31
|
|
|
|
4.70
|
|
|
|
(8
|
)%
|
Weighted average cost of ethylene
production cents per pound
|
|
|
33.8
|
|
|
|
26.7
|
|
|
|
27
|
%
|
|
|
33.2
|
|
|
|
30.4
|
|
|
|
9
|
%
|
United States cents per pound:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
57.5
|
|
|
|
45.6
|
|
|
|
26
|
%
|
|
|
53.4
|
|
|
|
49.0
|
|
|
|
9
|
%
|
Polyethylene (HD)
|
|
|
95.3
|
|
|
|
84.0
|
|
|
|
13
|
%
|
|
|
91.5
|
|
|
|
83.7
|
|
|
|
9
|
%
|
Propylene polymer grade
|
|
|
87.3
|
|
|
|
63.3
|
|
|
|
38
|
%
|
|
|
79.5
|
|
|
|
62.4
|
|
|
|
27
|
%
|
Polypropylene
|
|
|
113.8
|
|
|
|
89.8
|
|
|
|
27
|
%
|
|
|
107.3
|
|
|
|
88.8
|
|
|
|
21
|
%
|
49
The following table sets forth the O&P Americas
segments sales and other operating revenues, operating
income, income from equity investments and selected product
sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Six Months
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
Millions of dollars
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
Sales and other operating revenues
|
|
$
|
4,010
|
|
|
$
|
7,582
|
|
|
$
|
2,004
|
|
|
|
$
|
1,163
|
|
|
$
|
4,183
|
|
Operating income
|
|
|
509
|
|
|
|
930
|
|
|
|
149
|
|
|
|
|
175
|
|
|
|
320
|
|
Income from equity investments
|
|
|
8
|
|
|
|
11
|
|
|
|
3
|
|
|
|
|
1
|
|
|
|
5
|
|
Production Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
1,929
|
|
|
|
4,018
|
|
|
|
1,249
|
|
|
|
|
749
|
|
|
|
2,768
|
|
Propylene
|
|
|
556
|
|
|
|
1,325
|
|
|
|
513
|
|
|
|
|
264
|
|
|
|
1,019
|
|
Sales Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyethylene
|
|
|
1,377
|
|
|
|
2,782
|
|
|
|
885
|
|
|
|
|
435
|
|
|
|
1,765
|
|
Polypropylene
|
|
|
611
|
|
|
|
1,196
|
|
|
|
449
|
|
|
|
|
221
|
|
|
|
836
|
|
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Revenues O&P Americas
revenues increased by $843 million, or 27%, in the second
quarter 2011, compared to the same period in 2010 and by
$1,395 million, or 23%, in the first six months of 2011
compared to same period in 2010. Higher average sales prices for
most products in the second quarter and first six months of 2011
were responsible for revenue increases of 31% and 26%,
respectively, while lower sales volumes reduced revenues by 4%
in each period. An improved supply/demand balance and higher
crude-oil based raw material costs have contributed to the
higher average sales prices seen to date in 2011.
Operating Income Operating results for the
O&P Americas segment in the second quarter and
first six months of 2011 reflected increases of
$185 million and $461 million, respectively, compared
to the second quarter and first six months of 2010. Operating
results for the 2010 Successor period were negatively impacted
by a $171 million non-cash charge to adjust inventory at
June 30, 2010 to market value, which was lower than the
April 30, 2010 value applied during fresh-start accounting.
The second quarter and first six months of 2011 benefited from
lower depreciation expense of $33 million and
$94 million, respectively, compared to the same periods in
2010. This was a result of the application of fresh-start
accounting and the revaluation of our assets.
Both the second quarter 2011 and 2010 showed strong operating
results for ethylene and polyethylene; however, operating income
for the second quarter 2011 was slightly lower than the
comparative period. Our second quarter 2010 operating results
reflected a benefit from planned and unplanned competitor
outages as margins were especially strong during that period.
Operating results for the second quarter 2011 included the
negative impact of a major turnaround at our Channelview plant
and a utility supplier outage at our Morris, Illinois facility.
Lower polypropylene operating results in the second quarter 2011
reflected the effects of elevated raw material costs and lower
sales volumes as certain customers delayed purchases in
anticipation of a decrease in polypropylene prices.
The $461 million increase in operating results for the
first six months of 2011 compared to the first six months of
2010 was primarily the result of higher polyethylene product
margins and sales volumes. Polyethylene product margins in 2011,
particularly in the first quarter, were higher than those
attained in the same periods of 2010 as higher average sales
prices driven by strong demand more than offset higher ethylene
feedstock costs. Polyethylene sales volumes increased 5% during
the first half of 2011 primarily due to sales being limited by
planned maintenance at one of our plants during the first half
of 2010.
Second Quarter 2011 versus First Quarter 2011
The O&P Americas segment had operating income
of $509 million in the second quarter 2011 compared to
$421 million in the first quarter 2011. The increase in
operating results for the second quarter 2011 reflects higher
product margins for ethylene and the effect of
50
higher polypropylene sales volumes, which more than offset the
effect of lower polyethylene product margins and sales volumes.
The higher product margins for ethylene were primarily the
result of higher average sales prices. The lower product margins
for polyethylene reflect higher average sales prices which could
not keep pace with increases in the price of ethylene.
Polyethylene volumes were lower reflecting inventory-related
buying patterns, general market conditions and the effect of
planned and unplanned production outages.
2010 Versus 2009 Market demand in the
U.S. for ethylene was higher in 2010 compared to 2009. As a
result of higher industry operating rates compared to rates
experienced during 2009, ethylene margins were higher as
benchmark sales prices increased significantly more than the
benchmark weighted average costs of ethylene production. Sales
of polyolefins in 2010 were comparable to 2009 although
producers favored domestic market sales over exports due to
improved domestic demand.
The O&P Americas segment operating results for
2010 primarily reflected strong demand and higher margins for
ethylene due to improved economic conditions in 2010 and
unplanned operating issues and turnarounds at competitor
facilities in the first half of the year. Polypropylene results
were also higher in 2010 compared to 2009 as domestic economic
conditions improved. Demand for polyethylene in 2010 was
comparable to 2009. Operating results for the Successor period
reflected the impacts of the Companys reorganization and
fresh-start accounting, including a non-cash charge to adjust
inventory to market value and the benefit of lower depreciation
and amortization expense related to the write-down of segment
assets (see Results of Operations Cost of
Sales). The net effect of these items contributed to the
significantly improved results of operations in the 2010
Successor periods compared to the twelve months of 2009.
2009 Versus 2008 While improving during the
course of 2009, ethylene market demand in the U.S. remained
weak, resulting in lower industry operating rates compared to
rates in the 90% to 95% range during the first eight months of
2008. Ethylene margins contracted as benchmark sales prices
decreased more than the benchmark weighted average cost of
ethylene production. Polyolefins markets were weaker in 2009
compared to 2008 with the notable exception of
U.S. polyethylene markets, which benefited from strong
export demand during 2009.
The O&P Americas segment operating results for
2009 primarily reflected the strong polyethylene
(PE) export markets in 2009, lower olefins product
margins and lower fixed costs. As a result of weak ethylene
demand during late 2008 and the first half of 2009,
LyondellBasell AF idled and subsequently shut down the Chocolate
Bayou olefins plant, near Alvin, Texas. LyondellBasell AF also
idled and subsequently restarted the La Porte, Texas
olefins plant in January 2009. Strong PE export markets in 2009,
benefited PE product margins and sales volumes. However, other
polyolefins product markets were weaker and resulted in net
lower sales volumes compared to 2008. As a result of
LyondellBasell AFs cost reduction program, fixed costs
were significantly lower in 2009 compared to 2008.
In the third quarter 2008, operating results were negatively
impacted by lost production at certain U.S. Gulf Coast
plants due to the effects of a hurricane.
Ethylene Raw Materials Benchmark crude oil
and natural gas prices generally have been indicators of the
level and direction of the movement of raw material and energy
costs for ethylene and its co-products in the
O&P Americas segment. Ethylene and its
co-products are produced from two major raw material groups:
|
|
|
|
|
crude oil-based liquids (liquids or heavy
liquids), including naphtha, condensates, and gas oils,
the prices of which are generally related to crude oil
prices; and
|
|
|
|
NGLs, principally ethane and propane, the prices of which are
generally affected by natural gas prices.
|
Although the prices of these raw materials are generally related
to crude oil and natural gas prices, during specific periods the
relationships among these materials and benchmarks may vary
significantly.
In the U.S., we have a significant capability to shift the ratio
of raw materials used in the production of ethylene and its
co-products to take advantage of the relative costs of heavy
liquids and NGLs.
51
In 2010, especially in the latter part of the year, production
economics for the industry favored NGLs. As a result, we
increased our use of NGLs and reduced liquids consumption at our
U.S. plants. During 2010, approximately 70% of our
U.S. ethylene production was produced from NGLs.
