LYONDELLBASELL INDUSTRIES N.V.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
| (Mark One) | ||||
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
| For the fiscal year ended December 31, 2010 | ||||
|
OR
|
||||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
| For the transition period from to | ||||
Commission file number:
001-34726
LyondellBasell Industries
N.V.
(Exact name of registrant as
specified in its charter)
|
The Netherlands
|
98-0646235 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Weena 737
3013 AM Rotterdam
The Netherlands
(Address of principal executive
offices) (Zip Code)
Registrant’s telephone number, including area code: 31
30 275 5500
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange On Which Registered
|
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| Ordinary Shares, €0.04 Par Value | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
o
Yes
þ
No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
o
Yes
þ
No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files).
þ
Yes
o
No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer o |
Non-accelerated filer
þ
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act).
o
Yes
þ
No
The aggregate market value of common stock held by
non-affiliates of the registrant on June 30, 2010, the last
business day of the registrant’s most recently completed
second fiscal quarter, based on the closing price on that date
of $16.15, was $5.4 billion. For purposes of this
disclosure, the registrant has included Access Industries, LLC,
Apollo Management Holdings, L.P. and Ares Management LLC and
their affiliates as “affiliates.”
The registrant had 567,791,511 shares outstanding at
March 15, 2011.
Documents
incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 5, 2011 (Part III)
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PART I
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1 and 2.
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Business and Properties | 1 | ||||||
| Corporate Structure & Overview | 1 | |||||||
| Segments | 1 | |||||||
| Olefins and Polyolefins Segments Generally | 2 | |||||||
| Olefins and Polyolefins Americas | 3 | |||||||
| Olefins and Polyolefins Europe, Asia and International | 8 | |||||||
| Intermediates and Derivatives | 13 | |||||||
| Refining & Oxyfuels | 19 | |||||||
| Technology | 22 | |||||||
| General | 26 | |||||||
| Research and Development | ||||||||
| Intellectual Property | 26 | |||||||
| Environmental Regulation and Capital Expenditures | 26 | |||||||
| Employee Relations | 27 | |||||||
| Description of Properties | 27 | |||||||
| Website Access to SEC Reports | 31 | |||||||
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1A.
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Risk Factors | 31 | ||||||
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1B.
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Unresolved Staff Comments | 41 | ||||||
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3.
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Legal Proceedings | 41 | ||||||
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4.
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Submission of Matters to a Vote of Security Holders | |||||||
| PART II | ||||||||
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5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 43 | ||||||
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6.
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Selected Financial Data | 46 | ||||||
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7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 47 | ||||||
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7A.
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Quantitative and Qualitative Disclosures About Market Risk | 76 | ||||||
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8.
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Financial Statements and Supplementary Data | 78 | ||||||
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9.
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 170 | ||||||
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9A.
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Controls and Procedures | 170 | ||||||
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9B.
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Other Information | 171 | ||||||
| PART III | ||||||||
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10.
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Directors, Executive Officers and Corporate Governance | 171 | ||||||
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11.
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Executive Compensation | 171 | ||||||
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12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 172 | ||||||
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13.
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Certain Relationships and Related Transactions, and Director Independence | 172 | ||||||
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14.
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Principal Accounting Fees and Services | 172 | ||||||
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15.
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Exhibits, Financial Statement Schedules | 173 | ||||||
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Signatures
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174 | |||||||
| EX-12.1 | ||||||||
| EX-21.1 | ||||||||
| EX-23.1 | ||||||||
| EX-31.1 | ||||||||
| EX-31.2 | ||||||||
| EX-32 | ||||||||
Table of Contents
Items 1
and 2.
BUSINESS AND PROPERTIES
CORPORATE
STRUCTURE AND OVERVIEW
LyondellBasell Industries N.V. was incorporated under Dutch law
by deed of incorporation dated October 15, 2009. The
Company was formed to serve as the new parent holding company
for certain subsidiaries of LyondellBasell AF S.C.A. From
January 2009 through April 2010, LyondellBasell AF and 93 of its
subsidiaries were debtors in jointly administered bankruptcy
cases in U.S. Bankruptcy Court for the Southern District of
New York. As of April 30, 2010, the date of emergence from
bankruptcy proceedings, LyondellBasell AF’s equity
interests in its indirect subsidiaries terminated and
LyondellBasell Industries N.V. now owns and operates, directly
and indirectly, substantially the same business as
LyondellBasell AF owned and operated prior to emergence from the
bankruptcy cases, including subsidiaries of LyondellBasell AF
that were not involved in the bankruptcy cases.
Our Company is 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
world’s largest private petrochemical companies with
significant worldwide scale and leading product positions.
We are the world’s third largest independent chemical
company based on revenues and an industry leader in many of our
product lines. 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.
SEGMENTS
As of December 31, 2009, we began reporting our results of
operations based on five business segments through which our
operations are managed. Our reportable segments include:
| • | Olefins and Polyolefins — Americas (“O&P — Americas”). Our O&P — Americas segment produces and markets olefins, including ethylene and ethylene co-products, and polyolefins | |
| • | Olefins and Polyolefins — Europe, Asia, International (“O&P — EAI”). Our O&P — EAI segment produces and markets olefins, including ethylene and ethylene co-products, and polyolefins. | |
| • | Intermediates and Derivatives (“I&D”). Our I&D segment produces and markets propylene oxide (“PO”) and its co-products and derivatives, acetyls, ethylene oxide and its derivatives. | |
| • | Refining & Oxyfuels. Our Refining & Oxyfuels segment refines heavy, high-sulfur crude oil in the U.S. Gulf Coast, refines light and medium weight crude oil in southern France and produces oxyfuels at several of our olefin and PO units. | |
| • | Technology. Our Technology segment develops and licenses polyolefin process technologies and provides associated engineering and other services. Our Technology segment also develops, manufactures and sells polyolefin catalysts. We market our process technologies and our polyolefin catalysts to external customers and use them for our own manufacturing operations. |
1
Table of Contents
The following chart sets out our business segments’ key
products:
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O&P Americas
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and
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O&P EAI
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I&D
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Refining & Oxyfuels
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Technology
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Olefins
— Ethylene — Propylene — Butadiene Polyolefins — Polypropylene (PP) — Polyethylene (PE) — High density polyethylene (HDPE) — Low density polyethylene (LDPE) — Linear low density polyethylene (LLDPE) — Propylene-based compounds, materials and alloys (PP compounds)* — Catalloy process resins — Polybutene-1 (PB-1)* Aromatics — Benzene — Toluene Ethylene derivatives — Ethanol |
Propylene oxide,
co-products and derivatives — Propylene oxide (PO) — Styrene monomer (SM) — Tertiary butyl alcohol (TBA) — Isobutylene — Tertiary butyl hydro-peroxide (TBHP) — Propylene glycol (PG) — Propylene glycol ethers (PGE) — Butanediol (BDO) Acetyls — Vinyl acetate monomer (VAM) — Acetic acid — Methanol Ethylene derivatives — Ethylene oxide (EO) — Ethylene glycol (EG) — Ethylene Glycol Ethers Flavor and fragrance chemicals** |
Gasoline
Ultra low sulfur diesel Jet fuel Lube oils Gasoline blending components — Methyl tertiary butyl ether (MTBE) — Ethyl tertiary butyl ether (ETBE) Alkylate Vacuum Gas Oil (VGO) Light crude oil |
PP process technologies
— Spheripol — Spherizone — Metocene Polyethylene process technologies — Lupotech — Spherilene — Hostalen Polyolefin catalysts — Avant Selected chemical technologies |
| * | O&P — EAI only. | |
| ** | Through December 2010, when the flavor and fragrance business was sold. |
Olefins
and Polyolefins Segments Generally
We are a top worldwide producer of ethylene, propylene and PE,
and the world’s largest producer of PP and PP compounds. We
manage our olefin and polyolefin business in two reportable
segments, O&P — Americas and O&P —
EAI.
Ethylene is the most significant petrochemical in terms of
worldwide production volume and is the key building block for PE
and a large number of other chemicals, plastics and synthetics.
The production of ethylene results in co-products such as
propylene, butadiene and aromatics, which include benzene and
toluene. Ethylene and its co-products are fundamental to many
segments of the economy, including the production of consumer
products, packaging, housing and automotive components and other
durable and nondurable goods.
Polyolefins are thermoplastics and comprise approximately
two-thirds of worldwide thermoplastics demand. Since their
industrial commercialization, thermoplastics have found
wide-ranging applications and continue to replace traditional
materials such as metal, glass, paper and wood. Our products are
used in consumer, automotive and industrial applications ranging
from food and beverage packaging to housewares and construction
materials. PE is the most widely used thermoplastic, measured on
a production capacity basis. We produce HDPE, LDPE, LLDPE and
metallocene linear low density polyethylene. PP is the single
largest polyolefin product produced worldwide, and we produce
homopolymer, impact copolymer, random copolymer and metallocene
PP.
2
Table of Contents
We specialize in several specialty product lines: PP compounds;
Catalloy
process resins; and
PB-1,
focusing on specialty polyolefins and compounds that offer a
wide range of performance characteristics. Typical properties of
such specialty polyolefins and compounds include
impact-stiffness balance, scratch resistance, soft touch and
heat scalability. End uses include automotive and industrial
products and materials. PP compounds consist of specialty
products produced from blends of polyolefins and additives and
are sold mainly to the automotive and home appliances industries.
We are the only manufacturer of
Catalloy
process resins,
which are our proprietary products. The
Catalloy
process
resins business focuses on specialty polyolefins that offer a
wide range of performance characteristics.
Catalloy
process resins compete with a number of other materials,
such as other PP resins, flexible PVC, ethylene propylene
rubber, acrylonitrile butadiene styrene (“ABS”),
polycarbonate, metals and reinforced polyurethanes.
Sales of ethylene accounted for approximately 3% of our total
revenues in 2010. Sales of PP accounted for approximately 18% of
our total revenues in 2010. Sales of PE (HDPE, LDPE and LLDPE,
collectively) accounted for 16% of our total revenues in 2010.
Olefins
and Polyolefins — Americas Segment
Overview
Our O&P — Americas segment produces and markets
olefins, polyolefins, aromatics, specialty products and ethylene
co-products. We are the largest producer of light olefins
(ethylene and propylene) and PP and the third largest producer
of PE in North America. In addition, we produce significant
quantities of specialty products. In 2010, our
O&P — Americas segment generated operating
revenues of $9.2 billion (excluding inter-segment revenue).
The following table outlines:
| • | the primary products of our O&P — Americas segment; | |
| • | annual processing capacity as of December 31, 2010, unless otherwise noted; and | |
| • | the primary uses for those products. |
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Product
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Annual Capacity
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Primary Uses
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Olefins:
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Ethylene
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9.6 billion pounds | Ethylene is used as a raw material to manufacture polyethylene, EO, ethanol, ethylene dichloride, styrene and VAM | ||
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Propylene
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5.5 billion pounds(1) | Propylene is used to produce PP, acrylonitrile and PO | ||
|
Butadiene
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1.1 billion pounds | Butadiene is used to manufacture styrene-butadiene rubber and polybutadiene rubber, which are used in the manufacture of tires, hoses, gaskets and other rubber products. Butadiene is also used in the production of paints, adhesives, nylon clothing, carpets, paper coatings and engineered plastics | ||
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Aromatics:
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Benzene
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195 million gallons | Benzene is used to produce styrene, phenol and cyclohexane. These products are used in the production of nylon, plastics, synthetic rubber and polystyrene. Polystyrene is used in insulation, packaging and drink cups |
3
Table of Contents
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Product
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Annual Capacity
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Primary Uses
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||
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Toluene
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40 million gallons | Toluene is used as an octane enhancer in gasoline, as a chemical raw material for benzene and/or paraxylene production and as a core ingredient in toluene diisocyanate, a compound used in urethane production | ||
|
Polyolefins:
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PP
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4.4 billion pounds(2) | PP is primarily used to manufacture fibers for carpets, rugs and upholstery; housewares; medical products; automotive interior trim, fascia, running boards, battery cases, and bumpers; toys and sporting goods; fishing tackle boxes; and bottle caps and closures | ||
|
HDPE
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3.3 billion pounds | HDPE is used to manufacture grocery, merchandise and trash bags; food containers for items from frozen desserts to margarine; plastic caps and closures; liners for boxes of cereal and crackers; plastic drink cups and toys; dairy crates; bread trays; pails for items from paint to fresh fruits and vegetables; safety equipment, such as hard hats; house wrap for insulation; bottles for household and industrial chemicals and motor oil; milk, water, and juice bottles; large (rotomolded) tanks for storing liquids such as agricultural and lawn care chemicals; and pipe | ||
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LDPE
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1.3 billion pounds | LDPE is used to manufacture food packaging films; plastic bottles for packaging food and personal care items; dry cleaning bags; ice bags; pallet shrink wrap; heavy-duty bags for mulch and potting soil; boil-in-bags ; coatings on flexible packaging products; and coatings on paper board such as milk cartons. Ethylene vinyl acetate is a specialized form of LDPE used in foamed sheets, bag-in-box bags, vacuum cleaner hoses, medical tubing, clear sheet protectors and flexible binders |
4
Table of Contents
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Product
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Annual Capacity
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Primary Uses
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LLDPE
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1.3 billion pounds | LLDPE is used to manufacture garbage and lawn-leaf bags; industrial can liners; housewares; lids for coffee cans and margarine tubs; dishpans, home plastic storage containers, and kitchen trash containers; large (rotomolded) toys like outdoor gym sets; drip irrigation tubing; insulating resins and compounds used to insulate copper and fiber optic wiring; shrink wrap for multi-packaging canned food, bag-in-box bags, produce bags, and pallet stretch wrap | ||
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Specialty Polyolefins:
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Catalloy
process resins
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600 million pounds | Catalloy process resins are used primarily in modifying polymer properties in film applications and molded products; for specialty films, geomembranes, and roofing materials; in bitumen modification for roofing and asphalt applications; and to manufacture automotive bumpers | ||
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Ethylene Derivatives:
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Ethanol
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50 million gallons | Ethanol is used as a fuel and a fuel additive and in the production of solvents as well as household, medicinal and personal care products |
| (1) | Includes (i) refinery-grade material from the Houston Refinery and (ii) 1 billion pounds per year of capacity from the product flex unit at the Channelview facility, which can convert ethylene and other light petrochemicals into propylene. | |
| (2) | Includes 100% of 1.31 billion pounds of capacity of our Indelpro joint venture (described below). |
See “Description of Properties” for the locations
where we produce the primary products of our
O&P — Americas segment. Annual processing
capacity as of December 31, 2010 was calculated by
estimating the average number of days in a typical year that a
production unit of a plant is expected to operate, after
allowing for downtime for regular maintenance, and multiplying
that number by an amount equal to the unit’s optimal daily
output based on the design raw material mix. Because the
processing capacity of a production unit is an estimated amount,
actual production volumes may be more or less than the
capacities set forth below. Capacities shown include 100% of the
capacity of joint venture facilities.