The following table shows the average U.S. benchmark prices
for crude oil and natural gas for the applicable periods, as
well as benchmark U.S. sales prices for ethylene and
propylene, which we produce and sell or consume internally, and
certain polyethylene and polypropylene products. The benchmark
weighted average cost of ethylene production, which is reduced
by co-product revenues, is based on CMAIs estimated ratio
of heavy liquid raw materials and NGLs used in
U.S. ethylene production.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Benchmark Price and Percent Change
|
|
|
|
Versus Prior Year Period Average
|
|
|
|
For the Twelve Months Ended December 31,
|
|
|
|
|
|
For the Twelve Months Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Crude oil dollars per barrel
|
|
|
79.58
|
|
|
|
62.09
|
|
|
|
28
|
%
|
|
|
62.09
|
|
|
|
99.75
|
|
|
|
(38
|
)%
|
Natural gas dollars per million BTUs
|
|
|
4.48
|
|
|
|
3.78
|
|
|
|
19
|
%
|
|
|
3.78
|
|
|
|
8.86
|
|
|
|
(57
|
)%
|
United States cents per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average cost of ethylene production
|
|
|
30.0
|
|
|
|
26.2
|
|
|
|
14
|
%
|
|
|
26.2
|
|
|
|
45.4
|
|
|
|
(42
|
)%
|
United States cents per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
45.9
|
|
|
|
33.9
|
|
|
|
35
|
%
|
|
|
33.9
|
|
|
|
58.5
|
|
|
|
(42
|
)%
|
Polyethylene (high density)
|
|
|
82.2
|
|
|
|
66.5
|
|
|
|
24
|
%
|
|
|
66.5
|
|
|
|
86.4
|
|
|
|
(23
|
)%
|
Propylene polymer grade
|
|
|
59.6
|
|
|
|
37.9
|
|
|
|
57
|
%
|
|
|
37.9
|
|
|
|
60.0
|
|
|
|
(37
|
)%
|
Polypropylene
|
|
|
86.0
|
|
|
|
64.4
|
|
|
|
34
|
%
|
|
|
64.4
|
|
|
|
87.6
|
|
|
|
(26
|
)%
|
The following table sets forth the O&P Americas
segments sales and other operating revenues, operating
income, income from equity investments and selected product
sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 1
|
|
|
|
January 1
|
|
|
For the Twelve
|
|
|
|
through
|
|
|
|
through
|
|
|
Months Ended
|
|
|
|
December 31,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
|
$
|
8,406
|
|
|
|
$
|
4,183
|
|
|
$
|
8,614
|
|
|
$
|
16,412
|
|
Operating income (loss)
|
|
|
1,043
|
|
|
|
|
320
|
|
|
|
169
|
|
|
|
(1,355
|
)
|
Income from equity investments
|
|
|
16
|
|
|
|
|
5
|
|
|
|
7
|
|
|
|
6
|
|
Production Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
5,585
|
|
|
|
|
2,768
|
|
|
|
8,129
|
|
|
|
7,990
|
|
Propylene
|
|
|
1,998
|
|
|
|
|
1,019
|
|
|
|
2,913
|
|
|
|
3,975
|
|
Sales Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polypropylene
|
|
|
1,735
|
|
|
|
|
836
|
|
|
|
2,416
|
|
|
|
2,928
|
|
Polyethylene
|
|
|
3,704
|
|
|
|
|
1,765
|
|
|
|
5,472
|
|
|
|
5,256
|
|
Revenues Revenues in 2010 increased by
$3,975 million, or 46%, compared to 2009 primarily due to
significantly higher overall average sales prices. The increases
in average sales prices in the 2010 periods reflected an
increase in demand resulting from improved economic conditions
and the effect of constrained supply due to operating issues and
turnarounds at competitor plants.
Revenues in 2009 decreased $7,798 million, or 48%, compared to
2008. Lower average product sales prices were responsible for a
revenue decrease of 35% in 2009 compared to 2008, while net
lower sale volumes were responsible for the remaining 12%
decrease in revenues. Net lower 2009 sales volumes reflected the
effect of lower sales volumes for polypropylene and ethylene and
co-products, partly offset by higher sales volumes for
polyethylene, which benefited from the strong U.S. export
markets.
52
Operating Income (Loss) Operating results for
the O&P Americas segment reflected an increase
of $1,194 million in 2010 compared to 2009 and an increase
of $1,524 million in 2009 compared to 2008. The underlying
operations of the O&P Americas segment in 2010
increased compared to 2009, primarily due to higher product
margins for ethylene as higher average sales prices for ethylene
and its co-products more than offset higher raw material costs.
In addition, the effect of higher polypropylene sales volumes
during 2010 partially offset the effect of higher utility,
planned maintenance and other costs. Operating results for 2010
were impacted by a non-cash charge of $34 million to adjust
inventory to market values. Lower depreciation and amortization
expense of $204 million in 2010 compared to 2009 was
primarily the result of our write-down of Property, plant, and
equipment associated with the revaluation of our assets in
fresh-start accounting.
Compared with 2008, the increase in the 2009
O&P Americas operating results reflected the
benefit of lower fixed costs, resulting from LyondellBasell
AFs cost reduction program, partially offset by net lower
product margins and the effect of net lower sales volumes.
Operating results for 2008 were negatively affected by the
$120 million estimated impact of lost production due to
Hurricane Ike, and related costs of $39 million, including
a $7 million pretax charge for impairment of the carrying
value of assets. Operating results for 2008 also included
inventory valuation adjustments of $619 million and
goodwill impairment charges of $624 million.
Fourth Quarter 2010 versus Third Quarter 2010
The O&P Americas segment had operating income
of $446 million in the fourth quarter 2010 compared to
$448 million in the third quarter 2010. Operating results
in the fourth quarter 2010 included a non-cash benefit of
$163 million related to inventory market price recovery in
the fourth quarter 2010, which partially offsets the charges
recorded in the second and third quarters of 2010 of $171
million and $26 million, respectively, to adjust inventory
to market value after the Emergence Date. Excluding the non-cash
inventory adjustment, the decline in fourth quarter 2010
operating results was primarily due to a combination of lower
product margins for polyethylene and polypropylene, lower sales
volumes, and higher fixed costs. Polyethylene and polypropylene
product margins declined as the increases in feedstock prices
outpaced the increases in average sales price. Product margins
for ethylene were comparable in the third and fourth quarters of
2010. The decrease in sales volumes was primarily related to the
effects of seasonality as well as planned and unplanned outages
during the fourth quarter 2010. Fixed costs were higher in the
fourth quarter 2010, compared to the third quarter 2010,
primarily due to higher maintenance costs associated with the
planned and unplanned outages and bonus expense.
Olefins
and Polyolefins Europe, Asia and International
Segment
Overview Ethylene market demand in Europe in
the second quarter and first six months of 2011 was comparable
to that in the second quarter and first six months of 2010.
Ethylene industry margins expanded in 2011 as benchmark average
sales prices increased more than the benchmark weighted average
cost of ethylene production. Market demand for polyolefins in
the second quarter of 2011 reflected the effect of delayed
purchases as customers anticipated lower prices. Market demand
for polyolefins was reduced in the second quarter of 2011
compared to second quarter 2010 and first quarter 2011. Total
demand for the first six months of 2011 reflects a small
increase over the same period in 2010.
In the second quarter and first six months of 2011, operating
results for the O&P EAI segment reflected
strong product margins, particularly for ethylene, butadiene,
and polypropylene, and higher sales volumes across most products
compared to the second quarter and first six months of 2010.
Operating results for the both 2011 periods and the Successor
period in 2010 also reflected the impacts of fresh-start
accounting, including the benefit of lower depreciation and
amortization expense related to the write-down of segment
assets. The 2010 Successor period also includes the negative
impact of a non-cash charge to adjust inventory to market value
(see Results of Operations-Cost of Sales).
Ethylene Raw Materials In Europe, heavy
liquids are the primary raw materials for our ethylene
production.
The following table shows the average West Europe benchmark
prices for Brent crude oil for the applicable periods, as well
as benchmark West Europe prices for ethylene and propylene,
which we produce
53
and consume internally or purchase from unrelated suppliers,
and certain polyethylene and polypropylene products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Benchmark Price and Percent Change
|
|
|
|
Versus Prior Year Period Average
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Brent crude oil dollars per barrel
|
|
|
115.95
|
|
|
|
79.41
|
|
|
|
46
|
%
|
|
|
110.80
|
|
|
|
78.61
|
|
|
|
41
|
%
|
Western Europe 0.01 per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average cost of ethylene production
|
|
|
35.4
|
|
|
|
27.3
|
|
|
|
30
|
%
|
|
|
35.0
|
|
|
|
28.0
|
|
|
|
25
|
%
|
Ethylene
|
|
|
54.7
|
|
|
|
43.7
|
|
|
|
25
|
%
|
|
|
53.4
|
|
|
|
42.6
|
|
|
|
25
|
%
|
Polyethylene (high density)
|
|
|
65.9
|
|
|
|
53.8
|
|
|
|
22
|
%
|
|
|
64.0
|
|
|
|
52.6
|
|
|
|
22
|
%
|
Propylene
|
|
|
55.3
|
|
|
|
45.1
|
|
|
|
23
|
%
|
|
|
53.1
|
|
|
|
42.0
|
|
|
|
26
|
%
|
Polypropylene (homopolymer)
|
|
|
69.4
|
|
|
|
60.3
|
|
|
|
15
|
%
|
|
|
68.0
|
|
|
|
55.8
|
|
|
|
22
|
%
|
Average Exchange Rate $US per
|
|
|
1.4394
|
|
|
|
1.2749
|
|
|
|
13
|
%
|
|
|
1.4026
|
|
|
|
1.3273
|
|
|
|
6
|
%
|
The following table sets forth the O&P EAI
segments sales and other operating revenues, operating
income, income from equity investments and selected product
production and sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Six Months
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
Millions of dollars
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
Sales and other operating revenues
|
|
$
|
4,264
|
|
|
$
|
8,208
|
|
|
$
|
2,140
|
|
|
|
$
|
1,066
|
|
|
$
|
4,105
|
|
Operating income
|
|
|
207
|
|
|
|
386
|
|
|
|
114
|
|
|
|
|
44
|
|
|
|
115
|
|
Income from equity investments
|
|
|
61
|
|
|
|
112
|
|
|
|
25
|
|
|
|
|
28
|
|
|
|
80
|
|
Production volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
999
|
|
|
|
1,996
|
|
|
|
595
|
|
|
|
|
247
|
|
|
|
1,108
|
|
Propylene
|
|
|
631
|
|
|
|
1,239
|
|
|
|
388
|
|
|
|
|
152
|
|
|
|
661
|
|
Sales volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyethylene
|
|
|
1,279
|
|
|
|
2,584
|
|
|
|
811
|
|
|
|
|
419
|
|
|
|
1,658
|
|
Polypropylene
|
|
|
1,631
|
|
|
|
3,335
|
|
|
|
1,183
|
|
|
|
|
580
|
|
|
|
2,117
|
|
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Revenues Revenues increased by
$1,058 million and $1,963 million, respectively, in
the second quarter and first six months of 2011 compared to
revenues in the second quarter and first six months of 2010
primarily due to higher average product sales prices and to a
lesser extent, higher sales volumes, mainly in olefins. The
sales price increases reflect the effects of higher raw material
costs and demand, which was particularly weak in the first half
of 2010. Higher average sales prices were responsible for
revenue increases of 32% in the second quarter 2011 and 27% in
the first six months of 2011 compared to the overall revenue
increases of 33% and 31%, respectively. The remaining increases
in both periods were due to higher sales volumes.
Operating Income Operating results for the
O&P EAI segment increased by $49 million
and $157 million, respectively, in the second quarter and
first six months of 2011 compared to the same periods in 2010.