Sales &
Marketing / Customers
In 2010, no single external O&P — Americas
segment customer accounted for 10% or more of our total revenues.
We currently produce ethylene at five sites in the U.S. Our
ethylene production in the U.S. generally is consumed
internally as a raw material in the production of polymers and
other derivatives, or is shipped by pipeline to customers. In
North America, we are a net seller of ethylene.
We currently produce propylene at six sites in the U.S., which
includes production from the Houston Refinery’s fluid
catalytic cracker coproduct stream. We use propylene as a raw
material for production of PO, PP, and other derivatives. The
propylene production within the U.S. that is not consumed
internally is generally sold under multi-year contracts. In
North America, we are a net seller of propylene.
5
Table of Contents
We have butadiene and aromatics (benzene and toluene) production
capabilities at two sites in the U.S. We generally sell our
butadiene under multi-year contracts. We use the benzene as a
raw material for production of styrene. In the U.S., we are a
net purchaser of benzene. Our Refining & Oxyfuels
business uses the toluene to blend into gasoline. Of the toluene
production that is not consumed internally, a majority is sold
on a spot basis.
We at times purchase ethylene, propylene, benzene and butadiene
for resale, when necessary, to satisfy customer demand for these
products above production levels. Volumes of ethylene,
propylene, benzene and butadiene purchased for resale can vary
significantly from period to period. However, purchased volumes
have not historically had a significant impact on profits.
In the U.S., most of the ethylene and propylene production of
our Channelview, Corpus Christi and La Porte facilities is
shipped via a pipeline system, which has connections to numerous
U.S. Gulf Coast consumers. This pipeline system, some of
which is owned and some of which is leased, extends from Corpus
Christi to Mont Belvieu to Port Arthur, Texas, as well as into
the Lake Charles, Louisiana area. In addition, exchange
agreements with other ethylene and co-products producers allow
access to customers who are not directly connected to this
pipeline system. Some ethylene is shipped by rail car from
Clinton, Iowa to Morris, Illinois and also to customers. A
pipeline owned and operated by an unrelated party is used to
transport ethylene from Morris, Illinois to Tuscola, Illinois
and is used as a raw material in the production of ethanol. Some
propylene is shipped by ocean going vessel. Butadiene, benzene,
toluene and other products are distributed by pipeline, rail
car, truck, barge or ocean going vessel.
We produce PP at three sites in North America, one of which is
owned by our Mexican joint venture, and one site in South
America. We manufacture PE using a variety of technologies at
six sites in the U.S. Our PP and PE production is typically
sold to an extensive base of established customers under annual
contracts or under customary terms and conditions without formal
contracts. We also sell PP into our PP compounds business, which
is managed worldwide by our O&P — EAI segment. We
also have a facility in Ohio that produces performance polymer
products, which include enhanced grades of PE. We believe that,
over a business cycle, average selling prices and profit margins
for specialty polymers tend to be higher than average selling
prices and profit margins for higher-volume commodity PEs.
The majority of our polyolefin products sold in North America
are sold through our sales organization. We have regional sales
offices in various locations throughout the
U.S. Polyolefins primarily are distributed in North America
by rail car or truck.
Joint
Venture Relationships
The following table describes our O&P — Americas
segment’s significant manufacturing joint venture
relationships.
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LyondellBasell
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2010 Capacity
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Name
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Location
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Other Parties
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Ownership
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Product
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(In millions of pounds)
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Indelpro
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Mexico | Alfa S.A.B. de C.V. | 49 | % | PP | 1,310(1) | ||||||
| (1) | Represents the joint venture’s total capacity and not our proportional capacity. |
Indelpro’s output is marketed by the joint venture.
Indelpro’s annual capacity includes 770 million pounds
produced from our
Spherizone
process technology. We
receive equity distributions and revenues from technology
licensing and catalyst sales from the joint venture. Further, we
believe the geographic diversification provides benefits to our
Company.
We also have a limited partnership with respect to our LaPorte,
Texas olefin facility. The partnership produces ethylene and
propylene. Our partner’s partnership interest entitles it
to 500 million pounds of propylene annually. Our
partnership interest entitles us to receive all remaining
ethylene and propylene production, as well as other products
produced.
6
Table of Contents
Raw
Materials
Raw material cost is the largest component of the total cost for
the production of ethylene and its co-products. The primary raw
materials used are heavy liquids and natural gas liquids
(“NGLs”). Heavy liquids include crude oil-based
naphtha and gas oil, as well as condensate, a very light crude
oil resulting from natural gas production (collectively referred
to as “heavy liquids”). NGLs include ethane, propane
and butane. The use of heavy liquid raw materials results in the
production of a significant amount of co-products such as
propylene, butadiene, benzene and toluene, as well as gasoline
blending components, while the use of NGLs results in the
production of a smaller amount of co-products.
Historically, facilities using heavy liquids as feedstock have
generated higher margins than those using ethane. However, in
recent years ethane has had a cost advantage for use as
feedstock based on higher crude oil prices relative to NGLs. As
a result, a plant’s flexibility to consume a wide range of
raw materials generally will provide an advantage over plants
that are restricted in processing capabilities over a number of
years. We have the capability to process significant quantities
of either heavy liquids or NGLs. We estimate that in the
U.S. we can process between 35% and 85% NGLs. Changes in
the raw material feedstock will result in variances in
production capacities among products. We believe our raw
material flexibility in the U.S. is a key advantage in the
production of ethylene and its co-products.
We source our heavy liquids requirements worldwide via a mix of
contractual and spot arrangements. Spot market purchases are
made in order to maintain raw material flexibility and to take
advantage of raw material pricing opportunities. We purchase NGL
requirements via long term and spot contractual arrangements
from a variety of sources. A portion of the heavy liquids
requirements for ethylene production are also obtained from our
Refining & Oxyfuels segment. Heavy liquids generally
are delivered by ship or barge, and NGLs are generally delivered
via pipeline.
In North America, we also purchase large amounts of natural gas
to be used for consumption (not as a raw material) in our
business via market-based contractual arrangements with a
variety of sources.
The principal raw materials used by our polyolefin business are
ethylene and propylene. During 2010, our North American ethylene
and propylene production exceeded the North American raw
material requirements of the polyolefin business of our
O&P — Americas segment. However, not all raw
material requirements for ethylene and propylene in this region
are sourced internally. Our Mexican joint venture, Indelpro,
receives the majority of its chemical grade and refinery grade
propylene needs from Pemex, the state owned oil company of
Mexico, under a long-term contract. We purchase ethylene and
propylene on a spot and contract basis to meet our internal and
external demands as needed.
The raw materials for polyolefins and
Catalloy
process
resins are, in general, commodity chemicals with numerous bulk
suppliers and ready availability at competitive prices.
Industry
Dynamics / Competition
With respect to olefins and polyolefins, competition is based on
price, product quality, product delivery, reliability of supply,
product performance and customer service. Industry consolidation
in North America has led to fewer, although larger, competitors.
Profitability is affected not only by supply and demand for
olefins and polyolefins, but also by raw material costs and
price competition among producers. Price competition may
intensify due to, among other things, the addition of new
capacity. In general, demand is a function of worldwide economic
growth, which fluctuates. It is not possible to accurately
predict the changes in raw material costs, market conditions,
capacity utilization and other factors that will affect industry
profitability in the future.
Based on published rated production capacities, we were the
second largest producer of ethylene in North America as of
December 31, 2010. North American ethylene rated capacity
at December 31, 2010 was approximately 72 billion
pounds per year, with approximately 84% of that North American
capacity located along the Gulf Coast. At December 31,
2010, our ethylene rated capacity in the U.S. was
approximately 9.6 billion pounds per year, or approximately
13% of total North American ethylene production capacity.
7
Table of Contents
We compete in North America with other large marketers and
producers for sales of ethylene and its co-products such as Dow,
ExxonMobil, International Petroleum Investment Company
(“IPIC”), Shell, INEOS, ChevronPhillips, TPC Group and
others.
Based on published data regarding PP capacity, we believe that,
including our proportionate share of the Indelpro joint venture,
we are the largest producer of PP in North America as of
December 31, 2010, with a proportionate share capacity of
3.3 billion pounds, or approximately 17% of the total North
American capacity. Our largest competitors for sales of PP in
North America are ExxonMobil, Total, Braskem, Formosa Plastics
and INEOS.
With respect to PE, we believe that we are the third largest
producer in North America as of December 31, 2010, with
5.8 billion pounds per year of capacity, or approximately
13% of North American capacity. Our largest competitors for
sales of PE in North America are Dow, ExxonMobil, IPIC, Chevron
Phillips, INEOS and Westlake.
Olefins
and Polyolefins — Europe, Asia, International
Segment
Overview
Our O&P — EAI segment produces and markets
olefins (ethylene and ethylene co-products) and polyolefins. We
are the largest producer of PP and PE in Europe and the largest
worldwide producer of PP compounds. We also produce significant
quantities of other specialty products such as
Catalloy
process resins and
PB-1.
Our
O&P — EAI segment manages our worldwide PP
compound business (including our facilities in North and South
America), our worldwide
PB-1
business, and our
Catalloy
process resins produced in
Europe and Asia. We have eight joint ventures located
principally in regions with access to low cost feedstocks or
access to growing markets. In 2010, our O&P — EAI
segment generated operating revenues of $12.5 billion
(excluding inter-segment revenue).
We currently produce ethylene, propylene and co-products at
three sites in Europe and one joint venture site in the Middle
East. Butadiene is an important co-product of this production.
We produce polyolefins (PP and PE) at 19 facilities in the EAI
region, including 10 facilities located in Europe, four
facilities located in East Asia, three facilities located in the
Middle East and two facilities located in Australia. Our joint
ventures own one of the facilities in Europe, four of the
facilities in East Asia and three in the Middle East.
PP compounds consist of specialty products produced from blends
of polyolefins and additives and are sold mainly to the
automotive and white goods industries. We manufacture PP
compounds at 15 facilities worldwide (a number of which are the
same facilities as the polyolefin facilities described above),
consisting of four facilities in Europe, five facilities in East
Asia, three in North America, two in South America and one
facility in Australia.
We produce
Catalloy
process resins at two sites in the
EAI region, including one in The Netherlands and one in Italy.
The process is proprietary technology that is not licensed to
third parties, and as a result, we are the only manufacturer of
Catalloy
process resins.
We produce
PB-1
at one
facility in Europe. We believe that we are the largest worldwide
producer of
PB-1,
a
family of flexible, strong and durable butene-based polymers. A
majority of the current
PB-1
we
produce is used in pipe applications and for under-floor heating
and thermo sanitary systems.
PB-1
is
being developed to target new opportunities in applications such
as “easy-open” packaging (seal-peel film),
construction, fibers and fabrics, compounds, adhesives and
coatings.
The following table outlines:
| • | the primary products of our O&P — EAI segment; | |
| • | annual processing capacity as of December 31, 2010, unless otherwise noted; and | |
| • | the primary uses for those products. |
8
Table of Contents
|
Product
|
Annual Capacity
|
Primary Uses
|
||
|
Olefins
|
||||
|
Ethylene
|
6.4 billion pounds(1) | Ethylene is used as a raw material to manufacture polyethylene, EO, ethanol, ethylene dichloride, styrene and VAM | ||
|
Propylene
|
5.4 billion pounds(1)(2) | Propylene is used to produce PP, acrylonitrile and PO | ||
|
Butadiene
|
550 million pounds(1) | Butadiene is used to manufacture styrene-butadiene rubber and polybutadiene rubber, which are used in the manufacture of tires, hoses, gaskets and other rubber products. Butadiene is also used in the production of paints, adhesives, nylon clothing, carpets, paper coatings and engineered plastics | ||
|
Polyolefins:
|
||||
|
PP
|
12.4 billion pounds(3)(4) | PP is primarily used to manufacture fibers for carpets, rugs and upholstery; housewares; medical products; automotive interior trim, fascia, running boards, battery cases, and bumpers; toys and sporting goods; fishing tackle boxes; and bottle caps and closures | ||
|
HDPE
|
4.4 billion pounds(4)(5) | HDPE is used to manufacture grocery, merchandise and trash bags; food containers for items from frozen desserts to margarine; plastic caps and closures; liners for boxes of cereal and crackers; plastic drink cups and toys; dairy crates; bread trays; pails for items from paint to fresh fruits and vegetables; safety equipment, such as hard hats; house wrap for insulation; bottles for household and industrial chemicals and motor oil; milk, water, and juice bottles; large (rotomolded) tanks for storing liquids such as agricultural and lawn care chemicals; and pipe | ||
|
LDPE
|
2.8 billion pounds(4)(6) | LDPE is used to manufacture food packaging films; plastic bottles for packaging food and personal care items; dry cleaning bags; ice bags; pallet shrink wrap; heavy-duty bags for mulch and potting soil; boil-in-bag bags; coatings on flexible packaging products; and coatings on paper board such as milk cartons. Ethylene vinyl acetate is a specialized form of LDPE used in foamed sheets, bag-in-box bags, vacuum cleaner hoses, medical tubing, clear sheet protectors and flexible binders |
9
Table of Contents
|
Product
|
Annual Capacity
|
Primary Uses
|
||
|
Specialty Polyolefins:
|
||||
|
PP compounds
|
2.4 billion pounds(7) | PP compounds are used to manufacture automotive interior and exterior trims, dashboards, bumpers and under-hood applications; base material for products and parts used in appliances; anti-corrosion coatings for steel piping, wire and cable | ||
|
Catalloy
process resins
|
600 million pounds | Catalloy process resins are used primarily in modifying polymer properties in film applications and molded products; for specialty films, geomembranes, and roofing materials; in bitumen modification for roofing and asphalt applications; and to manufacture automotive bumpers | ||
|
PB-1
resins
|
110 million pounds | PB-1 resins are used in flexible pipes, resins for seal-peel film, film modification, hot melt and polyolefin modification applications, consumer packaging and adhesives |
| (1) | Includes 100% of olefin capacity of SEPC (described below) of which we own 25%, which includes 2.2 billion pounds of ethylene and 630 million pounds of propylene. | |
| (2) | Includes (i) refinery-grade material from our French refinery; (ii) 100% of the 1.015 billion pounds of capacity of the propane dehydrogenation (“PDH”) plant owned by SPC (described below) of which we own 25%; and (iii) 1.015 billion pounds of capacity from the Al-Waha joint venture (described below), of which we currently own 21%. Excludes 660 million pounds of capacity of HMC (described below) that came on line in late 2010. | |
| (3) | Includes: (i) 100% of the 1.59 billion pounds of capacity at SPC; (ii) 100% of the 800 million pounds of capacity of SunAllomer (described below) of which we own 50%; (iii) 100% of the 880 million pounds of capacity of BOP (described below) of which we own 50%; (iv) 100% of the 990 million pounds of capacity of HMC (described below) of which we own 29%, but does not include 600 million pounds of expansion capacity that came on line in late 2010; (v) 100% of the 1.545 billion pounds of capacity of PolyMirae (described below) of which we own 42%; and (vi) 100% of the 990 million pounds of capacity at Al Waha. Excludes all capacity at our Terni, Italy location, where production ceased in July 2010. | |
| (4) | Includes 100% of 880 million pounds of LDPE capacity and 880 million pounds of HDPE capacity from SEPC. | |
| (5) | Includes 100% of the 705 million pounds of capacity of BOP. Also includes 705 million pounds of capacity at a site in Münchsmünster, Germany that was rebuilt following a fire in 2005 and started up in August 2010 | |
| (6) | Includes 100% of the 240 million pounds of capacity of BOP. | |
| (7) | Includes 100% of the 165 million pounds of capacity of PolyPacific Pty (described below) of which we own 50% and 110 million pounds of capacity of SunAllomer. |
See “Description of Properties” for the locations
where we produce the primary products of our
O&P — EAI segment. Annual processing capacity as
of December 31, 2010 was calculated by estimating the
average number of days in a typical year that a production unit
of a plant is expected to operate, after allowing for downtime
for regular maintenance, and multiplying that number by an
amount equal to the unit’s optimal daily output based on
the design raw material mix. Because the processing capacity of
a production unit is an
10
Table of Contents
estimated amount, actual production volumes may be more or less
than the capacities set forth below. Capacities shown include
100% of the capacity of joint venture facilities.
Sales &
Marketing / Customers
In 2010, no single external O&P — EAI segment
customer accounted for 10% or more of our total revenues.
We currently produce ethylene at one site in France, two sites
in Germany, and one joint venture site in the Middle East. Our
ethylene production is generally consumed internally as a raw
material in the production of polymers. In Western Europe, we
are essentially balanced in our ethylene supply and demand.
We currently produce propylene at two sites in France, two sites
in Germany and the three joint venture sites in the Middle East.
We use propylene as a raw material for production of PO and PP.
In Europe, we are a net purchaser of propylene.
We currently produce butadiene at one site in France and one
site in Germany. We generally sell our butadiene under
multi-year contracts.
We at times purchase ethylene, propylene, benzene and butadiene
for resale, when necessary, to satisfy customer demand for these
products above production levels. Volumes of ethylene,
propylene, benzene and butadiene purchased for resale can vary
significantly from period to period. However, purchased volumes
have not historically had a significant impact on profits.
European ethylene and propylene production is generally either
fully integrated with, or is transported via pipeline to, our PE
and PP facilities in Europe.
We produce PP at nine sites in Europe, four sites in East Asia,
two sites in Australia and two sites in the Middle East. All of
the sites in East Asia and the Middle East and one of the sites
in Europe (Poland) are owned by joint ventures.
We manufacture PE at five sites in Europe, including one joint
venture facility in Poland, and one joint venture site in the
Middle East.
With respect to PP and PE, our production is typically sold to
an extensive base of established customers under annual
contracts or under customary terms and conditions without formal
contracts. We believe that, over a business cycle, average
selling prices and profit margins for specialty polymers tend to
be higher than average selling prices and profit margins for
higher-volume commodity PPs.
For the O&P — EAI segment, we typically have
marketing arrangements with our joint venture partners to sell
and market PP and PE outside the country where such a joint
venture facility is located.
Polyolefins primarily are distributed in Europe by rail car or
truck.
We and our joint ventures manufacture PP compounds at five sites
in East Asia (two of which are owned by joint ventures), four
sites in Europe, three sites in North America, two sites in
South America and one joint venture site in Australia. We
manufacture
Catalloy
process resins at one facility in
Italy and one facility in The Netherlands. We also manufacture
PB-1
at the
facility in The Netherlands.
Our regional sales offices are located in various locations,
including The Netherlands; Hong Kong, China; India; and United
Arab Emirates. We also operate through a worldwide network of
local sales and representative offices in Europe, Asia and
Africa. Our joint ventures typically manage their domestic sales
and marketing efforts independently, and we typically operate as
their agent/distributor for exports.
11
Table of Contents
Joint
Venture Relationships
The following table describes our O&P — EAI
segment’s significant manufacturing joint venture
relationships.
|
LyondellBasell
|
2010
|
|||||||||||||
|
Name
|
Location
|
Other Parties
|
Ownership
|
Product
|
Capacity(1) | |||||||||
|
(In millions
|
||||||||||||||
| of pounds) | ||||||||||||||
|
SPC
|
Al-Jubail Industrial | Tasnee | 25 | % | PP | 1,590 | ||||||||
| City, Saudi Arabia | Propylene | 1,015 | ||||||||||||
|
SEPC
|
Al-Jubail Industrial | Tasnee, Sahara | 25 | % | Ethylene | 2,200 | ||||||||
| City, Saudi Arabia | Petrochemical | Propylene | 630 | |||||||||||
| Company | HDPE | 880 | ||||||||||||
| LDPE | 880 | |||||||||||||
|
Al-Waha
|
Al-Jubail Industrial | Sahara Petrochemical | 21 | %(2) | PP | 990 | ||||||||
| City, Saudi Arabia | Company and others | Propylene | 1,015 | |||||||||||
|
HMC
|
Thailand | PTT and others | 29 | % | PP | 990 | ||||||||
|
Basell Orlen Polyolefins
|
Poland | Orlen | 50 | % | PP | 880 | ||||||||
| HDPE | 705 | |||||||||||||
| LDPE | 240 | |||||||||||||
|
PolyPacific
|
Australia, Malaysia | Mirlex Pty. | 50 | % | PP Compounding | 165 | ||||||||
|
SunAllomer
|
Japan | Showa Denko, | 50 | % | PP | 940 | ||||||||
| Nippon Oil | PP Compounding | 110 | ||||||||||||
|
Polymirae
|
South Korea | Dailem, SunAllomer | 42 | %(3) | PP | 1,540 | ||||||||
| (1) | Represents the joint venture’s total capacity and not our proportional capacity. | |
| (2) | Reflects our current ownership percentage. Assuming the joint venture pays dividends over time, we anticipate our ownership will increase to a maximum of 25%. | |
| (3) | Reflects our 35% direct ownership and 7% indirect ownership through SunAllomer. |
These joint ventures provide us with additional income streams
from cash dividends, licensing revenues, catalyst sales and
marketing fees from selling joint venture products, as well as
geographical diversification and access to local market skills
and expertise. We generally license our polyolefin process
technologies and supply catalysts to our joint ventures. Some of
our joint ventures source cost advantaged raw materials from
their local shareholders.
We market approximately 70% of the PP produced annually by SPC
and are currently the exclusive marketer for the PP produced by
Al-Waha that is sold outside of Saudi Arabia. We also market all
of BOP’s PP, HPDE and LDPE sales outside of Poland. Our
PolyPacific Pty. Joint venture markets all of its PP compounds
production, and we market a portion of the PP produced by
SunAllomer.
Raw
Materials
Raw material cost is the largest component of the total cost for
the production of ethylene and its co-products. The primary raw
materials used in our European olefin facilities are heavy
liquids and, for our Saudi joint venture facilities, NGLs,
including include ethane, propane and butane. The principal raw
materials used by our polyolefin and
Catalloy
process
resins businesses are propylene and ethylene. In Western Europe,
we have the capacity to produce approximately 50% of the
propylene requirements of our European PP business and nearly
90% of the ethylene requirements of our European PE business.
European propylene and ethylene requirements that are not
produced internally generally are purchased pursuant to
long-term contracts with third-party suppliers and are delivered
via pipeline. Prices under these third-party contracts are
market related and are negotiated monthly, and are generally
based on published market indicators, normally with discounts.
In our wholly owned operations in Australia, greater than 90% of
our propylene normally comes from
third-party
refinery grade propylene purchased under
long-term
contracts linked to Saudi or Singapore fuel markers and is
processed at our integrated splitters located on each
manufacturing site. Some of our EAI joint
12
Table of Contents
ventures receive propylene from their local shareholders under
long-term
contracts. The remaining supply for the joint ventures is
purchased from local suppliers under
long-term
contracts and some spot purchases. Our Saudi joint ventures,
Al-Waha,
SEPC and SPC, produce their own olefins utilizing cost
advantaged Saudi Arabian propane and ethane.
The raw materials for polyolefins are, in general, commodity
chemicals with numerous bulk suppliers and ready availability at
competitive prices.
A significant portion of the raw materials for our PP compounds
are PP and other polymers (primarily
Catalloy
process
resins). Our PP compounding facilities generally receive their
PP and other polymers from one of our wholly owned or joint
venture facilities via truck or rail car. In addition, there are
four sites (two in Europe, one in North America and one in South
America) that have both PP and PP compounding operations
co-located, thereby minimizing product handling.
PB-1
raw
materials are sourced solely from external supply.
Industry
Dynamics / Competition
Our ethylene rated capacity in Western Europe at
December 31, 2010 was approximately 4.2 billion pounds
per year, or approximately 8% of the 53 billion pounds per
year of total Western Europe ethylene production capacity. Based
on these published rated production capacities, we are the
seventh largest producer of ethylene in Western Europe. In
Western Europe, key ethylene competitors include INEOS, Dow,
Polimeri Europa, Total, SABIC, Shell, BASF and ExxonMobil.
Based on published data regarding PP capacity, we believe that
we are the largest producer of PP in Western Europe as of
December 31, 2010, with 5.7 billion pounds per year of
capacity, or approximately 25% of the Western European capacity
for PP. Our largest competitors for sales of PP are Polimeri
Europa, Total, SABIC, INEOS and Dow.
Based on published data regarding PE capacity, we believe that
we are the largest producer of PE in Western Europe as of
December 31, 2010, with 5.5 billion pounds per year of
capacity, or approximately 16% of HDPE and LDPE Western European
capacity. Our largest competitors for sales of PE are
ExxonMobil, Dow, INEOS, SABIC, Total, Polimeri Europe, and
Repsol.