The operating results of our O&P EAI business
segment were higher in the second quarter and first six months
of 2011 compared to the same periods in 2010, but reflected the
impact of charges associated with activities to reorganize
certain functional organizations and for increased liabilities
at our Wesseling, Germany site. Improved business results were
primarily a result of higher product margins for ethylene,
butadiene and polypropylene and the effect of higher sales
volumes for most products, partially offset by lower product
margins for polyethylene. The strength in butadiene margins
reflects strong global demand coupled with constrained supply as
a result of a global preference for NGL processing. The lower
product margins for
54
polyethylene in the first half of 2011 reflect higher monomer
prices compared to those experienced in the comparable 2011
period. Operating results for the 2010 Successor period included
a $23 million charge for a plant closure and other costs
related to a polypropylene plant in Terni, Italy, and a
$5 million non-cash charge to adjust inventory at
June 30, 2010 to market value, which was lower than the
April 30, 2010 value applied during the application of
fresh-start accounting. Depreciation and amortization expense
was $17 million lower in the first six months of 2011
compared to the same 2010 period primarily due to the write-down
of Property, plant and equipment associated with the revaluation
of our assets in fresh-start accounting.
Second Quarter 2011 versus First Quarter 2011
The O&P EAI segment had operating income
of $207 million in the second quarter 2011 compared to
$179 million in the first quarter 2011. The increase in
operating results in the second quarter 2011, compared to the
first quarter 2011, is primarily attributable to higher olefins
margins, partially offset by fixed costs in the second quarter
2011 that reflect higher maintenance spending and a charge for
reorganization activities. The higher product margins for
olefins reflected the benefit of falling naphtha prices after
monthly product prices had been settled. The combined operating
results of polyethylene, polypropylene and polypropylene
compounding reflected an improvement of approximately
$10 million. Together, polypropylene and polypropylene
compounding results improved primarily due to higher margins for
polypropylene as volumes remained relatively unchanged.
Polyethylene volumes were relatively unchanged.
2010 Versus 2009 Ethylene market demand in
Europe was generally higher in 2010 compared to 2009 as planned
and unplanned outages resulted in reduced supply and higher
operating results in the second and third quarters of 2010.
Ethylene margins expanded as benchmark average sales prices
increased more than the benchmark weighted average cost of
ethylene production. Global polyolefin markets also improved in
2010 compared to 2009. The improvement in polypropylene and LDPE
reflected tight supply conditions amid planned and unplanned
industry outages throughout 2010.
The O&P EAI segment operating results for the
2010 periods reflected higher product margins for both olefins
and polyolefins. Higher sales volumes for PP Compounds and
polypropylene in 2010 compared to 2009, reflect higher demand,
primarily from the automotive industry. Operating results for
the Successor period also reflected the impacts of fresh-start
accounting, including the benefit of lower depreciation and
amortization expense related to the write-down of segment assets
(see Results of Operations-Cost of Sales).
2009 Versus 2008 While improving during the
course of 2009, ethylene market demand in Europe remained weak,
resulting in lower industry operating rates in the range of 75%
to 80% compared to rates in the 85% to 90% range prior to the
fourth quarter downturn in 2008. Ethylene margins contracted as
benchmark sales prices decreased more than the benchmark
weighted average cost of ethylene production. Global polyolefin
markets were considerably weaker in 2009 compared to 2008. The
general weakness in global polyolefin markets resulted in lower
sales volumes, due to weaker demand, particularly in
polypropylene, and lower product margins, as selling prices
decreased significantly.
The O&P EAI segment operating results for 2009
reflected the negative effects of significantly lower product
margins compared to 2008 for olefins products, while polyolefin
product results for 2009 reflected generally weaker global
polyolefin markets, which resulted in lower sales volumes across
all polyolefins product lines and net lower product margins
compared to 2008. As a result of LyondellBasell AFs cost
reduction program, fixed costs were significantly lower in 2009,
partly offsetting the negative effects of the weak markets.
Ethylene Raw Materials In Europe, heavy
liquids are the primary raw materials for our ethylene
production.
The following table shows the average West Europe benchmark
prices for Brent crude oil, a heavy liquid raw material, for the
applicable periods, as well as benchmark West Europe prices for
ethylene and propylene,
55
which we produce and consume internally or purchase from
unrelated suppliers, and certain polyethylene and polypropylene
products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Benchmark Price and Percent Change
|
|
|
|
Versus Prior Year Period Average
|
|
|
|
For the Year Ended
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Brent crude oil dollars per barrel
|
|
|
80.80
|
|
|
|
68.30
|
|
|
|
18
|
%
|
|
|
68.30
|
|
|
|
101.83
|
|
|
|
(33
|
)%
|
Western Europe 0.01 per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average cost of ethylene production
|
|
|
29.5
|
|
|
|
23.8
|
|
|
|
24
|
%
|
|
|
23.8
|
|
|
|
28.2
|
|
|
|
(16
|
)%
|
Ethylene
|
|
|
43.2
|
|
|
|
33.4
|
|
|
|
29
|
%
|
|
|
33.4
|
|
|
|
50.0
|
|
|
|
(33
|
)%
|
Polyethylene (HD)
|
|
|
52.5
|
|
|
|
42.9
|
|
|
|
22
|
%
|
|
|
42.9
|
|
|
|
58.5
|
|
|
|
(27
|
)%
|
Propylene
|
|
|
42.4
|
|
|
|
27.7
|
|
|
|
53
|
%
|
|
|
27.7
|
|
|
|
43.6
|
|
|
|
(36
|
)%
|
Polypropylene (homopolymer)
|
|
|
57.7
|
|
|
|
39.9
|
|
|
|
45
|
%
|
|
|
39.9
|
|
|
|
54.2
|
|
|
|
(26
|
)%
|
Average Exchange Rate $US per
|
|
|
1.3205
|
|
|
|
1.3972
|
|
|
|
(5
|
)%
|
|
|
1.3972
|
|
|
|
1.4739
|
|
|
|
(5
|
)%
|
The following table sets forth the O&P EAI
segments sales and other operating revenues, operating
income, income from equity investments and selected product
sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
For the Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
|
$
|
8,729
|
|
|
|
$
|
4,105
|
|
|
$
|
9,401
|
|
|
$
|
13,489
|
|
Operating income (loss)
|
|
|
411
|
|
|
|
|
115
|
|
|
|
(2
|
)
|
|
|
220
|
|
Income (loss) from equity investments
|
|
|
68
|
|
|
|
|
80
|
|
|
|
(172
|
)
|
|
|
34
|
|
Production Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
2,502
|
|
|
|
|
1,108
|
|
|
|
3,503
|
|
|
|
3,615
|
|
Propylene
|
|
|
1,572
|
|
|
|
|
661
|
|
|
|
2,149
|
|
|
|
2,135
|
|
Sales Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyethylene
|
|
|
3,402
|
|
|
|
|
1,658
|
|
|
|
4,815
|
|
|
|
4,821
|
|
Polypropylene
|
|
|
4,906
|
|
|
|
|
2,117
|
|
|
|
6,156
|
|
|
|
7,023
|
|
Revenues Revenues for 2010 increased
$3,433 million, or 37%, compared to revenues for 2009, and
revenues for 2009 decreased $4,088 million, or 30%,
compared to revenues for 2008. Higher average product sales
prices across most products, particularly ethylene, butadiene,
polyethylene and polypropylene, were responsible for a 25%
increase in 2010 revenues compared to 2009. The remaining 12%
increase was due to the effect of higher sales volumes,
particularly polypropylene, including Catalloy and PP
Compounds.
Lower average product sales prices, which include the
unfavorable effects of changes in currency exchange rates as the
U.S. dollar was stronger in relation to the Euro in 2009
compared to 2008, were responsible for a 29% decrease in 2009
revenues compared to 2008. The remaining decrease in revenues
was the result of lower 2009 polypropylene and ethylene
co-product sales volumes, which were partly offset by higher
sales volumes for polyethylene and ethylene products.
Operating Income (Loss) Operating results for
2010 increased $528 million compared to 2009 and decreased
$222 million for 2009 compared to 2008. The underlying
operating results of our O&P EAI business
segment were higher in 2010 compared to 2009, primarily as a
result of higher product margins for ethylene, butadiene,
polypropylene and polyethylene, mainly LDPE. Fixed costs were
also higher in 2010 compared to 2009, reflecting costs related
to our maintenance program and the start up of the polymers
plant in Münchsmünster, Germany. Operating results for
2010 were negatively impacted by a $35 million charge
associated with a change in estimate related to a dispute that
arose during the third quarter 2010 over an environmental
indemnity. Lower depreciation and amortization expense of
$62 million in 2010 compared to
56
2009 was primarily a result of our write-down of Property, plant
and equipment associated with the revaluation of our assets in
fresh-start accounting.
In 2009, the underlying operations of the O&P
EAI segment reflected significantly lower net product margins
and lower sales volumes, primarily in Europe, offset by the
benefit of lower fixed costs compared to 2008. The lower fixed
costs were primarily a result of LyondellBasell AFs cost
reduction program.
Income (loss) from equity investments Income
from equity investments for the O&P EAI segment
increased $320 million in 2010 compared to 2009 and
decreased $206 million from 2008 to 2009. We received
dividends of $40 million from our equity investments during
2010. The decrease from 2008 to 2009 was primarily due to
recognition of a $228 million after-tax impairment of the
carrying value of LyondellBasell AFs investment in certain
joint ventures during 2009 as a result of weak current and
projected market conditions. This loss was based on estimates of
fair values developed in connection with LyondellBasell
AFs estimation of its reorganization enterprise value.
Fourth Quarter 2010 Versus Third Quarter 2010
The O&P EAI segment had operating income of
$66 million in the fourth quarter 2010 compared to
$231 million in the third quarter 2010. Underlying
operating results reflected a decrease in the fourth quarter
2010, compared to the third quarter 2010, primarily due to lower
product margins, particularly ethylene, and to a lesser extent,
higher fixed costs and the effect of lower sales volumes. The
lower product margins reflected higher raw material costs while
the higher fixed costs resulted from higher costs related to our
maintenance program. The decrease in product margins was
amplified by the unfavorable effects of changes in currency
exchange rates as the Euro weakened against the U.S. dollar
in the fourth quarter compared to the third quarter 2010.
Operating results in the fourth quarter 2010 included an
$10 million non-cash credit related to inventory market
price recovery in the fourth quarter 2010, which offsets the
$5 million inventory adjustments recorded in each of the
second and third quarters of 2010 to adjust inventory to market
value after the Emergence Date. Operating results for the third
quarter 2010 also included a $35 million charge associated
with a change in estimate related to a dispute that arose during
that period over an environmental liability.
Intermediates
and Derivatives Segment
Overview The PO and PO derivatives market
remained generally steady during the second quarter and first
six months of 2011 despite the effect of rising propylene prices.
The I&D segment results for the second quarter and first
six months of 2011 reflected higher product margins for
intermediates, acetyls, EO and derivatives and styrene. PO and
derivative operating results in the first six months of 2011,
compared to the same period in 2010, reflected the effect of
higher deicer sales volumes, while results for the second
quarter 2011 remained relatively unchanged. Operating results
for the second quarter and first six months of 2011 reflected
the impacts of fresh-start accounting, including the benefit of
lower depreciation and amortization expense related to the
write-down of segment assets. The 2010 Successor period also
includes the negative impact of a non-cash charge to adjust
inventory to market value. See Results of
Operations Cost of Sales.
57
The following table sets forth the Intermediates &
Derivatives segments sales and other operating revenues,
operating income, income from equity investments and selected
product sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
Millions of dollars
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
Sales and other operating revenues
|
|
$
|
1,777
|
|
|
$
|
3,469
|
|
|
$
|
940
|
|
|
|
$
|
504
|
|
|
$
|
1,820
|
|
Operating income
|
|
|
235
|
|
|
|
469
|
|
|
|
109
|
|
|
|
|
34
|
|
|
|
157
|
|
Income (loss) from equity investments
|
|
|
4
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
Sales Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PO and derivatives
|
|
|
791
|
|
|
|
1,629
|
|
|
|
516
|
|
|
|
|
265
|
|
|
|
1,134
|
|
EO and derivatives
|
|
|
277
|
|
|
|
565
|
|
|
|
157
|
|
|
|
|
93
|
|
|
|
358
|
|
Styrene
|
|
|
817
|
|
|
|
1,669
|
|
|
|
511
|
|
|
|
|
269
|
|
|
|
858
|
|
Acetyls
|
|
|
417
|
|
|
|
855
|
|
|
|
300
|
|
|
|
|
139
|
|
|
|
518
|
|
TBA intermediates
|
|
|
459
|
|
|
|
944
|
|
|
|
329
|
|
|
|
|
141
|
|
|
|
613
|
|
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Revenues Revenues for the second quarter and
first six months of 2011 increased $333 million and
$709 million compared to the second quarter and first six
months of 2010, respectively. Higher average sales prices
resulted in revenue increases of 16% and 12%, respectively, in
the second quarter and first six months of 2011. Higher sales
volumes were responsible for revenue increases of 7% and 14% in
the second quarter and first six months of 2011, respectively.
Average sales prices for most products and were higher in both
2011 periods, and in the first six months of 2011, styrene and
to a lesser extent EO and derivatives were the main contributors
to volume increases.
Operating Income Operating results for the
I&D segment reflected an increase of $92 million in
the second quarter 2011 compared to the second quarter 2010 and
an increase of $203 million in the first six months of 2011
compared to the same 2010 period. Significant margin expansion
in both 2011 periods resulted in higher product margins for
acetyls, EO and derivatives and TBA intermediates, and in the
first six months of 2011, higher styrene margins. Operating
results for PO and PO derivatives remained relatively steady in
the 2011 periods compared to the same periods in 2010. Operating
results in the second quarter and first six months of 2011
benefited from lower depreciation and amortization expense of
$8 million and $43 million, respectively, compared to
the combined second quarter and first six months of 2010
primarily due to the write-down of Property, plant and equipment
associated with the revaluation of our assets in fresh-start
accounting. Operating results for the 2010 Successor period were
negatively impacted by a $25 million non-cash charge to
adjust inventory at June 30, 2010 to market, which was
lower than the value at April 30, 2010 applied during
fresh-start accounting.
Second Quarter 2011 versus First Quarter 2011
The I&D segment had operating income of $235 million
in the second quarter 2011 compared to $234 million in the
first quarter 2011. Operating results for the second quarter
2011 primarily reflected higher product margins for acetyls and
styrene, partially offset by the effect of lower PO and PO
derivative sales volumes with the end of the aircraft deicer
season. Margins for acetyls and styrene benefited from higher
average sales prices. Product margins for PO and PO derivatives
remained relatively unchanged.
2010 Versus 2009 Market demand for PO and PO
derivatives improved in 2010 as the recovery of the automotive
industry from a particularly weak 2009 and planned and unplanned
industry outages during 2010 resulted in tightened supply.
Demand in the Intermediates market also returned to at or above
pre-recession levels.
The I&D segments operating results for 2010 primarily
reflected higher sales volumes across most products compared to
2009. The propylene oxide business benefited from planned and
unplanned competitor downtime in the first half of 2010 as the
market for durable goods end-uses strengthened. Operating
results for the Successor
58
periods reflected the impacts of fresh-start accounting,
including a non-cash charge, in the second quarter 2010, to
adjust inventory to market value that was offset by the benefit
of lower depreciation and amortization expense related to the
write-down of segment assets (see Results of
Operations Cost of Sales).
2009 Versus 2008 While improving during the
course of 2009, markets for PO and PO derivatives, ethylene
derivatives and other intermediate chemical products generally
experienced weaker demand in 2009 compared to 2008 particularly
in durable goods markets.
The I&D segment operating results in 2009 primarily
reflected the negative effects of lower sales volumes compared
to 2008. As a result of LyondellBasell AFs cost reduction
program, fixed costs were significantly lower in 2009, partly
offsetting the negative effects of the weak markets. Product
margins were relatively stable. In response to lower PO demand,
LyondellBasell AF temporarily idled two PO facilities in late
2008. In mid-May 2009, LyondellBasell AF restarted one of the
idled PO facilities, which is located in Europe and is part of
LyondellBasell AFs joint venture with Bayer (see
Note 12 to LyondellBasell N.V.s Consolidated
Financial Statements for the year ended December 31, 2010).
The second PO facility restarted in September 2009.
In the third quarter 2008, operating results were negatively
impacted by lost production at certain U.S. Gulf Coast
plants due to the effects of a hurricane.
The following table sets forth the Intermediates &
Derivatives segments sales and other operating revenues,
operating income, income from equity investments and selected
product sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
For the Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
|
$
|
3,754
|
|
|
|
$
|
1,820
|
|
|
$
|
3,778
|
|
|
$
|
6,218
|
|
Operating income (loss)
|
|
|
512
|
|
|
|
|
157
|
|
|
|
250
|
|
|
|
(1,915
|
)
|
Income (loss) from equity investments
|
|
|
2
|
|
|
|
|
(1
|
)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
Sales Volumes, in millions of pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PO and derivatives
|
|
|
2,248
|
|
|
|
|
1,134
|
|
|
|
2,695
|
|
|
|
2,997
|
|
EO and derivatives
|
|
|
614
|
|
|
|
|
358
|
|
|
|
1,063
|
|
|
|
1,387
|
|
Styrene
|
|
|
2,023
|
|
|
|
|
858
|
|
|
|
2,291
|
|
|
|
3,183
|
|
Acetyls
|
|
|
1,189
|
|
|
|
|
518
|
|
|
|
1,682
|
|
|
|
1,605
|
|
TBA intermediates
|
|
|
1,208
|
|
|
|
|
613
|
|
|
|
1,381
|
|
|
|
1,597
|
|
Revenues Revenues for 2010 increased
$1,796 million or, 48% compared to 2009, and revenues for
2009 decreased $2,440 million or, 39%, compared to revenues
for 2008. The increase in revenue in 2010 compared to 2009
reflected increased demand in the current year leading to higher
sales volumes and higher average sales prices across most
products, particularly PO, BDO, PG, TBA, and styrene. The higher
average product sales prices were responsible for a 28% revenue
increase. Higher sales volumes, except in EO and EG, were
responsible for the remaining 20% increase in revenues. EO and
EG sales volumes were lower in 2010 due to planned and unplanned
maintenance activities during the latter half of 2010.
The decrease in 2009 revenue compared to 2008 reflected the
effect of lower product sales prices and net lower sale volumes,
a trend which began in the latter part of 2008. Lower product
sales prices, which include the unfavorable effects of changes
in currency exchange rates as the U.S. dollar was stronger
in relation to the Euro in 2009 compared to 2008 were
responsible for a 23% decrease in revenues. The remaining 16%
decrease in revenues was due to the lower sales volumes in 2009
compared to 2008.
Operating Income (Loss) Operating results for
2010 for the I&D segment increased $419 million
compared to 2009 and increased $2,165 for 2009 compared to 2008.
Operating results for 2010 include an $8 million non-cash
charge to adjust inventory at December 31, 2010 to market
value, which was lower than the value at April 30, 2010
applied during fresh-start accounting. Lower depreciation and
amortization expense
59
of $104 million in 2010 compared to 2009 was primarily the
result of our write-down of Property, plant and equipment
associated with the revaluation of our assets in fresh-start
accounting. The remaining increases in 2010 primarily reflected
the favorable effect of significantly higher sales volumes for
PO and PO derivatives, TBA and styrene. Lower product margins
for styrene and TBA and derivatives more than offset higher
product margins for acetyls, EO and EG.
Results in 2009 reflected lower fixed costs compared to 2008 as
a result of LyondellBasell AFs cost reduction program, and
lower utility costs compared to 2008 due to lower natural gas
prices. Product margins in 2009 were flat compared to 2008, as
lower product prices were offset by lower raw material costs.
Results in 2008 were impacted by charges of $1,992 million
for impairment of goodwill related to the December 20, 2007
acquisition of Lyondell Chemical and inventory valuation
adjustments of $65 million.
Fourth Quarter 2010 versus Third Quarter 2010
The I&D segment had operating income of $196 million
in the fourth quarter 2010 compared to $207 million in the
third quarter 2010. Operating results in the fourth quarter 2010
included a non-cash benefit of $17 million related to
inventory market price recovery in the fourth quarter 2010,
which partially offsets the $25 million charge recorded in
the second quarter 2010 to adjust inventory to market value
after the Emergence Date. The segments underlying fourth
quarter 2010 operating results reflect slightly lower product
margins higher fixed costs. The lower product margins primarily
reflected higher raw material and utility costs.
Refining
and Oxyfuels Segment
Overview Benchmark U.S. heavy crude
refining margins were higher in the second quarter and first six
months of 2011 as a result of higher discounts for heavy crude
oil. European refining margins were challenged by industry
overcapacity and the loss of Libyan crude oil supply. Oxyfuels
margins in 2011 improved compared to 2010 due to higher gasoline
prices relative to the cost of natural gas liquids-based raw
material costs.