We believe we are the largest PP compounds producer in the world
with 2.3 billion pounds (which includes our proportionate
share of joint ventures) of installed annual capacity as of
December 31, 2010. Approximately 54% of our PP compounding
capacity is in Europe, 20% is in North America, and 26% is in
the rest of the world (including the capacity of our joint
ventures). Our competitors for sales of PP compounds are
Borealis, ExxonMobil, King Fa, Mitsubishi, Mitsui , SABIC,
Sumitomo Chemical Co., Ltd., Washington Penn and many other
independent companies.
Our 110 million pound
PB-1
capacity competes with polybutene producers, of which Mitsui is
the largest, and other polymers, plastomers and elastomers.
Intermediates
and Derivatives Segment
Overview
Our I&D segment produces and markets PO and its co-products
and derivatives; acetyls; and ethylene oxide and its
derivatives. PO co-products include SM and
C
4
chemicals (TBA, oxyfuels (which is managed in the
Refining & Oxyfuels segment), isobutylene and TBHP).
PO derivatives include PG, PGE and BDO. We believe that our
proprietary PO and acetyls production process technologies
provide us with a cost advantaged position for these products
and their derivatives. In 2010, our I&D segment generated
$5.5 billion of revenues (excluding inter-segment revenue).
We produce PO through two distinct technologies based on
indirect oxidation processes that yield co-products. One process
yields TBA as the co-product; the other process yields SM as the
co-product. The two technologies are mutually exclusive,
necessitating that a manufacturing facility be dedicated either
to PO/TBA or to PO/SM. Isobutylene and TBHP are derivatives of
TBA. MTBE and ETBE are derivatives of isobutylene and are
gasoline blending components reported in our
Refining & Oxyfuels segment. PG, PGE and BDO are
13
Table of Contents
derivatives of PO. PG collectively refers to mono-propylene
glycol (“MPG”), which is PG meeting
U.S. pharmacopeia standards, and several grades of
dipropylene glycol (“DPG”) and tri-propylene glycol
(“TPG”).
The following table outlines:
| • | the primary products of our I&D segment; | |
| • | annual processing capacity as of December 31, 2010, unless otherwise noted; and | |
| • | the primary uses for those products. |
|
Product
|
Annual Capacity
|
Primary Uses
|
||
|
Propylene Oxide (PO)
|
5.2 billion pounds(1) | PO is a key component of polyols, PG, PGE and BDO | ||
|
PO Co-Products:
|
||||
|
Styrene Monomer (SM)
|
6.4 billion pounds(2) | SM is used to produce plastics, such as expandable polystyrene for packaging, foam cups and containers, insulation products and durables and engineering resins | ||
|
TBA Derivative Isobutylene
|
1.4 billion pounds(3) | Isobutylene is a derivative of TBA used in the manufacture of synthetic rubber as well as fuel and lubricant additives, such as MTBE and ETBE | ||
|
PO Derivatives:
|
||||
|
Propylene Glycol (PG)
|
1.2 billion pounds(4) | PG is used to produce unsaturated polyester resins for bathroom fixtures and boat hulls; antifreeze, coolants and aircraft deicers; and cosmetics and cleaners | ||
|
Propylene Glycol Ethers (PGE)
|
545 million pounds(5) | PGE are used as solvents for paints, coatings, cleaners and a variety of electronics applications | ||
|
Butanediol (BDO)
|
395 million pounds | BDO is used in the manufacture of engineering resins, films, personal care products, pharmaceuticals, coatings, solvents and adhesives | ||
|
Acetyls:
|
||||
|
Methanol
|
190 million gallons(6) | Methanol is a raw material used to produce acetic acid, MTBE, formaldehyde and several other products | ||
|
Acetic Acid
|
1.2 billion pounds | Acetic acid is a raw material used to produce VAM, terephthalic acid (used to produce polyester for textiles and plastic bottles), industrial solvents and a variety of other chemicals | ||
|
Vinyl Acetate Monomer (VAM)
|
700 million pounds | VAM is used to produce a variety of polymers, products used in adhesives, water-based paint, textile coatings and paper coatings | ||
|
Ethylene Derivatives:
|
||||
|
Ethylene Oxide (EO)
|
800 million pounds EO
equivalents; 400 million pounds as pure EO |
EO is used to produce surfactants, industrial cleaners, cosmetics, emulsifiers, paint, heat transfer fluids and ethylene glycol | ||
|
Ethylene Glycol (EG)
|
700 million pounds | EG is used to produce polyester fibers and film, polyethylene terephthalate resin, heat transfer fluids and automobile antifreeze | ||
|
Ethylene Glycol Ethers
|
225 million pounds | Ethylene glycol ethers are used to produce paint and coatings, polishes, solvents and chemical intermediates | ||
|
Other:
|
||||
|
Flavor and Fragrance Chemicals(7)
|
Flavor and fragrance chemicals include terpene-based fragrance ingredients and flavor ingredients, primarily for the oral care markets, and also include products used in applications such as chemical reaction agents, or initiators, for the rubber industry and solvents and cleaners, such as pine oil, for the hard surface cleaner markets |
| (1) | Includes (i) 100% of the 385 million pounds of capacity of Nihon Oxirane (described below) of which we own 40%; (ii) 1.5 billion pounds of capacity that represents Bayer Corporation’s (“Bayer”) share of PO production from the Channelview PO/SM I plant and the Bayport, Texas PO/TBA plants under the U.S. |
14
Table of Contents
| PO Joint Venture (described below); (iii) 100% of the 690 million pounds of capacity of the Maasvlakte PO/SM plant owned by the European PO Joint Venture, as to which Bayer has the right to 50% of the production; and (iv) 100% of the 600 million pounds of capacity of Ningbo ZRCC (described below) of which we own 27%. | ||
| (2) | Includes (i) approximately 700 million pounds of SM production from the Channelview PO/SM II plant that is committed to unrelated equity investors under processing agreements; (ii) 100% of the 830 million pounds of capacity of Nihon Oxirane; (iii) 100% of the 1.5 billion pounds of capacity of the Maasvlakte PO/SM plant; and (iv) 1.3 billion pounds of capacity from Ningbo ZRCC. | |
| (3) | Represents total high-purity isobutylene capacity and purified isobutylene capacity. | |
| (4) | PG capacity includes 100% of the approximately 220 million pounds of capacity of Nihon Oxirane. The capacity stated is MPG capacity. Smaller quantities of DPG and TPG are co-produced with MPG. | |
| (5) | Includes 100% of the 110 million pounds associated with a tolling arrangement with Shiny Chemical Co., Ltd. (“Shiny”). | |
| (6) | Represents 100% of the methanol capacity at the La Porte, Texas facility, which is owned by La Porte Methanol Company, a partnership owned 85% by us. | |
| (7) | The Flavor and Fragrance chemicals business was sold in December 2010. |
See “Description of Properties” for the locations
where we produce the primary products of our I&D segment.
Annual processing capacity as of December 31, 2010 was
calculated by estimating the average number of days in a typical
year that a production unit of a plant is expected to operate,
after allowing for downtime for regular maintenance, and
multiplying that number by an amount equal to the unit’s
optimal daily output based on the design raw material mix.
Because the processing capacity of a production unit is an
estimated amount, actual production volumes may be more or less
than the capacities set forth below. Except as indicated,
capacities shown include 100% of the capacity of joint venture
facilities.
Sales &
Marketing / Customers
In 2010, no single I&D segment customer accounted for 10%
or more of our total revenues.
We estimate, based in part on published data, that worldwide
demand for PO was approximately 15.1 billion pounds in
2010. More than 75% of that volume was consumed in the
manufacture of three families of PO derivative products:
polyols, glycols and glycol ethers. The remainder was consumed
in the manufacture of performance products, including BDO and
its derivatives.
We produce and deliver our PO and PO co-products through sales
agreements, processing agreements and spot sales as well as
product exchanges. We have a number of multi-year processing (or
tolling) and sales agreements. In addition, Bayer’s
ownership interest in the U.S. PO Joint Venture, which
operates four of the U.S. operating units, represents
ownership of an in-kind portion of the PO production. Bayer also
has the right to 50% of the production of one of the facilities
in The Netherlands. Our PO derivatives are sold through
market-based sales contracts and spot sales. PO sold in the
merchant market accounted for less than 10% of our total
revenues in 2010.
Production levels at the PO/SM and PO/TBA co-product facilities
are primarily determined by the demand for PO and PO
derivatives. As a result, production levels of SM and TBA and
its derivatives, isobutylene, TBHP, MTBE, and ETBE is based
primarily on the demand for PO and PO derivatives and
secondarily on the relative market demand for the co-products
and the operational flexibility of our facilities in meeting
this demand. MTBE and ETBE our reported in our
Refining & Oxyfuels segment.
Based on published data, worldwide demand for SM in 2010 is
estimated to have been approximately 56 billion pounds. SM
accounted for less than 10% of our total revenues in 2010. We
sell most of our SM production into the North American and
European merchant markets and to Asian and South American export
markets through long-term sales contracts and processing
agreements.
15
Table of Contents
We purchase SM for resale, when necessary, to satisfy customer
demand above production levels. Volumes of SM purchases made for
resale can vary significantly from period to period. However,
purchased volumes have not historically had a significant impact
on profits.
Our I&D segment converts most of its TBA, which is produced
as a co-product to the PO process, to isobutylene and sells some
of the TBA into the market. Over half of the isobutylene from
the I&D segment is reacted with methanol or ethanol to
produce MTBE and ETBE, which is marketed by the
Refining & Oxyfuels segment. The remaining isobutylene
is sold as high purity and purity grade isobutylene by the
I&D segment. Isobutylene sales accounted for less than 10%
of our total revenues in 2010.
Sales of our PO, its co-products, and its derivatives are made
by us, Nihon Oxirane (a joint venture of which we own 40%) and
their affiliates directly, and through distributors and
independent agents located in the Americas, Europe, the Middle
East, Africa and the Asia Pacific region. We have centralized
certain sales and order fulfillment functions in regional
customer service centers located in Houston, Texas; Rotterdam,
The Netherlands; and Hong Kong, China. PO, PG and SM are
transported by barge, ocean going vessel, pipeline, rail car and
tank truck. BDO is primarily transported by tank truck and rail
car.
Acetic acid and VAM are manufactured at a facility in
La Porte, Texas, and are consumed internally, sold
worldwide generally under multi-year contracts and sold on a
spot basis. Acetic acid and VAM are shipped by barge, ocean
going vessel, pipeline, rail car and tank truck. We have bulk
storage arrangements in Europe and South America to serve our
customers’ requirements in those regions. Sales are made
through a direct sales force, agents and distributors. Sales of
acetyls, including acetic acid and VAM, collectively accounted
for less than 10% of our total revenues in 2010.
We estimate, based on published data, that worldwide demand in
2010 for acetic acid and VAM was 23.3 billion pounds and
11.4 billion pounds, respectively.
Methanol is produced at a La Porte, Texas facility owned by
La Porte Methanol Company, our 85% owned joint venture with
Linde. Each party to the joint venture receives its respective
share of the methanol production. Our acetyls business uses the
methanol as a raw material for acetic acid and also sells the
methanol under annual contracts and on a spot basis to large
U.S. customers. The product is shipped by barge and
pipeline.
Ethylene oxide (“EO”) or EO equivalents, and EO’s
primary derivative, ethylene glycol (“EG”), are
produced at a wholly owned facility located in Bayport, Texas.
The Bayport facility also produces other derivatives of EO,
principally glycol ethers.
EO and EG typically are sold under multi-year contracts, with
market-based pricing. Glycol ethers and ethanolamines are sold
primarily into the solvent and distributor markets at market
prices. EO is shipped by rail car, and its derivatives are
shipped by rail car, truck, isotank or ocean-going vessel. EO
and EG sales accounted for less than 10% of our total revenues
in 2010.
The vast majority of the ethylene derivative products are sold
in North America and Asia, primarily through our sales
organizations.
16
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Joint
Venture Relationships
The following table describes our I&D segment’s
significant manufacturing joint venture relationships.
|
LyondellBasell
|
||||||||||||||
|
Name
|
Location
|
Other Parties
|
Ownership
|
Product
|
2010 Capacity (1) | |||||||||
| (In millions of pounds) | ||||||||||||||
|
U.S. PO Joint Venture
|
Channelview, TX | Bayer | (2 | ) | Propylene Oxide | 1,500 | (3) | |||||||
| Bayport, TX | ||||||||||||||
|
European PO Joint Venture
|
Rotterdam, | Bayer | 50 | % | Propylene Oxide | 690 | ||||||||
| The Netherlands | Styrene Monomer | 1,480 | ||||||||||||
|
PO/ SM II LP
|
Channelview, TX | IPIC & BASF | (2 | ) | Styrene Monomer | 700 | (3) | |||||||
|
Nihon Oxirane
|
Chiba, Japan | Sumitomo | 40 | % | Propylene Oxide | 385 | ||||||||
| Styrene Monomer | 830 | |||||||||||||
| Propylene Glycol | 220 | |||||||||||||
|
Ningbo ZRCC LCC Ltd.(4)
|
Ningbo, China | ZRCC | 27 | % | Propylene Oxide | 600 | ||||||||
| Styrene Monomer | 1,300 | |||||||||||||
|
La Porte Methanol
|
La Porte, TX | Linde | 85 | % | Methanol | 190 million gallons | ||||||||
| (1) | Unless otherwise noted, represents the joint venture’s total capacity and not our proportional capacity. | |
| (2) | The parties’ rights in the joint ventures are based on off-takes, as opposed to ownership percentages. | |
| (3) | Amount of off-take by other parties in the joint venture. | |
| (4) | Start-up occurred in mid-2010. |
Bayer’s ownership interest in the U.S. PO Joint
Venture represents its off-take of 1.5 billion pounds of
the joint venture’s PO production. We take, in-kind, the
remaining PO production and all co-product (SM and TBA)
production. Lyondell Chemical and Bayer have a separate joint
venture, the PO Technology Joint Venture, through which Bayer
was granted a non-exclusive and non-transferable right to use
certain of our proprietary PO technology in the U.S. PO
Joint Venture. Under the terms of operating and logistics
agreements, we operate the U.S. PO Joint Venture plants and
arrange and coordinate the logistics of PO delivery from the
plants. We do not share marketing or product sales with Bayer
under the U.S. PO Joint Venture.
Lyondell Chemical and Bayer also have a 50/50 joint venture, the
European PO Joint Venture, for the ownership of the Maasvlakte
PO/SM plant near Rotterdam, The Netherlands. Each party takes
in-kind 50% of the PO and SM production of the European PO Joint
Venture.
Lyondell Chemical’s PO/SM II plant at the Channelview,
Texas complex was created through a joint venture among Lyondell
Chemical, BASF and IPIC. Lyondell Chemical retains a majority
interest in the joint venture and is the operator of the plant.
As of December 31, 2010, 700 million pounds of SM
capacity was committed to BASF and IPIC under processing
arrangements.
In addition to the Nihon Oxirane joint venture shown in the
table above, we participate in marketing most of the PO capacity
from a 440 million pound facility in Rabigh, Saudi Arabia
owned by Sumitomo and Saudi Aramco, through NOC Asia Co. Ltd. in
which we have a 40% equity interest.
We jointly market all of the PO manufactured by the Ningbo ZRCC
joint venture.
We also have a multi-year processing agreement, entered into by
Lyondell Chemical and Shiny, whereby we provide the raw
materials used to produce PGE at Shiny’s PGE plant in
Tainan, Taiwan.
Raw
Materials
The primary raw materials used for the production of PO and its
co-products and derivatives are propylene, isobutane, mixed
butane, ethylene and benzene. The market prices of these raw
materials historically have been related to the price of crude
oil, NGLs and natural gas, as well as market conditions for the
raw materials. These raw materials are received in bulk
quantities via pipeline or ocean going vessels.
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In the U.S., we obtain a large portion of our propylene, benzene
and ethylene raw materials needed for the production of PO and
its co-products and derivatives internally from our crackers.
Raw materials for the
non-U.S. production
of PO and its co-products and derivatives primarily are obtained
from unrelated parties. We consume a significant portion of our
internally-produced PO in the production of PO derivatives.
We consume large volumes of mixed butane for the production of
PO and its co-products and derivatives. We have invested in
facilities, or entered into processing agreements with unrelated
parties, to convert the widely available commodity, normal
butane, to isobutane. We also are a large consumer of oxygen for
our PO/TBA plants.
The cost of raw materials generally is the largest component of
total production cost for PO and its co-products and
derivatives. Generally, the raw material requirements for these
businesses are purchased at market-based prices from numerous
suppliers in the U.S. and Europe with which we have
established contractual relationships, as well as in the spot
market. The raw materials for these businesses are, in general,
commodity chemicals with ready availability at competitive
prices. Historically, raw material availability has not been an
issue. However, in order to enhance reliability and
competitiveness of prices and rates for supplies of raw
materials, industrial gas and other utilities, we have long-term
agreements and other arrangements for a substantial portion of
our production requirements.
The primary raw materials required for the production of acetic
acid are carbon monoxide and methanol. We purchase the carbon
monoxide from Linde pursuant to a long-term contract under which
pricing is based primarily on cost of production. La Porte
Methanol Company, our 85%-owned joint venture, supplies all of
the methanol requirements for acetyls production. Natural gas is
the primary raw material required for the production of methanol.
In addition to ethylene, acetic acid is a primary raw material
for the production of VAM. For the production of VAM, we obtain
our entire requirements for acetic acid and ethylene from our
internal production. In 2010, we used a large percentage of our
acetic acid production to produce VAM.
Industry
Dynamics / Competition
With respect to PO, its co-products and derivatives, competition
is based on a variety of factors, including product quality and
price, reliability of supply, technical support, customer
service and potential substitute materials. Profitability is
affected by the worldwide level of demand along with price
competition, which may intensify due to, among other things, new
industry capacity. It is expected that from 2011 to 2012,
approximately 9% of the 2010 worldwide PO capacity will be added
in China and Thailand. During the same period, average world
demand is expected to grow by approximately 6%. However, demand
is a function of worldwide economic growth, which fluctuates.
The PO demand growth rate also could be impacted by further
development of alternative bio-based PO derivatives. It is not
possible to predict accurately the changes in raw material
costs, market conditions and other factors that will affect
industry profitability in the future.
Based on published data regarding PO capacity, we believe that,
including our share of Nihon Oxirane, Ningbo ZRCC and the
European PO Joint Venture, we are the second largest producer of
PO worldwide, with approximately 19% of the total worldwide
capacity for PO. Our major worldwide competitors for sales of PO
and its derivatives are Dow and Shell.
Based on published data regarding SM capacity, we believe that
we are one of the largest producers of SM worldwide, with
approximately 5% of the total worldwide capacity for SM as of
December 31, 2010. We compete worldwide for sales of SM
with many marketers and producers, among which are BASF, Dow,
INEOS, Shell and Total.
We believe that we are the fourth and sixth largest producer of
acetic acid and VAM, respectively, each with approximately 4%
and 5% of the total worldwide capacity as of December 31,
2010. Our primary competitors include Celanese and BP for acetic
acid and Celanese, Dow and DuPont for VAM.
18
Table of Contents
Refining &
Oxyfuels Segment
Overview
Our Refining & Oxyfuels segment refines heavy,
high-sulfur crude oil in the U.S. Gulf Coast, refines light
and medium weight crude oil in southern France and produces
gasoline blending components at several of our olefin and PO
units. In 2010, our Refining & Oxyfuels segment
generated operating revenues of $13.5 billion (excluding
inter-segment revenue).
The Houston Refinery, which is located on the Houston Ship
Channel in Houston, Texas, has a heavy, high-sulfur crude oil
processing capacity of approximately 268,000 barrels per
day on a calendar day basis (normal operating basis), or
approximately 292,000 barrels per day on a stream day basis
(maximum achievable over a 24 hour period). The Houston
Refinery has a Nelson Complexity Index of 11.4. The Houston
Refinery is a full conversion refinery designed to refine heavy,
high-sulfur crude oil. This crude oil is more viscous and dense
than traditional crude oil and contains higher concentrations of
sulfur and heavy metals, making it more difficult to refine into
gasoline and other high-value fuel products. However, this crude
oil has historically been less costly to purchase than light,
low-sulfur crude oil. Processing heavy, high-sulfur crude oil in
significant quantities requires a refinery with extensive
coking, catalytic cracking, hydrotreating and desulfurization
capabilities, i.e., a “complex refinery.” The Houston
Refinery’s refined fuel products include gasoline
(including blendstocks for oxygenate blending), jet fuel and
ultra low sulfur diesel. The Houston Refinery’s products
also include heating oil, lube oils (industrial lubricants,
white oils and process oils), carbon black oil, refinery-grade
propylene, petrochemical raw materials, sulfur, residual fuel
and petroleum coke.
The Berre Refinery is designed to run light to medium sulfur
crude oil and has a current capacity of approximately
105,000 barrels per day. It produces naphtha, vacuum gas
oil, liquefied petroleum gas, gasoline, aviation fuel, diesel,
bitumen and heating oil. The Berre Refinery provides raw
material and site integration for our operations in France and
supports our polyolefin business in Europe. The Berre Refinery
also provides us with access to significant logistics assets,
including pipeline access, storage terminals and harbor access
to the Mediterranean Sea. The Berre Refinery has a Nelson
Complexity Index of 6.7.
The Refining & Oxyfuels segment also includes gasoline
blending components such as MTBE, ETBE and alkylate. MTBE and
ETBE are produced as co-products of the PO and olefin production
process at four sites located in the United States, France and
The Netherlands. In 2009, we converted one of our MTBE units at
Channelview, Texas to ETBE production. We currently have three
sites that can produce either MTBE or ETBE with a combined
capacity to produce 59,000 barrels per day of MTBE or ETBE;
the Company’s total capacity for MTBE or ETBE production is
75,000 barrels per day. Alkylate is produced at one
facility located in Texas.
The following table outlines:
| • | the primary products of our Refining & Oxyfuels segment; | |
| • | capacity as of December 31, 2010, unless otherwise noted; and | |
| • | the primary uses for those products. |
See “Description of Properties” for the locations
where we produce the primary products of our
Refining & Oxyfuels segment.
19
Table of Contents
|
Key Products
|
Capacity(1)
|
Primary Uses
|
||
|
Houston Refinery:
|
||||
|
Gasoline and components
|
120,000 barrels per day | Automotive fuel | ||
|
Ultra Low Sulfur Diesel
|
95,000 barrels per day | Diesel fuel for cars and trucks | ||
|
Jet Fuel
|
25,000 barrels per day | Aviation fuel | ||
|
Lube Oils
|
4,000 barrels per day | Industrial lube oils, railroad engine additives and white oils for food-grade applications | ||
|
Berre Refinery:
|
||||
|
Diesel
|
42,000 barrels per day | Diesel fuel for cars and trucks | ||
|
Cracker Feedstock
|
27,000 barrels per day | Raw material for Olefin unit | ||
|
Fuel Oil
|
12,000 barrels per day | Heating fuel | ||
|
Gasoline
|
8,000 barrels per day | Automotive fuel | ||
|
Bitumen
|
7,000 barrels per day | Asphalt | ||
|
Gasoline Blending Components:
|
||||
|
MTBE/ ETBE
|
75,000 barrels per day(2) | MTBE is a high octane gasoline blending component; ETBE is an alternative gasoline blending component based on agriculturally produced ethanol | ||
|
Alkylate
|
22,000 barrels per day | Alkylate is a high octane gasoline blending component |
| (1) | Only certain key products for the Houston Refinery and the Berre Refinery are identified. Thus, the sum of the capacities in this table will not equal either facility’s total capacity. | |
| (2) | Represents total combined MTBE and ETBE capacity. |
Sales &
Marketing / Customers
In 2010, no single Refining & Oxyfuels segment
customer accounted for 10% or more of our total revenues.
In the U.S., we market and sell gasoline (including blendstocks
for oxygenate blending), jet fuel, heating oil, ultra low sulfur
diesel fuel, lube oils, coke and sulfur produced at the Houston
Refinery. These products are sold in large commodity markets.
The Houston Refinery evaluates and determines its optimal
product output mix, based on market prices and conditions. As a
result, we are subject to various risks associated with selling
commodity products.
Gasoline sales accounted for 9% of our total revenues in 2010.
The Houston Refinery’s products primarily are sold in bulk
on the U.S. Gulf Coast to other refiners, marketers,
distributors and wholesalers at market-related prices. Diesel
fuel is produced to meet ultra low sulfur specifications for the
on-road transportation market. Most of the Houston
Refinery’s products are sold under contracts with a term of
one year or less or are sold in the spot market. The Houston
Refinery’s products generally are transported to customers
via pipelines and terminals owned and operated by other parties.
Products also are transported via rail car, barge, truck and
ocean going vessel. In addition to sales of refined products
produced by the Houston Refinery, we also sell refined products
purchased or received on exchange from other parties. The
exchange arrangements help optimize refinery supply operations
and lower transportation costs. To meet market demands, we also
from time to time purchase refined products manufactured by
others for resale to our customers. However, purchased volumes
have not historically had a significant impact on profitability.
In Europe, the Berre Refinery provides a significant portion of
the raw materials requirements for our nearby steam cracker. The
remaining products are sold into local markets under
market-based sales agreements
20
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or in the spot market. Key customers of the Berre Refinery
include other refiners, marketers and distributors, and its
products are primarily transported via pipelines and other
infrastructure assets owned by us.
MTBE and ETBE are derivatives of TBA, which is a co-product of
the PO produced by our I&D segment. As described,
production levels of the TBA derivatives MTBE and ETBE depend
primarily on the demand for PO and PO derivatives and
secondarily on the relative market demand for MTBE and ETBE and
the operational flexibility of our multiple production
facilities in meeting this demand. Separately, MTBE and alkylate
are also produced as derivatives of the ethylene co-products
produced by our O&P — Americas segment. When
necessary, we purchase MTBE for resale to satisfy customer
demand for MTBE above our production levels. Volumes of MTBE
purchased for resale can vary significantly from period to
period. However, purchased volumes have not historically had a
significant impact on profitability.
We sell our MTBE and ETBE production under market-based sales
agreements and in the spot market. We blend our alkylate into
gasoline and also sell alkylate under short-term contracts and
in the spot market. Sales of MTBE and ETBE together, and
alkylate each accounted for less than 10% of our total revenues
in 2010.