Segment operating results in the second quarter and first six
months of 2011 primarily reflected the effect of higher crude
oil refining margins, higher oxyfuels margins, and increased
crude runs at the Houston refinery compared to the same periods
in 2010. Crude processing rates at the Houston refinery were
significantly higher in the second quarter 2011, compared to the
second quarter 2010, as the refinery experienced a crude unit
shutdown in 2010. Second quarter 2011 crude processing rates at
the Berre refinery were lower than the second quarter 2010 as
crude margins did not support higher processing rates. Oxyfuels
results in the second quarter and first six months of 2011 were
higher compared to the same period in 2010. Operating results
for the second quarter and first six months of 2011 and the
Successor period in 2010 reflect the impacts of fresh-start
accounting, including the benefit of lower depreciation and
amortization expense related to the write-down of segment
assets. In addition, the 2010 Successor period was negatively
impacted by a non-cash charge to adjust inventory to market
value. See Results of Operations Cost of
Sales.
The following table sets forth the Refining and Oxyfuels
segments sales and other operating revenues, operating
income and sales volumes for certain gasoline blending
components for the applicable periods. In addition, the table
shows market refining margins for the U.S. and Europe and
MTBE margins in Northwest Europe (NWE). In the U.S.,
LLS, or Light Louisiana Sweet and WTI,
or West Texas Intermediate, are
60
light crude oils, while Maya is a heavy crude oil.
In Europe, Urals 4-1-2-1 is a measure of
West European refining margins.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
May 1
|
|
|
|
April 1
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
April 30,
|
|
Millions of dollars
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
Sales and other operating revenues
|
|
$
|
5,833
|
|
|
$
|
10,553
|
|
|
$
|
2,403
|
|
|
|
$
|
1,333
|
|
|
$
|
4,748
|
|
Operating income (loss)
|
|
|
296
|
|
|
|
460
|
|
|
|
14
|
|
|
|
|
29
|
|
|
|
(99
|
)
|
Sales Volumes, in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline blending components MTBE/ETBE (gallons)
|
|
|
206
|
|
|
|
398
|
|
|
|
159
|
|
|
|
|
77
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude processing rates (thousands of barrels per
day)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Refinery
|
|
|
263
|
|
|
|
261
|
|
|
|
152
|
|
|
|
|
264
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berre Refinery
|
|
|
85
|
|
|
|
93
|
|
|
|
106
|
|
|
|
|
83
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market margins $ per barrel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light crude oil 2-1-1
*
|
|
|
10.28
|
|
|
|
8.18
|
|
|
|
10.98
|
|
|
|
|
9.41
|
|
|
|
7.50
|
|
Light crude oil Maya
differential*
|
|
|
15.50
|
|
|
|
16.82
|
|
|
|
8.80
|
|
|
|
|
11.01
|
|
|
|
9.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Maya 2-1-1
|
|
|
25.78
|
|
|
|
25.00
|
|
|
|
19.78
|
|
|
|
|
20.42
|
|
|
|
16.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Urals 4-1-2-1
|
|
|
7.71
|
|
|
|
7.75
|
|
|
|
7.53
|
|
|
|
|
6.93
|
|
|
|
6.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market margins cents per gallon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MTBE NWE
|
|
|
92.7
|
|
|
|
75.4
|
|
|
|
64.2
|
|
|
|
|
87.1
|
|
|
|
50.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
WTI crude oil was used as the Light crude reference for periods
prior to 2011. As of January 1, 2011 Light Louisiana Sweet
(LLS) crude oil is used as the Light crude oil
reference. Beginning in early 2011, the WTI crude oil reference
has not been an effective indicator of light crude oil pricing
given the large location differential compared to other light
crude oils. |
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Revenues Revenues for the Refining and
Oxyfuels segment increased $2,097 million and
$3,402 million, respectively, in the second quarter and
first six months of 2011 compared to second quarter and first
six months of 2010. These increases are primarily due to higher
average sales prices and the effect of higher refining sales
volumes. Higher average sales prices were responsible for
revenue increases of 48% and 40%, respectively, in the second
quarter and first six months of 2011. The remaining increases in
revenues of 8% and 7% in the second quarter and first six months
of 2011 were related to higher sales volumes.
Houston refinery crude processing rates were higher by 39% and
15%, respectively, in the second quarter and first six months of
2011, compared to the same 2010 periods, primarily due to a
crude unit fire in the second quarter 2010. Crude processing
rates for the Berre refinery were 12% lower and 9% higher,
respectively, in the second quarter and first six months of
2011, compared to the same 2010 periods, partially due to a
local port strike in 2011.
Operating Income (Loss) Operating results for
the second quarter and first six months of 2011 increased by
$253 million and $545 million, respectively, compared
to the same periods in 2010. The improvement in the underlying
operations of the refining and oxyfuels segment primarily
reflects higher refining margins at the Houston refinery as
indicated by the increase in the Maya 2-1-1 benchmark margin,
and higher oxyfuels margins. Margins for oxyfuels products
reflect the effect of higher spreads between the prices of
gasoline and butane, a key raw material. Operating results in
the first six months of 2011 include a $34 million
insurance recovery associated with misappropriation of assets.
Operating results for the second quarter and first six months of
2011 also benefited from lower depreciation expense of
$12 million and
61
$101 million, respectively, compared to the same 2010
periods as a result of the application of fresh-start accounting
and the revaluation of our assets. Operating results for the
2010 Successor period were negatively impacted by a
$132 million non-cash charge to adjust inventory at
June 30, 2010 to market value, which was lower than the
April 30, 2010 value applied during fresh-start accounting.
Second Quarter 2011 versus First Quarter 2011
The Refining and Oxyfuels segment had operating income of
$296 million in the second quarter 2011 compared to
$164 million in the first quarter 2011. The first quarter
2011 included a $34 million insurance recovery described
above. The improvement in the second quarter 2011 was primarily
driven by higher heavy crude oil refining margins, higher
oxyfuels margins, and a full quarter of operation of the Houston
refinery fluid catalytic cracker unit following the first
quarter 2011 turnaround. Higher profits at the Houston refinery
are due to higher industry margins, improved process unit
operating performance, and commercial improvements in both crude
oil acquisition and product sales. Crude processing rates at the
Houston refinery were relatively unchanged in the second quarter
2011 compared to the first quarter 2011. Berre refinery crude
processing rates were reduced by 14% in the second quarter 2011
in response to market conditions. Realized margins at the Berre
refinery were lower in the second quarter 2011 as replacement
crude oils for Libyan crudes became more expensive and sale
prices for naphtha sold as petrochemical feedstock did not keep
pace with the higher cost of raw materials. Oxyfuels product
margins were seasonally higher in the second quarter 2011
compared to the first quarter 2011, reflecting the benefit of a
higher spread between butane and gasoline and the higher demand
for high octane, clean gasoline components.
2010 Versus 2009 In 2010 compared to 2009,
benchmark heavy crude refining margins averaged higher,
primarily due to an increase in the differential between the
cost of heavy and light crude oil.
Segment operating results in 2010 compared to 2009 primarily
reflected higher benchmark refining margins and lower crude
processing rates at the Houston refinery. Crude processing rates
for the Houston refinery reflected the effects of a crude unit
fire, sulfur recovery constraints and unplanned outages, while
the Berre refinery crude processing rates were negatively
affected by national strikes in France during the fourth quarter
2010. Oxyfuels results were lower in 2010. Operating results for
the Successor period reflected the impacts of fresh-start
accounting, including non-cash charges in the second and third
quarters of 2010 to adjust inventory to market value, all of
which was recovered in the fourth quarter 2010, and the benefit
of lower depreciation and amortization expense related to the
write-down of segment assets (see Results of
Operations Cost of Sales).
2009 Versus 2008 Benchmark refining margins
for 2009 were lower compared to the same period in 2008,
generally reflecting the weaker global economy and consequent
weaker demand for gasoline and distillate products, such as
diesel and heating oil. The weaker demand resulted in lower
prices for light crude oil, while OPEC-mandated production cuts
resulted in lower supplies of heavy crude oil and lower price
discounts relative to light crude oil. Both factors compressed
the price differential between light and heavy crude oil.
Benchmark margins for oxyfuels in 2009 were comparable to 2008.
Refining and Oxyfuels segment operating results in 2009
primarily reflected the effects of significantly lower
U.S. refining margins compared to the same period in 2008.
The operating results of the Berre refinery, which was acquired
on April 1, 2008, reflected the weak distillate markets in
2009. Operating results in 2009 benefited from higher margins
for oxygenated gasoline blending components and lower utility
and fixed costs, but were negatively affected by outages of some
of the Houston refinerys sulfur recovery units during the
second quarter 2009 and of a crude unit during the fourth
quarter 2009. As a result of LyondellBasell AFs cost
reduction program, fixed costs were significantly lower in 2009
compared to 2008.
In 2008, operating results were negatively impacted by lost
production at the Houston refinery due to the effects of a
hurricane and a scheduled maintenance turnaround of one of the
refinerys crude trains and coker units during the third
quarter 2008 that was delayed by an incident involving a
contractors crane and an unplanned second quarter 2008
outage of a FCC unit.