Substantially all refiners and blenders have discontinued the
use of MTBE in the U.S., partly as a result of governmental
initiatives to increase use of bio-ethanol in gasoline and to
reduce or effectively ban the use of MTBE. However, MTBE/ETBE
demand for gasoline blending remains strong within most of the
remaining worldwide market. Accordingly, we market MTBE and ETBE
produced in the U.S. for use outside of the U.S. Our
MTBE/ETBE plants generally have the flexibility to produce
either MTBE or ETBE to accommodate market needs.
Japan has opted to use ETBE as a means of meeting its carbon
dioxide reduction commitments under the Kyoto Protocol, and we
source a significant portion of Japan’s bio-fuels needs.
Sales of our MTBE, ETBE and alkylate are made by our marketing
and sales personnel, and through distributors and independent
agents located in the Americas, Europe, the Middle East, Africa
and the Asia Pacific region. We have centralized certain sales
and order fulfillment functions in regional customer service
centers located in Houston, Texas; Rotterdam, The Netherlands;
and Hong Kong, China. We also have long-term contracts for
distribution and logistics to supply to our customers. MTBE,
ETBE and alkylate are transported by barge, ocean going vessel
and tank truck.
Raw
Materials
The largest source of the crude oil used as a raw material for
the Houston Refinery in the past several years has been a crude
supply agreement with PDVSA-Petroleo S.A., a corporation
organized under the laws of the Bolivarian Republic of
Venezuela, which terminates in July 2011. During 2010, less than
half of our crude supply was purchased under the crude supply
agreement with PdVSA.
Most of the crude oil used as a raw material for the Berre
Refinery is sourced from North Africa, the Middle East, Russia
and other areas generally available in the Mediterranean region.
We purchase our ethanol requirements for the production of ETBE
from regional producers and importers in Europe at
market-related prices. Additionally, we have entered into a
supply contract with a Brazilian ethanol producer to supply a
significant portion of the ethanol used for the manufacture of
ETBE at our Channelview facility. For further discussion
regarding the raw materials requirements for the production of
MTBE, ETBE and alkylate, see “— Intermediates and
Derivatives — Raw Materials.”
Industry
Dynamics / Competition
The markets for fuel products tend to be volatile as well as
cyclical as a result of changing global economic conditions and
prices for crude oil and refined product prices. Crude oil
prices are impacted by worldwide economic conditions and
political events, the economics of exploration and production,
refined products demand and currency fluctuations. Prices and
demand for fuel products are influenced by seasonal and
short-term factors such as weather and driving patterns, as well
as by longer term issues such as the
21
Table of Contents
economy, energy conservation and alternative fuels. Industry
fuel products supply is dependent on short-term industry
operating capabilities and on long-term refining capacity.
With a throughput capacity of approximately 268,000 barrels
per day (on a calendar day basis), we believe that the Houston
Refinery is among North America’s largest full conversion
refineries capable of processing significant quantities of
heavy, high-sulfur crude oil.
In North America, we compete for the purchase of heavy,
high-sulfur crude oil based on price and quality. Our crude oil
supply contract with PDVSA Oil terminates in July 2011, which
will increase the need for us to purchase crude oil
competitively on the open market. We began diversifying our
portfolio in 2010 and expect to continue to purchase some of our
crude oil from sources other than PDVSA on market-based terms.
We compete in gasoline and distillate markets as a bulk supplier
of fungible products satisfying industry and government
specifications. Competition is based on price and location. Our
refining competitors are major integrated oil companies,
refineries owned or controlled by foreign governments and
independent domestic refiners. Based on published data, as of
January 2011, there were 148 operable crude oil refineries in
the U.S., and total U.S. refinery capacity was
approximately 17.6 million barrels per day.
During 2010, the Houston Refinery processed an average of
approximately 241,000 barrels per day of crude oil,
representing approximately 1% of all U.S. crude processing
capacity.
A crack spread is a benchmark indication of refining margins
based on the processing of a specific type of crude oil into an
assumed selection of refined products. The Houston Refinery
generally tracks the Maya 2-1-1 crack spread, which represents
the difference between the first month futures price of two
barrels of Maya crude oil as set by Pemex and one barrel each of
U.S. Gulf Coast 87 Octane Conventional Gasoline and
U.S. Gulf Coast No. 2 Heating Oil (high-sulfur
diesel). The Berre Refinery refining spreads generally track the
4-1-2-1 Ural reported benchmark spread. This spread is
calculated by adding the price of one barrel of gasoline to the
price of two barrels of diesel and one barrel of #6 fuel
oil and subtracting the price of four barrels of Mediterranean
crude oil. While these benchmark refining spreads are generally
indicative of the level of profitability at both the Houston
Refinery and the Berre Refinery, there are many other factors
specific to each refinery that influence operating results.
We believe that we are the largest producer of MTBE/ETBE
worldwide. We compete for sales of MTBE and ETBE with
independent MTBE producers worldwide and independent ETBE
producers mainly in Europe. The most significant MTBE competitor
is Saudi Basic Industries Corp., and the most significant ETBE
competitors are Repsol, Total, Neste and Braskem. MTBE and ETBE
face competition from products such as ethanol and other octane
components. We compete with other refiners and olefin
manufacturers for sales of alkylate that we do not internally
blend into gasoline.
Technology
Segment
Overview
Our Technology segment develops and licenses polyolefin and
other process technologies and provides associated engineering
and other services. Our Technology segment further develops,
manufactures and sells polyolefin catalysts. We market our
process technologies and our polyolefin catalysts to external
customers and also use them in our own manufacturing operations.
In 2010, our Technology segment generated operating revenues of
$395 million (excluding inter-segment revenue).
Our polyolefin process licenses are structured to provide a
standard core technology, with individual customer needs met by
adding customized modules that provide the required capabilities
to produce the defined production grade slate and plant
capacity. For licenses involving proven technologies, we
typically receive the majority of our license fees in cash at or
before the date of customer acceptance rather than ongoing
royalties. For these licenses, we generally recognize revenue
upon delivery of the process design package and the related
license. Each license agreement includes long-term
confidentiality provisions to protect the technology. In
addition to the basic license agreement, a range of services can
also be provided, including project assistance; training;
start-up
assistance of the plant; and supply of resins from our
production for pre-marketing by the licensee. We may also offer
marketing and sales services. In addition, licensees
22
Table of Contents
generally continue to purchase polyolefin catalysts that are
consumed in the production process, generally under long-term
catalyst supply agreements with us.
Process
Technology Licensing
We are a leading licensor of polyolefin process technologies.
Our PP licensing portfolio includes our
Spheripol
and
Spherizone
process technologies as well as
Metocene
technology.
Our PE process licensing portfolio comprises the
Lupotech
T (high pressure tubular process for producing LDPE), the
Lupotech
A (autoclave process mainly for producing
ethylene vinyl acetate (EVA) copolymers),
Hostalen
(slurry process for producing multimodal HDPE), and
Spherilene
(gas phase process for producing full-density
range of LLDPE to HDPE) processes.
In addition, we license a selective portfolio of chemical
process technologies in the fields of olefin recovery, olefin
conversion, aromatics extraction and acetyls.
Since 2000, we have sold licenses representing approximately
25 million tons of polyolefin capacity, which represents
about 40% of worldwide installed capacity. In 2010, we entered
into licensing agreements representing about one million tons of
polyolefin capacity. Process licenses accounted for less than
10% of our total revenues in 2010.
Our Technology segment also provides technology services to our
licensees. Such services include safety reviews, training and
start-up
assistance, engineering services for process and product
improvements and manufacturing troubleshooting.
PP
Process Technology
We license several PP process technologies, including
Spheripol
,
Spherizone
and
Metocene
.
Our
Spheripol
technology produces homopolymers and random
copolymers in a single stage and impact copolymers in a
multi-stage process. We believe that the
Spheripol
process is the most widely used PP production process in the
world.
The
Spherizone
process, our newest technology,
commercialized in 2002 and introduced for licensing in 2004, is
able to produce higher quality PP, novel PP-based polyolefinic
resins, and a wider product grade range than existing processes
at similar operating cost. The
Spherizone
process
introduces a single reactor concept, in which bimodality is
created within one single reactor operating at different
conditions between the different zones inside the reactor. The
final product is a result of an intimate mixing of the different
property determining phases at a “macro molecular”
level.
Metocene
PP technology was introduced for licensing in
2006. This add-on technology for the production of specialty PP
products is based on using single-site catalyst systems.
Metocene
technology can be adapted to virtually any PP
process, and its versatility expands the end use product range
of conventional PP. In 2009, Polymirae became the first licensee
to commence commercial production of
Metocene
.
PE
Processes Technology
The different families of PE (HDPE, LDPE and LLDPE) require
specialized process technologies for production, which are
available through our broad PE process licensing portfolio. The
portfolio includes
Lupotech
,
Spherilene
and
Hostalen
process technologies.
Lupotech
T is a high pressure, tubular reactor process
for the production of LDPE. This high pressure technology does
not use a catalyst system typical for low pressure processes,
but rather peroxide initiators to polymerize ethylene and
optionally VAM for EVA-copolymers. By adjusting the temperature
profile along the reactor and adding different peroxide
mixtures, process conditions are modified to produce the desired
products. The process produces the entire melt flow ratio and
density range with competitive investment costs and low
utilities and raw material demand.
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Lupotech
A is a high pressure autoclave process using
peroxide mixture for polymerization and is mainly utilized for
specialty LDPE and for the production of EVA copolymers with
high VAM content.
Spherilene
is a flexible gas-phase process for the
production of the entire density range of PE products from LLDPE
and MDPE to HDPE. The flexibility of this technology, which is
demonstrated by a broad portfolio of grades, enables licensees
to effectively manage the continuously dynamic PE markets at low
investments costs and very low operating costs.
Hostalen
is a low-pressure slurry process technology for
the production of high-performance multimodal HDPE grades. This
is desirable because a different product structure can be
produced in each stage of the polymerization process, yielding
products that are tailored for demanding processing requirements
and sophisticated end use applications such as film, blow
molding and pipe applications.
Chemical
Process Technologies
We also offer for licensing a selective number of chemical
processes, including the group of
Trans4m
processes,
Aromatics extractions,
Glacido
and
Vacido
technology.
The
Trans4m
portfolio of process technologies offers
tailored solutions for C4 and higher olefin recovery and
conversion. These processes include separation, purification and
skeletal isomerization of the C4 and C5 olefin streams for the
selective conversion of low-value, mixed olefin streams from
crackers to isobutylene, isoamylenes, butadiene, isoprene,
piperylene and Dicyclopentadiene (DCPD). This group of processes
is complemented by Aromatics extractions technology, which
enables LyondellBasell to offer a comprehensive portfolio of
processes to upgrade all olefinic streams from steam crackers to
higher value products.
Glacido
is a process technology for manufacturing of
acetic acid by carbonylation of methanol. It utilizes a
Rhodium-based homogeneous catalyst system.
Vacido
is a
fixed-bed tubular process for the production of high-quality
VAM, from acetic acid and ethylene. It utilizes a proprietary
heterogeneous catalyst system.
Superflex
technology produces propylene and ethylene, and
is based on a fluidized catalytic reactor. The process
technology is used for cracking less refined feedstock such as
coker or fluid catalytic cracking unit light gasoline as well as
mixed C4 to C9 streams.
Polyolefin
Catalysts
Under the
Avant
brand, we are a leading manufacturer and
supplier of polyolefin catalysts. Polyolefin catalysts accounted
for less than 10% of our total revenues in 2010. As a large
polyolefin producer, approximately 30% of catalyst sales are
inter-company. Polyolefin catalysts are packaged and shipped via
road, sea or air to our customers.
We produce catalysts at two facilities in Germany, one facility
in Italy and one facility in the U.S. Our polyolefin
catalysts, which are consumed during the polyolefin production
process and define the processing and mechanical properties of
polyolefins, provide enhanced performance for our process
technologies and are being developed to enhance performance when
used in third-party process technologies. We also supply
catalysts for producing sophisticated PEs.
Customers using polyolefin catalysts must make continual
purchases, because they are consumed during the polyolefin
production process. New licensees generally elect to enter into
long-term catalyst supply agreements.
Sales &
Marketing
In 2010, no single Technology segment customer accounted for 10%
or more of our total revenues. We market our process
technologies and catalysts to external customers and also use
them for our own polyolefin manufacturing operations. We have a
marketing and sales force dedicated to the Technology segment,
including catalyst sales and customer technical support for
licensees.
24
Table of Contents
Industry
Dynamics / Competition
We believe that competition in the polyolefin process licensing
industry is based on the quality and efficiency of the process
technology, product performance and product application,
complemented by customer service and technical support. Since
the formation of Basell in 2000 through December 31, 2010,
we have sold licenses representing approximately 25 million
tons of capacity based on its six process technologies to
polyolefin manufacturers. We estimate that approximately 40% of
PP and 31% of PE worldwide licensed capacity from 2003 through
2010 use our technologies. As of December 31, 2010, we
estimate that over 200 polyolefin production lines use our
licensed process technologies. Our major competitors in PP
technologies licensing are Dow Chemical, INEOS, Novolene
Technology Holdings and Mitsui Chemicals. Our major competitors
in PE technologies licensing are Chevronphillips, INEOS, Mitsui
Chemicals and Univation Technologies.