62
The following table sets forth the Refining and Oxyfuels
segments sales and other operating revenues, operating
income and sales volumes for certain gasoline blending
components for the applicable periods. In addition, the table
shows market refining margins for the U.S. and Europe and
MTBE margins in Northwest Europe (NWE). In the U.S.,
WTI, or West Texas Intermediate, is a light crude
oil, while Maya is a heavy crude oil. In Europe,
Urals 4-1-2-1 is a measure of West
European refining margins.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
For the Twelve Months
|
|
|
|
December 31,
|
|
|
|
April 30,
|
|
|
Ended December 31,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
|
$
|
10,321
|
|
|
|
$
|
4,748
|
|
|
$
|
12,078
|
|
|
$
|
18,362
|
|
Operating income (loss)
|
|
|
241
|
|
|
|
|
(99
|
)
|
|
|
(357
|
)
|
|
|
(2,378
|
)
|
Sales Volumes, in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline blending components MTBE/ETBE (gallons)
|
|
|
625
|
|
|
|
|
266
|
|
|
|
831
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude processing rates (thousands of barrels per day):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Refining
|
|
|
223
|
|
|
|
|
263
|
|
|
|
244
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berre Refinery(1)
|
|
|
94
|
|
|
|
|
75
|
|
|
|
86
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market margins $ per barrel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI 2-1-1
|
|
|
8.98
|
|
|
|
|
7.50
|
|
|
|
6.98
|
|
|
|
12.37
|
|
WTI Maya
|
|
|
8.99
|
|
|
|
|
9.46
|
|
|
|
5.18
|
|
|
|
15.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17.97
|
|
|
|
|
16.96
|
|
|
|
12.16
|
|
|
|
28.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Urals 4-1-2-1
|
|
|
6.59
|
|
|
|
|
6.17
|
|
|
|
5.57
|
|
|
|
10.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market margins cents per gallon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MTBE NWE
|
|
|
33.9
|
|
|
|
|
50.2
|
|
|
|
67.9
|
|
|
|
51.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Berre Refinery purchased April 1, 2008 |
Revenues Revenues for the Refining and
Oxyfuels segment increased $2,991 million, or 25%, in 2010
compared to 2009 and decreased $6,284 million, or 34%, from
2008 to 2009. Higher average sales prices at the Houston and
Berre refineries in 2010 were responsible for a 30% increase in
revenues compared to 2008. Lower crude processing rates in 2010
compared to 2009 decreased revenues by 5%. Crude processing
rates for the Houston refinery were 3% lower, compared to 2009,
as a result of a May 2010 crude unit fire and other planned and
unplanned outages during 2010. Crude processing rates for the
Berre refinery were 2% higher in 2010, compared to 2009, despite
several planned and unplanned outages.
Lower average sales prices in 2009 were responsible for a 36%
decrease in revenues compared to 2008, while higher sales
volumes at the Houston refinery increased revenues by 2%. The
decrease during 2009 was partially offset by the effect of a
full year of operation of the Berre refinery, which was acquired
April 1, 2008.
Operating Income (Loss) Operating results
increased $499 million in 2010, compared to 2009, and
increased $2,021 million in 2009, compared to 2008.
Operating results in 2010 were negatively impacted by a
$21 million charge associated with a change in estimate
related to a dispute that arose during the third quarter 2010
over an environmental indemnity, the impairment of assets
related to the Berre refinery, and by a crude unit fire in May
2010 resulting in lost production and $14 million in cash
costs. Operating results for 2009 included the benefit of
$50 million from the settlement of hedging activity at the
Houston refinery related to distillates. Lower depreciation and
amortization expense of $269 million in 2010 compared to
2009 was
63
primarily the result of the write-down of Property, plant and
equipment associated with the revaluation of our assets in
fresh-start accounting. Apart from the effects of the items
listed above, increases in operating results for 2010 were
primarily due to higher refining margins, especially at the
Houston refinery, partially offset by lower product margins for
oxyfuels. The decreased oxyfuels margins in 2010 are primarily
due to the normalization of margins in 2010 compared to the
exceptional margins achieved in 2009.
Operating results in 2009 were negatively affected by lower
crude refining margins, partially offset by lower utility costs
due to lower natural gas prices and lower fixed costs. The
latter reflected LyondellBasell AFs cost reduction
program. The lower refining margins were primarily attributable
to U.S. refining markets, although margins were lower for
both the Houston and Berre refineries. In 2008, operating
results were negatively impacted by scheduled maintenance
turnarounds of crude and coker units and the related July 2008
crane incident at the Houston refinery, as well as by operating
disruptions related to Hurricane Ike by an estimated
$205 million. In addition to the turnaround and hurricane
effects, operating results were negatively affected by an
estimated $220 million as a result of lost production due
to unplanned maintenance at the Houston refinerys FCC and
other operating units. Operating results were also negatively
impacted by impairment charges against goodwill of
$2,305 million and other assets of $218 million and
inventory valuation adjustments of $442 million.
Fourth Quarter 2010 Versus Third Quarter 2010
The Refining and Oxyfuels segment had operating income of
$144 million in the fourth quarter 2010 compared to
$83 million in the third quarter 2010. Operating results in
the fourth quarter 2010 reflect the non-cash benefit of
$132 million related to inventory market price recovery,
which offsets the lower of cost or market charges recorded in
the second and third quarters of 2010 of $132 million and
$1 million, respectively, and the impairment of assets
related to the Berre refinery. Third quarter 2010 operating
results include the $21 million charge associated with a
change in estimate related to a dispute over an environmental
indemnity. The underlying operating results of the Refining and
Oxyfuels business segment decreased in the fourth quarter 2010
primarily due to lower overall sales volumes, partially offset
by higher refining margins at both the Houston and Berre
refineries. Crude processing rates for the Houston refinery were
11% lower compared to the third quarter 2010, reflecting the
effect of unplanned outages during the fourth quarter, while
crude processing rates in the fourth quarter 2010 for the Berre
refinery were only slightly lower compared to the third quarter
2010. Refining margins during the fourth quarter reflected the
effect of higher average sales prices resulting from, in the
case of the Berre refinery, the disruption due to the national
strikes in France. Normal seasonal declines affected oxyfuels
product margins and sales volumes during the fourth quarter
2010. The seasonal decline in margins was steeper than usual as
the price of feedstocks, butane and ethanol, rose rapidly due to
cold weather and a poor grain harvest, respectively.
Technology
Segment
Overview The Technology segment results in
2011 reflected higher research and development costs offset by
higher licensing revenue in the first six months of 2011
compared to the comparable 2010 period. The following table sets
forth the Technology segments sales and other operating
revenues and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Three Months
|
|
Six Months
|
|
May 1
|
|
|
April 1
|
|
January 1
|
|
|
Ended
|
|
Ended
|
|
through
|
|
|
through
|
|
through
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
April 30,
|
|
April 30,
|
Millions of dollars
|
|
2011
|
|
2011
|
|
2010
|
|
|
2010
|
|
2010
|
Sales and other operating revenues
|
|
$
|
126
|
|
|
$
|
265
|
|
|
$
|
75
|
|
|
|
$
|
35
|
|
|
$
|
145
|
|
Operating income
|
|
|
23
|
|
|
|
89
|
|
|
|
23
|
|
|
|
|
8
|
|
|
|
39
|
|
Three and
Six Months Ended June 30, 2011 versus Three and Six Months
Ended June 30, 2010
Revenues Revenues for the second quarter and
first six months of 2011 increased by $16 million, or 15%,
and $45 million, or 20%, compared to second quarter and
first six months of 2010, respectively. The increases were
primarily due to the recognition in the 2011 periods of
previously deferred process license revenue.
64
Operating Income Operating income decreased
by $8 million in the second quarter of 2011 and increased
by $27 million in the first six months of 2011, compared to
the second quarter and first six months of 2010. The decrease in
the second quarter 2010 reflected higher R&D expenses,
partially offset by the effects of higher revenue related to
process licenses from prior years. The increase in the first six
months of 2011 reflected the effects of higher revenue from
process licenses from prior years, which was partially offset by
higher R&D costs. Operating income in the 2010 periods
reflected the impact of a slowdown in polyolefin projects that
stemmed from the economic crisis in late 2008. The higher
R&D costs include charges totaling $16 million for
employee severance and asset retirement obligations related to
an R&D facility that is being relocated.
Second Quarter 2011 versus First Quarter 2011
The Technology segment had operating income of
$23 million in the second quarter 2011 compared to
$66 million in the first quarter 2011. Operating results in
the second quarter decreased by $43 million primarily due
to the effects of lower process license revenue, as well as
higher R&D costs. The higher R&D costs include charges
totaling $16 million for employee severance and asset
retirement obligations related to an R&D facility that is
being relocated.
2010 Versus 2009 The Technology segment
results in 2010 were negatively impacted by lower licensing
revenue, reflecting a slowdown in new polyolefin projects as a
consequence of the economic crisis beginning late in the fourth
quarter 2008. Higher sales volumes for catalysts partially
offset the results for process licenses. The negative effect of
a strengthening U.S. dollar versus the Euro in 2010 also
negatively impacted the Technology segments 2010 results.
2009 Versus 2008 Technology segment results
for 2009 were primarily affected by lower license revenue,
reflecting weaker global markets compared to 2008. The segment
results also reflected the negative effects of changes in
currency exchange rates as the U.S. dollar strengthened
versus the Euro. The 2009 results benefited from lower R&D
expense, reflecting LyondellBasell AFs cost reduction
program and a government subsidy, and the effects of higher
catalyst sales volumes.
The following table sets forth the Technology segments
sales and other operating revenues and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
May 1
|
|
|
January 1
|
|
|
|
|
|
|
through
|
|
|
through
|
|
For the Twelve Months Ended
|
|
|
December 31,
|
|
|
April 30,
|
|
December 31,
|
|
|
2010
|
|
|
2010
|
|
2009
|
|
2008
|
Millions of
dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
|
$
|
365
|
|
|
|
$
|
145
|
|
|
$
|
543
|
|
|
$
|
583
|
|
Operating income
|
|
|
69
|
|
|
|
|
39
|
|
|
|
210
|
|
|
|
202
|
|
Revenues Revenues for 2010 decreased
$33 million, or 6% compared to 2009 and decreased
$40 million, or 7% from 2008 to 2009. Lower process license
revenue in 2010 and 2009 was responsible for decreases in
revenues of 15% and 7%, respectively. Higher catalyst sales
volumes increased revenues by 9% and 5%, respectively. However,
lower average sales prices for catalysts in 2009 compared to
2008 decreased revenues by 5%, offsetting the effect of the
higher sales volumes. In addition, currency exchange rates had
an unfavorable effect on operating income of
non-U.S. operations
as the U.S. dollar strengthened versus the Euro in both
periods.
Operating Income Operating income for 2010
for the Technology segment decreased $102 million compared
to 2009 and increased $8 million from 2008 to 2009.
Operating income for 2010 was negatively affected by an
$8 million charge associated with a change in estimate
related to a dispute that arose during the third quarter 2010
over an environmental indemnity and by a $17 million charge
related to the sale, in 2010, of higher cost inventory. The
remaining decrease in operating income in 2010 compared to 2009
was the result of lower licensing revenue, and to a lesser
extent, the negative effects of a strengthening U.S. dollar
versus the Euro in 2010 compared to 2009. These decreases in
2010 operating results were only partly offset by the effect of
increased catalyst sales volumes in 2010. Operating income in
2009 also included the benefit of a government subsidy
recognized as a reduction of R&D expense.