We are one of the world’s largest manufacturers and
suppliers of PP catalysts. We also supply catalysts for
producing PEs. Our major competitors in the worldwide catalyst
business are Dow Chemical, BASF, Mitsui Chemicals, Toho Catalyst
and WR Grace.
Research
and Development
Our research and development activities are designed to improve
our existing products and discover and commercialize new
materials, catalysts and processes. These activities focus on
product and application development, process development,
catalyst development and fundamental polyolefin focused research.
We have four research and development facilities, each with a
specific focus. Our facility in Frankfurt, Germany focuses on PE
and metallocene catalysts. Our facility in Ferrara, Italy
focuses on PP,
PB-1,
PP
compounds and Ziegler-Natta catalysts. Our facility in
Cincinnati, Ohio focuses on polyolefin product and application
development in North America. Our center in Newtown Square,
Pennsylvania develops chemical catalysts and technologies.
Our financial performance and market position depend in
substantial part on our ability to improve our existing products
and discover and commercialize new materials, catalysts and
processes. Our research and development is organized by core
competence communities that manage and provide resources for
projects, intellectual property and catalyst manufacturing.
These include:
| • | Catalyst systems: catalyst research to enhance our polyolefin polymer properties, catalyst and process performance, including Ziegler Natta, chromium and metallocene catalyst. | |
| • | Manufacturing platforms: research to advance process development and pilot plant integration to industrialize technology with improved polymer properties. | |
| • | Product and application development: working directly with customers to provide new products with enhanced properties. | |
| • | Processing testing and characterization: research to increase knowledge on polymers from production to processability. | |
| • | Process design and support: research to reduce production and investment costs while improving processability. | |
| • | Chemicals and fuels technologies: research to develop and improve catalysts for existing chemical processes and improve process unit operations. |
• We have core research and development projects that
focus on initiatives in line with our strategic direction. These
projects are closely aligned with our businesses and customers
with a goal of commercialization of identified opportunities.
Core projects currently include research and development in
areas such as:
| • | PP product development with emphasis on Spherizone process technology. | |
| • | Next generation products from existing and in-development processes, using advanced catalyst technologies including metallocenes. |
25
Table of Contents
| • | Enhanced catalyst and process opportunities to extend gas phase PE technology. | |
| • | Enhanced catalysts and process opportunities for selected chemical technologies. |
As of December 31, 2010, approximately 915 of our employees
are directly engaged in research and development activities.
In addition to our research and development activities, we
provide technical support to our customers. Our technical
support centers are located in Bayreuth, Germany; Geelong,
Australia; Lansing, Michigan; and Tarragona, Spain.
In 2010, 2009 and 2008, our research and development
expenditures were $154 million, $145 million and
$194 million, respectively. A portion of these expenses are
related to technical support and customer service and are
allocated primarily to the segments.
GENERAL
Intellectual
Property
We maintain an extensive patent portfolio and continue to file
new patent applications in the U.S. and other countries. As
of December 31, 2010, we owned approximately 6,500 patents
and patent applications worldwide. Our patents and trade secrets
cover our processes, products and catalysts and are significant
to our competitive position, particularly with regard to
propylene oxide, intermediate chemicals, petrochemicals,
polymers and our process technologies such as
Spheripol
,
Spherizone
,
Hostalen
,
Spherilene
,
Lupotech
,
Glacido
,
Vacido
,
Isomplus
and
Avant
catalysts. We own globally registered and
unregistered trademarks including the
“LyondellBasell,” “Lyondell,”
“Equistar” and “Houston Refining” trade
names. While we believe that our intellectual property provides
competitive advantages, we do not regard our businesses as being
materially dependent upon any single patent, trade secret or
trademark. Some of our heritage production capacity operates
under licenses from third parties.
We rely on patent, copyright and trade secret laws of the
countries in which we operate to protect our investment in
research and development, manufacturing and marketing. Our
employees working on these technologies are required to enter
into agreements, or are covered by other arrangements such as
collective bargaining agreements, providing for confidentiality
and the assignment of rights to inventions made by them while
employed by us.
Environmental
Regulation
We are subject to extensive international, national, state,
local and environmental laws, regulations, directives, rules and
ordinances concerning, and are required to have permits and
licenses regulating, emissions to the air, discharges onto land
or waters and the generation, handling, storage, transportation,
treatment, disposal and remediation of hazardous substances and
waste materials.
Under the European Union (“EU”) Integrated Pollution
Prevention and Control Directive (“IPPC”), EU Member
State governments are to adopt rules and implement an
environmental permitting program relating to air, water and
waste for individual facilities. The EU countries are at varying
stages in their respective implementation of the IPPC permit
program. We do not know with certainty what future IPPC permits
will require, or the future costs of compliance with the IPPC
permit program. The EU also has passed legislation governing the
registration, evaluation and authorization of chemicals, known
as REACh, pursuant to which we are required to register
chemicals and gain authorization for the use of certain
substances. As an importer of chemicals and materials from
outside the EU, we are subject to additional registration
obligations.
We also are subject to environmental laws that may have a
significant effect on the nature and scope of cleanup of
contamination at current and former operating facilities and at
other sites at which hazardous substances generated by our
current or former subsidiaries were disposed, the costs of
transportation and storage of raw materials and finished
products and the costs of the storage and disposal of
wastewater. In the
26
Table of Contents
U.S., the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended and also known as Superfund
(“CERCLA”), imposes joint and several liability for
the costs of remedial investigations and cleanup actions, as
well as damages to natural resources, on entities that generated
hazardous substances, arranged for disposal of the hazardous
substances, transported to or selected the disposal sites and
the past and present owners and operators of such sites. All
such responsible parties (or any one of them) can be required to
bear all of such costs regardless of fault, the legality of the
original disposal or ownership of the disposal site. We are
subject to potential liability under CERCLA as an owner or
operator of facilities at which hazardous substances have been
disposed or as a generator or transporter of hazardous
substances disposed at other locations.
Under the EU Environmental Liability Directive, EU Member States
can require the remediation of soil and groundwater
contamination in certain circumstances, under the “polluter
pays principle.” The scope of events and circumstances that
could trigger remediation requirements and the level of
remediation required vary from Member State to Member State.
Under the U.S. Resource Conservation and Recovery Act of
1976 (“RCRA”), various U.S. state and
non-U.S. government
regulations regulate the handling, transporting and disposal of
hazardous and non-hazardous waste. Our manufacturing sites have,
and may in the future, handle
on-site
waste disposal, subjecting us to these laws and regulations.
Capital
Expenditures
In some cases, compliance with environmental, health and safety
laws and regulations can only be achieved by capital
expenditures. Regulatory-related capital expenditures at our
facilities were $121 million, $250 million and
$209 million in 2010, 2009 and 2008, respectively, and we
estimate such expenditures to be approximately $243 million
in 2011 and $221 million in 2012.
Our actual capital expenditures in 2010 primarily relate to
projects designed to reduce and control emissions from our plant
operations in both the U.S. and Europe.
Stricter environmental, safety and health laws, regulations and
enforcement policies could result in increased environmental
capital expenditures by us above current estimates.
Employee
Relations
As of December 31, 2010, we had approximately
14,000 full-time and part-time employees. Of these,
approximately 5,900 were located in North America, approximately
7,200 were located in Europe and approximately 1,000 were in
other locations.
As of December 31, 2010, approximately 900 of our employees
located in North America are represented by labor unions. The
vast majority of our employees in Europe and South America are
subject to staff council or works council coverage or collective
bargaining agreements.
In addition to our own employees, we use the services of
contractors in the routine conduct of our businesses.
We believe our relations with our employees are good.
Description
of Properties
Our principal manufacturing facilities as of December 31,
2010 are set forth below, and are identified by the principal
segment or segments using the facility. The facilities are
wholly owned, except as otherwise noted below.
|
Location
|
Segment
|
Principal Products
|
||
|
Americas
|
||||
|
Bayport (Pasadena), Texas*
|
I&D | Ethylene Oxide (EO), EG and other EO derivatives |
27
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|
Location
|
Segment
|
Principal Products
|
||
|
Bayport (Pasadena), Texas(1)*
|
I&D | Propylene Oxide (PO), Propylene Glycol (PG), Propylene Glycol Ethers (PGE), Tertiary-Butyl-Alcohol (TBA) and Isobutylene | ||
|
Bayport (Pasadena), Texas*
|
O&P — Americas | PP and Catalloy process resins | ||
|
Channelview, Texas(2)*
|
O&P — Americas | Ethylene, Propylene, Butadiene, Benzene and Toluene | ||
| Refining & Oxyfuels | Alkylate and MTBE | |||
|
Channelview,
Texas
(1)(3)
*
|
I&D | IPA, PO, BDO, SM and Isobutylene | ||
| Refining & Oxyfuels | ETBE | |||
|
Chocolate Bayou, Texas*
|
O&P — Americas | PE (HDPE) | ||
|
Clinton, Iowa*
|
O&P — Americas | Ethylene and Propylene | ||
| PE (LDPE and HDPE) | ||||
|
Corpus Christi, Texas*
|
O&P — Americas | Ethylene, Propylene, Butadiene and Benzene | ||
|
Edison, New Jersey
|
Technology | Polyolefin catalysts | ||
|
Ensenada, Argentina
|
O&P — Americas | PP | ||
|
Ensenada, Argentina
|
O&P — EAI | PP compounds | ||
|
Fairport Harbor, Ohio
|
O&P — Americas | Performance polymers | ||
|
Houston, Texas*
|
Refining & Oxyfuels | Gasoline, Diesel, Jet Fuel and Lube Oils | ||
|
Jackson, Tennessee
|
O&P — EAI | PP compounds | ||
|
La Porte, Texas(4)*
|
O&P — Americas | Ethylene and Propylene | ||
| PE (LDPE and LLDPE) | ||||
|
La Porte,
Texas
(4)(5)
*
|
I&D | VAM, acetic acid and methanol | ||
|
Lake Charles, Louisiana*
|
O&P — Americas | PP and Catalloy process resins | ||
|
Mansfield, Texas
|
O&P — EAI | PP compounds | ||
|
Matagorda, Texas*
|
O&P — Americas | PE (HDPE) | ||
|
Morris, Illinois*
|
O&P — Americas | PE (LDPE and LLDPE) | ||
|
Newark, New Jersey
|
O&P — Americas | Denatured Alcohol | ||
|
Pindamonhangaba, Brazil
|
O&P — EAI | PP compounds | ||
|
Tampico, Mexico(6)
|
O&P — Americas | PP | ||
|
Tampico, Mexico(6)
|
O&P — EAI | PP compounds | ||
|
Tuscola, Illinois*
|
O&P — Americas | Ethanol and PE (powders) | ||
|
Victoria, Texas*†
|
O&P — Americas | PE (HDPE) | ||
|
Europe
|
||||
|
Aubette, France
|
O&P — EAI | Ethylene, Propylene and Butadiene | ||
| PP and PE (LDPE) | ||||
|
Bayreuth, Germany
|
O&P — EAI | PP compounds | ||
|
Berre l’Etang, France
|
Refining & Oxyfuels | Naphtha, vacuum gas oil (VGO), liquefied petroleum gas (LPG), gasoline, diesel, jet fuel, bitumen and heating oil | ||
|
Botlek, Rotterdam, The Netherlands†
|
I&D Refining & Oxyfuels | PO, PG, PGE, TBA, Isobutylene and BDO MTBE and ETBE | ||
|
Brindisi, Italy
|
O&P — EAI | PP |
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Table of Contents
|
Location
|
Segment
|
Principal Products
|
||
|
Carrington, U.K.
|
O&P — EAI | PP | ||
|
Ferrara, Italy
|
O&P — EAI | PP and Catalloy process resins | ||
| Technology | Polyolefin catalysts | |||
|
Fos-sur-Mer, France†
|
I&D | PO, PG and TBA | ||
| Refining & Oxyfuels | MTBE and ETBE | |||
|
Frankfurt, Germany†
|
O&P — EAI | PE (HDPE) | ||
| Technology | Polyolefin catalysts | |||
|
Knapsack, Germany†
|
O&P — EAI | PP and PP compounds | ||
|
Ludwigshafen, Germany†
|
Technology | Polyolefin catalysts | ||
|
Maasvlakte (near Rotterdam), The Netherlands(7)
|
I&D | PO and SM | ||
|
Milton Keynes, U.K.