The $8 million increase in operating income in 2009,
compared to 2008, was primarily the result of higher catalysts
sales volumes, partly offset by an unfavorable effect from
changes in currency exchange rates.
65
Currency exchange rates had an unfavorable effect on operating
income as the U.S. dollar strengthened versus the Euro in
2009 compared to 2008.
Fourth Quarter 2010 versus Third Quarter 2010
The Technology segment had operating income of $8 million
in the fourth quarter 2010 compared to $38 million in the
third quarter 2010. Apart from a fourth quarter 2010 charge of
$17 million related to the sale of higher cost inventory
during the year and an $8 million charge related to a
dispute over environmental liability, operating results in the
fourth quarter 2010 reflected lower licensing income and the
effect of lower sales volumes for catalysts, compared to the
third quarter 2010.
FINANCIAL
CONDITION
Operating, investing and financing activities of continuing
operations, which are discussed below, are presented in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Six Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
For the Twelve Months Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source (use) of cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1,247
|
|
|
$
|
2,957
|
|
|
$
|
1,105
|
|
|
|
$
|
(936
|
)
|
|
$
|
(787
|
)
|
|
$
|
1,090
|
|
Investing activities
|
|
|
(651
|
)
|
|
|
(312
|
)
|
|
|
(110
|
)
|
|
|
|
(213
|
)
|
|
|
(611
|
)
|
|
|
(1,884
|
)
|
Financing activities
|
|
|
(299
|
)
|
|
|
(1,194
|
)
|
|
|
133
|
|
|
|
|
3,315
|
|
|
|
1,101
|
|
|
|
1,083
|
|
Operating Activities Cash of
$1,247 million provided in the first six months of 2011
primarily reflected an increase in earnings and higher
distributions from our joint ventures, partially offset by an
increase in cash used by the main components of working capital
and company contributions to our pension plans. The
$180 million of cash provided in the combined first six
months of 2010 primarily reflected an increase in earnings
offset by payments of reorganization items and certain annual
payments related to sales rebates, employee bonuses, property
taxes and insurance premiums.
The main components of working capital used cash of
$481 million in the first six months of 2011 compared to
$348 million in the first six months of 2010. The increase
in these working capital components during the first half of
2011 reflects increases of $1,002 million and
$619 million, respectively, in accounts receivable and
inventory, partially offset by a $1,140 million increase in
accounts payable. The increases in both accounts receivable and
accounts payable reflects the effect of increasing prices over
the period as well as the effect of a higher currency exchange
rate on our European balances. The increase in inventory
reflects temporary volume increases in our O&P EAI business
segment and to a lesser extent, in our Refining and Oxyfuels
business segment. Inventory was also affected by a higher
currency exchange rate.
The $348 million use of cash by the main components of
working capital in the first six months of 2010 reflected a
$511 million increase in accounts receivable due to the
effects of higher average sales prices and higher sales volumes
and a $312 million increase in inventory, partially offset
by a $475 million increase in accounts payable due to the
higher costs and volumes of feedstocks, and more favorable
payment terms. Price and volume changes in the first six months
of 2010 more than offset the effects of lower exchange rates on
the values of our European working capital.
Cash provided in the combined Successor and Predecessor periods
of 2010 primarily reflected an increase in earnings offset by
payments for reorganization items, claims under the Plan of
Reorganization, and certain annual payments relating to sales
rebates, employee bonuses, property taxes and insurance
premiums. The use of cash in 2009 primarily reflected a
$573 million increase in cash used by the main components
of working capital accounts receivable and
inventory, net of accounts payable and
$329 million of vendor prepayments that were required by
certain third parties as a result of LyondellBasell AFs
chapter 11 filing.
In 2010, the main components of working capital
accounts receivable and inventory, net of accounts payable used
cash of $456 million compared to $573 million in 2009.
The increase in these components of
66
working capital during 2010 reflected a $702 million
increase in accounts receivable due to higher average sales
prices and higher sales volumes and a $395 million increase
in inventory, partially offset by a $641 million increase
in accounts payable due to the higher costs and volumes of
feedstocks, and more favorable payment terms.
Changes in the main components of working capital used cash of
$573 million in 2009 and provided cash of $747 million
in 2008. The increase in cash used by the main components of
working capital in 2009 primarily reflected a $503 million
repayment that was required in connection with the termination
of an accounts receivable securitization program in early 2009.
Operationally, cash used by the main components of working
capital increased by only $70 million, despite the effect
of rising prices during 2009, as the Company focused on reducing
working capital levels.
In 2008, the $747 million of cash provided by the main
components of working capital primarily reflected the effects of
declining crude oil prices on sales prices and the value of
inventory; the disruptive effects of Hurricane Ike on the
Companys Gulf Coast operations; and the planned and
unplanned outages related to a turnaround at the Houston
Refinery. Other factors impacting the main components of working
capital included a general tightening of credit in the industry
and the delay, in December 2008 of certain payments.
Investing Activities Cash of $651 million
used in investing activities in the first six months of 2011
primarily reflects capital expenditures and a $239 million
increase in restricted cash, partially offset by $57 million in
proceeds related to the sale of surplus precious metals. The
increase in restricted cash is primarily related to the issuance
of letters of credit, which are cash collateralized.
Investing activities of $334 million in the combined 2010 period
reflect capital expenditures that were partially offset by $12
million in proceeds from a money market fund that had suspended
rights to redemption in 2008.
Cash used in investing activities in 2010 included
$692 million of capital expenditures, partially offset by
proceeds of $154 million from the sale of our F&F
business in December 2010 and $12 million in proceeds from
a money market fund that had suspended rights to redemption in
2008, as described below.
The cash used in 2009 primarily included $779 million of
capital expenditures, partially offset by proceeds of
$120 million from insurance claims, $20 million from
sales of assets, and $23 million from a net reduction of
short-term investments. The cash provided by insurance claims
related to damages sustained in 2005 at the polymers plant in
Münchsmünster, Germany.
The cash used in 2008 was primarily related to business
acquisitions and capital expenditures, partially offset by
proceeds from the sales of assets and insurance claims related
to the polymers plant in Münchsmünster, Germany.
Acquisitions in 2008 included the April 2008 acquisition of the
Shell oil refinery, inventory and associated infrastructure and
businesses at our Berre Refinery for a purchase price of
$927 million, including final adjustment for working
capital and the February 2008 acquisition of Solvay Engineered
Polymers, Inc., a leading supplier of polypropylene compounds in
North America, for $134 million (see Note 5 to
LyondellBasell N.V.s Consolidated Financial Statements for
the year ended December 31, 2010). Asset sales included the
September 2008 sale of the TDI business for proceeds of
77 million ($113 million) and the July 2008 sale
of a Canadian plant for proceeds of $18 million. As a
result of financial difficulties experienced by major financial
institutions beginning in the latter part of 2008,
LyondellBasell AF received notice that rights of redemption had
been suspended with respect to a money market fund in which
LyondellBasell AF had invested approximately $174 million.
LyondellBasell AF subsequently redeemed a total of
$172 million, including $137 million in 2008,
$23 million in 2009 and $12 million in January 2010.
67
The following table summarizes capital expenditures for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
Months
|
|
|
May 1
|
|
|
May 1
|
|
|
|
January 1
|
|
|
Twelve Months
|
|
|
|
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
|
Plan
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Millions of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&P Americas
|
|
$
|
361
|
|
|
$
|
204
|
|
|
$
|
146
|
|
|
$
|
50
|
|
|
|
$
|
52
|
|
|
$
|
142
|
|
|
$
|
201
|
|
O&P EAI
|
|
|
286
|
|
|
|
79
|
|
|
|
105
|
|
|
|
31
|
|
|
|
|
102
|
|
|
|
411
|
|
|
|
509
|
|
I&D
|
|
|
122
|
|
|
|
20
|
|
|
|
77
|
|
|
|
5
|
|
|
|
|
8
|
|
|
|
23
|
|
|
|
66
|
|
Refining and Oxyfuels
|
|
|
345
|
|
|
|
159
|
|
|
|
108
|
|
|
|
22
|
|
|
|
|
49
|
|
|
|
167
|
|
|
|
196
|
|
Technology
|
|
|
38
|
|
|
|
10
|
|
|
|
19
|
|
|
|
3
|
|
|
|
|
12
|
|
|
|
32
|
|
|
|
33
|
|
Other
|
|
|
15
|
|
|
|
12
|
|
|
|
12
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
6
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures by segment
|
|
|
1,167
|
|
|
|
484
|
|
|
|
467
|
|
|
|
113
|
|
|
|
|
226
|
|
|
|
781
|
|
|
|
1,029
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to PO Joint Ventures
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures of continuing operations
|
|
$
|
1,164
|
|
|
$
|
482
|
|
|
$
|
466
|
|
|
$
|
113
|
|
|
|
$
|
226
|
|
|
$
|
779
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The capital expenditures presented in the table above for all
periods prior to 2011 exclude costs of major periodic
maintenance and repair activities, including turnarounds and
catalyst recharges of $74 million in the first quarter 2010
and $71 million, $39 million and $164 million in
the Predecessor periods of 2010, 2009 and 2008, respectively.
Financing Activities Financing activities
used cash of $299 million in the first six months of 2011
and provided $3,448 million in the combined 2010 period. In
May 2011, we redeemed $203 million and
34 million ($50 million) of our 8% Senior
Secured Notes due 2017, comprising 10% of the outstanding senior
secured dollar notes and senior secured Euro notes at
March 31, 2011. We paid $7 million of premiums in
conjunction with the redemption of the notes. Also in May 2011,
we paid cash dividends of $0.10 per share of common stock
totaling $57 million to shareholders of record on
May 5, 2011. In June 2011, we paid $15 million of fees
related to the amendment of our U.S. ABL facility. In the
first quarter of 2011, we received proceeds of $37 million
upon conversion of outstanding warrants to common stock.
The two month Successor period ending June 30, 2010
reflects a net increase in borrowings of $132 million under
our European Securitization facility and a $2 million
payment related to a previous factoring facility in France. The
cash used in the Successor period primarily reflects the
repayment of debt in the fourth quarter of 2010. In December
2010, we redeemed $225 million and 37.5 million
($50 million) of our 8% Senior Secured Notes due 2017,
comprising 10% of the outstanding senior secured dollar notes
and senior secured Euro notes, respectively. In conjunction with
the redemption of the notes, we paid premiums totaling
$8 million. Also in 2010, we repaid $495 million of
the Senior Term Loan Facility, including a mandatory quarterly
amortization payment of $1 million and a prepayment, at
par, of $494 million in December 2010.
Since the Emergence Date, we made net payments totaling
$398 million under the European Securitization Facility,
which includes the entire outstanding balance in October 2010.
We also made net payments of $14 million under our accounts
receivable factoring facility during the Successor period.
As part of our emergence from bankruptcy, we received gross
proceeds of $2,800 million on April 30, 2010 in
connection with the issuance of shares in a rights offering and
paid $86 million of fees, including $70 million of
fees to equity backstop providers. On April 30, 2010 we
also received net proceeds of $3,242 million from the
issuance of new debt by our subsidiary, Lyondell Chemical,
including Senior Secured Notes in the amounts of
$2,250 million and 375 million
($497 million) and from proceeds of the Senior
68
Term Loan facility of $495 million. Proceeds from the
rights offering and the Senior Notes, along with borrowings
under the Senior Term Loan Facility and the amended and restated
European Securitization, were used to repay outstanding amounts
of $2,167 million under the DIP New Money Term Loan,
$985 million under the DIP ABL Facility and to pay a
$195 million exit fee required under the DIP financing. We
also paid fees totaling $92 million in connection with our
new U.S. ABL Facility and amended and restated European
Securitization facility. Predecessor debt classified as
Liabilities subject to compromise immediately prior to emergence
from bankruptcy was discharged pursuant to the Plan of
Reorganization (see Note 4 to LyondellBasell N.V.s
Consolidated Financial Statements for the year ended
December 31, 2010).
Apart from the payments reflected above, during the 2010
Predecessor period, we repaid a $5 million Argentinean
loan; made a $12 million mandatory quarterly amortization
payment of the Dutch Tranche A Dollar Term Loan,
$3 million of which was related to the DIP
Roll-Up
Loans; and made payments of $8 million on the French
Factoring Facility. In addition, we made payments totaling
$13 million related to the extension of the DIP financing.
We also had a net increase in borrowings of $47 million
under the European Securitization facility in the 2010
Predecessor period.
In 2009, LyondellBasell AF borrowed $2,167 million under a
DIP financing arrangement, receiving net proceeds of
$2,089 million and subsequently paid additional bank fees
of $97 million. In addition, LyondellBasell AF paid fees of
$93 million related to the issuance of the DIP ABL
facility, and at December 31, 2009 had $325 million of
net borrowings outstanding under this facility.
The chapter 11 filing in 2009 constituted a termination
event under the asset-based credit facilities in the U.S., and
LyondellBasell AF used $880 million of the net proceeds
under the DIP financing arrangement to repay $766 million
and $114 million outstanding under the previous
inventory-based credit facility and the North American accounts
receivable securitization program, respectively. As noted under
Operating Activities, LyondellBasell AF also used
$503 million to repurchase outstanding accounts receivable
sold under its previous $1,150 million receivables
securitization facility. In addition, LyondellBasell AF repaid a
$100 million demand note related to emergency postpetition
funding. In 2009, LyondellBasell AF made net repayments totaling
$201 million under its European receivables securitization
program, which was amended and restated in March 2009.
LyondellBasell AF repaid $45 million (70 million
Australian dollars) outstanding under an Australian term loan
and $11 million of other loans, including $6 million
outstanding under an Argentinean bank loan, and made mandatory
quarterly amortization payments of the Dutch Tranche A
Dollar Term Loan totaling $24 million, $6 million of
which was related to the DIP financing.
A non-debtor subsidiary of LyondellBasell AF entered into an
accounts receivable factoring agreement in 2009 under which it
received $24 million of proceeds. See the Accounts
Receivable Factoring Agreement section in Liquidity
and Capital Resources. Also in 2009, LyondellBasell AF
received $18 million of proceeds from an Argentinean bank
loan and borrowed $17 million related to a letter of credit
presented for payment under the prepetition senior secured
revolving credit facility.
LyondellBasell AF had an additional $21 million of cash
used by financing activities, primarily related to the effects
of bank overdrafts.
The cash provided in 2008 primarily reflected net
$1,510 million borrowed under LyondellBasell AFs
credit facilities offset by $384 million of long-term debt
repayments. The borrowings were used to fund the business
acquisitions described in the Investing Activities
section above.
Liquidity and Capital Resources As of
June 30, 2011, we had cash on hand of $4,687 million.
In addition, we had total unused availability under our credit
facilities of $2,382 million at June 30, 2011, which
included the following:
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$1,737 million under our $2,000 million U.S. ABL
facility, which is subject to a borrowing base, net of
outstanding borrowings and outstanding letters of credit
provided under the facility. At June 30, 2011, we had
$263 million of outstanding letters of credit and no
outstanding borrowings under the facility.
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432 million and $25 million (totaling
approximately $645 million) under our
450 million European receivables securitization
facility. Availability under the European receivables
securitization facility is
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subject to a borrowing base, net of outstanding borrowings.
There were no outstanding borrowings under this facility at
June 30, 2011.
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In addition to the letters of credit issued under the
U.S. ABL facility, we also have outstanding letters of
credit totaling $221 million, which are collateralized by
cash. Such cash is included in the $250 million of
Restricted cash reflected on the Consolidated Balance Sheets as
of June 30, 2011.
We may use cash on hand, cash from operating activities and
proceeds from asset divestitures to repay debt, which may
include additional purchases of our outstanding bonds in the
open market or otherwise. We also plan to finance our ongoing
working capital, capital expenditures, debt service and other
funding requirements through our future financial and operating
performance, 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 cash, cash from operating activities and proceeds from
our credit facilities provide us with sufficient financial
resources to meet our anticipated capital requirements and
obligations as they come due.
At June 30, 2011, we had total debt, including current
maturities, of $5,865 million.
In June 2011, we obtained an amendment to our U.S. ABL
facility to, among other things: (i) increase the facility
to $2 billion; (ii) extend the maturity date to June
2016; (iii) reduce the applicable margin and commitment fee
and (iv) amend certain covenants and conditions to provide
additional flexibility.
In March 2011, we amended and restated our Senior Secured Term
Loan Agreement to, among other things, modify the term of the
agreement and certain restrictive covenants. This amended and
restated agreement matures in April 2014.
In May 2011, we announced our intention to seek a buyer for
our Berre refinery in France.
We are party to certain registration rights agreements relating
to our Senior Secured 8% Notes and our Senior Secured
11% Notes, which obligate us to conduct an exchange offer
for the 8% notes and register the resale of the
11% notes held by affiliates with the SEC. The registration
rights agreements require the registration statements for the
exchange or resale, as applicable, to be effective with the SEC
by May 3, 2011, which has not occurred. As a result,
beginning May 4, 2011, we are subject to penalties in the
form of increased interest rates as required by the registration
rights agreement. The interest penalties are 0.25% per annum for
the applicable notes for the first 90 days that the
registration statements are not effective, increasing by an
additional 0.25% per annum for each additional 90 days, up
to a maximum of 1.00% per annum. We do not expect the amount of
penalties that we will ultimately pay to be material.
On August 3, 2011, the Management Board of the Company
recommended to the Supervisory Board that the Company pay a
dividend of $0.20 per share. The Supervisory Board has
authorized and directed the Management Board to take actions
necessary to pay the dividend. Subject to the Management
Boards adoption of a resolution declaring the dividend, it
is expected that the dividend will be paid on September 7,
2011 to shareholders of record as of August 17, 2011.
Management intends to declare interim dividends to the extent
the Companys cash flows and results of operations support
such dividend payments in the future.
As of December 31, 2010, we had cash on hand of
$4,222 million. In addition, we had total unused
availability under our credit facilities of $1,883 million
at December 31, 2010, which included the following:
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$1,380 million under our $1,750 million U.S. ABL
facility, which matures in 2014. Availability under the
U.S. ABL facility is subject to a borrowing base of
$1,750 million at December 31, 2010, and is reduced to
the extent of outstanding borrowings and outstanding letters of
credit provided under the facility. At December 31, 2010,
we had $370 million of outstanding letters of credit and no
outstanding borrowings under the facility.
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368 million and $16 million (totaling
approximately $503 million) under our
450 million European receivables securitization
facility. Availability under the European receivables
securitization facility is subject to a borrowing base
comprising 368 million and $16 million in effect
as of December 31, 2010. There were no outstanding
borrowings under this facility at December 31, 2010.
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70
In October 2010, we provided the lenders under our accounts
receivable factoring facility with notice of our intent to
terminate the agreement. The facility was repaid in full in
November 2010 and terminated.
At December 31, 2010, we had total short-term and long-term
debt, including current maturities, of $6,082 million. At
December 31, 2010, our $4 million of current
maturities of long-term debt comprises various
non-U.S. loans.
Receivables securitization On May 4,
2010, we amended and restated an existing securitization
agreement under which two of our
non-U.S. subsidiaries
may sell, subject to a borrowing base, up to
450 million in trade receivables. Transfers of
accounts receivable under this three-year program do not qualify
as sales; therefore, the transferred accounts receivable and the
proceeds received through such transfers are included in trade
receivables, net, and short-term debt in the consolidated
balance sheets. There were no borrowings under this facility as
of December 31, 2010.
Contractual and Other Obligations The
following table summarizes, as of December 31, 2010, our
minimum payments for long-term debt, including current
maturities, short-term debt, and contractual and other
obligations for the next five years and thereafter.
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Payments Due By Period
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Total
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2011
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2012
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2013
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2014
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2015
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Thereafter
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Millions of dollars
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Total debt
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$
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6,082
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$
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46
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$
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10
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$
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1
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$
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$
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1
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$
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6,024
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Interest on total debt
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4,460
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609
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608
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608
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589
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579
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1,467
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Pension benefits:
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PBO
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2,933
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161
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166
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236
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186
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205
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1,979
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Assets
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(1,760
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)
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(1,760
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)
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Funded status
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1,173
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Other postretirement benefits
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332
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22
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22
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23
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23
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24
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218
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Advances from customers
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101
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12
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17
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16
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12
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12
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32
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Other
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605
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112
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93
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71
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35
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33
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|
261
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Deferred income taxes
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656
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|
122
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|
119
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|
107
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|
97
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87
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124
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Other obligations:
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Purchase obligations:
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Take-or-pay contracts
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15,223
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2,400
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2,352
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2,328
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2,357
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1,910
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3,876
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Other contracts
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41,593
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13,484
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6,325
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5,612
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5,405
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4,767
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6,000
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Operating leases
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1,687
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|
278
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