|
O&P — EAI | PP compounds | ||
|
Moerdijk, The Netherlands†
|
O&P — EAI | Catalloy process resins and PB-1 | ||
|
Münchsmünster, Germany†(8)
|
O&P — EAI | Ethylene, Propylene | ||
| PE (HDPE) | ||||
|
Plock, Poland(9)
|
O&P — EAI | PP and PE (HDPE and LDPE) | ||
|
Tarragona, Spain(10)
|
O&P — EAI | PP and PP compounds | ||
|
Terni, Italy(11)
|
O&P — EAI | PP | ||
|
Wesseling, Germany(12)
|
O&P — EAI | Ethylene, Propylene and Butadiene | ||
| PP and PE (HDPE and LDPE) | ||||
|
Asia Pacific
|
||||
|
Chiba, Japan(13)
|
I&D | PO, PG and SM | ||
|
Clyde, Australia
|
O&P — EAI | PP | ||
|
Geelong, Australia
|
O&P — EAI | PP | ||
|
Guangzhou, China(14)
|
O&P — EAI | PP compounds | ||
|
Kawasaki, Japan(15)
|
O&P — EAI | PP | ||
|
Map Ta Phut, Thailand(16)
|
O&P — EAI | PP | ||
|
Ningbo, China(17)
|
I&D | PO and SM | ||
|
Oita, Japan(15)
|
O&P — EAI | PP and PP compounds | ||
|
Port Klang, Malaysia(18)
|
O&P — EAI | PP compounds | ||
|
Rayong, Thailand(19)
|
O&P — EAI | PP compounds | ||
|
Suzhou, China
|
O&P — EAI | PP compounds | ||
|
Victoria, Australia(18)
|
O&P — EAI | PP compounds | ||
|
Yeochan, Korea(20)
|
O&P — EAI | PP | ||
|
Middle East
|
||||
|
Jubail, Saudi Arabia(21)
|
O&P — EAI | Propylene and PP | ||
|
Jubail, Saudi Arabia(22)
|
O&P — EAI | Propylene and PP | ||
|
Jubail, Saudi Arabia(23)
|
O&P — EAI | Ethylene and PE (LDPE and HDPE) |
| * | The facility, or portions of the facility, as applicable, owned by us are mortgaged as collateral for indebtedness. | |
| † | The facility is located on leased land. | |
| (1) | The Bayport PO/TBA plants and the Channelview PO/SM I plant are held by the U.S. PO Joint Venture between Bayer and Lyondell Chemical. These plants are located on land leased by the U.S. PO Joint Venture. |
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Table of Contents
| (2) | The Channelview facility has two ethylene processing units. Equistar Chemicals LP also operates a styrene maleic anhydride unit and a polybutadiene unit, which are owned by an unrelated party and are located within the Channelview facility on property leased from Equistar Chemicals, LP. | |
| (3) | Unrelated equity investors hold a minority interest in the PO/SM II plant at the Channelview facility. | |
| (4) | The La Porte facilities are on contiguous property. | |
| (5) | The La Porte I&D facility is owned by La Porte Methanol Company, a partnership owned 15% by an unrelated party. | |
| (6) | The Tampico PP facility is owned by Indelpro, a joint venture owned 51% by an unrelated party. The Tampico PP compounding plant is wholly owned by us. | |
| (7) | The Maasvlakte plant is owned by the European PO Joint Venture and is located on land leased by the European PO Joint Venture. | |
| (8) | The Münchsmünster facility was recently rebuilt following a fire in 2005. | |
| (9) | The Plock facility is owned by our BOP joint venture and is located on land owned by PKN/Orlen. |
| (10) | The Tarragona PP facility is located on leased land; the compounds facility is located on co-owned land. | |
| (11) | We ceased production at the Terni, Italy site in July 2010. | |
| (12) | There are two steam crackers at the Wesseling, Germany site. | |
| (13) | The PO/SM plant and the PG plant are owned by our Nihon Oxirane joint venture. | |
| (14) | The Guangzhou facility commenced production in 2008. | |
| (15) | The Kawasaki and Oita plants are owned by our SunAllomer joint venture. | |
| (16) | The Map Ta Phut plant is owned by our HMC joint venture. | |
| (17) | The Ningbo facility is owned by our ZRCC joint venture. | |
| (18) | The Port Klang and Victoria plants are owned by our PolyPacific Pty. joint venture. | |
| (19) | The Rayong plant is owned by Basell Asia Pacific Thailand, which is owned 95% by us and 5% by our HMC joint venture. | |
| (20) | The Yeochan plant is owned by our PolyMirae joint venture. | |
| (21) | The Jubail PP and PDH manufacturing plant is owned by our SPC joint venture. | |
| (22) | The Jubail Spherizone PP and PDH manufacturing plant is owned by our Al-Waha joint venture. | |
| (23) | The Jubail integrated PE manufacturing complex is owned by our SEPC joint venture. |
Other
Locations and Properties
Our corporate seat is located in Rotterdam, The Netherlands. We
have administrative offices in Rotterdam, The Netherlands and
Houston, Texas. We maintain research facilities in Newtown
Square, Pennsylvania; Lansing, Michigan; Cincinnati, Ohio;
Ferrara, Italy and Frankfurt, Germany. Our Asia Pacific
headquarters are located in Hong Kong. We also have technical
support centers in Bayreuth, Germany; Geelong, Australia;
Lansing, Michigan and Tarragona, Spain. We have various sales
facilities worldwide.
Depending on location and market needs, our production
facilities can receive primary raw materials by pipeline, rail
car, truck, barge or ocean going vessel and can deliver finished
products by pipeline, rail car, truck, barge, isotank, ocean
going vessel or in drums. We charter ocean going vessels, own
and charter barges, and lease isotanks and own and lease rail
cars for the dedicated movement of products between plants,
products to customers or terminals, or raw materials to plants,
as necessary. We also have barge docking facilities and related
terminal equipment for loading and unloading raw materials and
products.
We use extensive pipeline systems in the United States and in
Europe, some of which we own and some of which we lease, that
connect to our manufacturing and storage facilities. We lease
liquid and bulk storage and warehouse facilities at terminals in
the Americas, Europe and the Asia Pacific region. We own storage
capacity for NGLs, ethylene, propylene and other hydrocarbons
within a salt dome in Mont Belvieu, Texas,
30
Table of Contents
and operate additional ethylene and propylene storage facilities
with related brine facilities on leased property in Markham,
Texas.
Web
Site Access to SEC Reports
Our Internet Web site address is
http://www.lyondellbasell.com
.
Information contained on our Internet Web site is not part of
this report on
Form 10-K.
Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and any amendments to these reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available on our Web site, free of charge, as soon as
reasonably practicable after such reports are filed with, or
furnished to, the U.S. Securities and Exchange Commission.
Alternatively, you may access these reports at the SEC’s
Web site at
http://www.sec.gov
.
| Item 1A. | RISK FACTORS |
You should carefully consider the following risk factors in
addition to the other information included in this Annual Report
on
Form 10-K.
Each of these risk factors could adversely affect our business,
operating results and financial condition, as well as adversely
affect the value of an investment in our common stock.
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.
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.
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Table of Contents
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,
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.
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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 US.
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 US, 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 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:
| • | pipeline leaks and ruptures; | |
| • | explosions; | |
| • | fires; | |
| • | severe weather and natural disasters; | |
| • | mechanical failure; | |
| • | unscheduled downtimes; | |
| • | supplier disruptions; |
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| • | labor shortages or other labor difficulties; | |
| • | transportation interruptions; | |
| • | remediation complications; | |
| • | chemical and oil spills; | |
| • | discharges or releases of toxic or hazardous substances or gases; | |
| • | storage tank leaks; | |
| • | other environmental risks; and | |
| • | terrorist acts. |
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 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.
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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 the
Company and its 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 the Company 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.
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
| • | emissions to the air, | |
| • | discharges onto land or surface waters or into groundwater; and | |
| • | the generation, handling, storage, transportation, treatment, disposal and remediation of hazardous substances and waste materials. |
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.
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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 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 United States federal courts in a
manner unfavorable to our industry. In any event, additional
regulation is likely to be forthcoming at the United States
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
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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.
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.
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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
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
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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 party’s 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 within the Company, 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 the Company’s 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 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 December 31, 2010, we have approximately
$6.1 billion of total consolidated debt. Our debt and the
limitations imposed on us by our financing arrangements could:
| • | require us to dedicate a substantial portion, or all, of our cash flow from operations to payments of principal and interest on our debt; | |
| • | 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 | |
| • | 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.
Three shareholders collectively own approximately 52% 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
matters. These shareholders may have interests that conflict
with other shareholders and actions may be taken that other
shareholders do not view as beneficial.
Additionally, each of these three shareholders is party to a
nomination agreement that entitles the shareholder 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.
We are
subject to Dutch law and the rights of our ordinary shareholders
may be different from those rights associated with companies
governed by other laws.
As a result of being organized under the laws of The
Netherlands, our corporate structure as well as the rights and
obligations of our ordinary shareholders may be different from
the rights and obligations of shareholders in companies
incorporated in other jurisdictions. Resolutions of the general
meeting of shareholders may be taken with majorities different
from the majorities required for adoption of equivalent
resolutions in, for example, Delaware companies. Additionally,
like other Dutch companies, our articles of association and our
board charter contain control-enhancing rights that may have the
effect of preventing, discouraging or delaying a change of
control.
If we
were classified as a controlled foreign corporation, any 10%
U.S. shareholders may be responsible for U.S. income taxes on a
pro-rata share of our income.
If the sum of the percentage ownership held by all of our 10%
U.S. shareholders (as determined under the Internal Revenue
Code of 1986, as amended (“IRC”)) exceeds 50% of our
ordinary shares, we would be classified as a controlled foreign
corporation for U.S. federal income tax purposes. In the
event such a classification were made, all 10%
U.S. shareholders would be subject to taxation under
Subpart F of the IRC, which could require such 10%
U.S. shareholders to pay U.S. federal income taxes on
a pro rata portion of our income, even in the absence of any
distribution of such income.
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Based on information currently available to us, we do not
believe we are a controlled foreign corporation at this time.
U.S.
anti-inversion rules may apply to LyondellBasell Industries N.V.
resulting in certain adverse U.S. federal income tax
consequences.
The United States 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 7874’s 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.
| Item 1B. | UNRESOLVED STAFF COMMENTS |
None.
| Item 3. | LEGAL PROCEEDINGS |
Bankruptcy
Proceedings
On January 6, 2009, certain of LyondellBasell AF
S.C.A.’s indirect U.S. subsidiaries, including
Lyondell Chemical Company, and its German indirect subsidiary,
Germany Holdings, voluntarily filed for protection under
Chapter 11 in the Bankruptcy Court. In April and May of
2009, LyondellBasell AF and certain other subsidiaries filed
voluntary petitions for relief under Chapter 11 in the
Bankruptcy Court. The Bankruptcy Cases were filed in response to
a sudden loss of liquidity in the last quarter of 2008. The
debtors operated their businesses and managed their properties
as debtors in possession during the Bankruptcy Cases. In
general, this means that the Debtors operated in the ordinary
course without Bankruptcy Court intervention. Bankruptcy Court
approval was required, however, where the debtors sought
authorization to engage in certain transactions not in the
ordinary course of business.
We emerged from bankruptcy on April 30, 2010. As of that
date, all assets of the debtor entities vested in the
reorganized debtor entities free and clear of all claims, liens,
encumbrances, charges, and other interests, except as provided
in the Plan of Reorganization or the confirmation order entered
on April 23, 2010 (the “Confirmation Order”).
Except as otherwise expressly provided in the Plan of
Reorganization or in the Confirmation Order, on April 30,
2010, each holder of a claim or equity interest is deemed to
have forever waived, released, and discharged the debtor
entities and the reorganized debtor entities, to the fullest
extent permitted by law, of and from any and all claims, equity
interests, rights, and liabilities that arose prior to the
confirmation date.
BASF
Lawsuit
On April 12, 2005, BASF filed a lawsuit against Lyondell
Chemical in the Superior Court of New Jersey, Morris County,
asserting various claims relating to alleged breaches of a
propylene oxide toll manufacturing contract and seeking damages
in excess of $100 million. Lyondell Chemical denied
breaching the contract and argued that at most it owed BASF
nothing more than a refund of $22.5 million, which it has
paid. On
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August 13, 2007, a jury returned a verdict in favor of BASF
in the amount of approximately $170 million (inclusive of
the $22.5 million refund). On October 3, 2007, the
judge in the state court case determined that prejudgment
interest on the verdict amounted to $36 million and issued
a final judgment. Lyondell Chemical appealed the judgment and
has posted an appeal bond, which is collateralized by a
$200 million letter of credit.
On April 21, 2010, oral arguments in the appeal were held
before the Appellate Division and, on December 28, 2010,
the judgment was reversed and the case remanded. The parties
have filed motions with the Bankruptcy Court for a determination
as to whether the case will proceed in the Bankruptcy Court or
New Jersey state court. We do not expect the ultimate resolution
of this matter to have a material adverse effect on our
consolidated financial position, liquidity, or results of
operations, although it is possible that any such resolution
could have a material adverse effect on our results of operation
for any period in which a resolution occurs.
Access
Indemnity Demand
On December 20, 2010, one of our subsidiaries received
demand letters from affiliates of Access Industries
(collectively, “Access”), a more than five percent
shareholder of the Company. We conducted an initial
investigation of the facts underlying the demand letters and
engaged in discussions with Access. We requested that Access
withdraw its demands with prejudice and, on January 17,
2011, Access declined to withdraw the demands, with or without
prejudice.
Specifically, Access affiliates Nell Limited (“Nell”)
and BI S.á.r.l. (“BI”) have demanded that
LyondellBasell Industries Holdings B.V., a wholly-owned
subsidiary of the Company (“LBIH”), indemnify them and
their shareholders, members, affiliates, officers, directors,
employees and other related parties for all losses, including
attorney’s fees and expenses, arising out of a pending
lawsuit styled
Edward S. Weisfelner, as Litigation Trustee of
the LB Litigation Trust v. Leonard Blavatnik, et al.
,
Adversary Proceeding
No. 09-1375
(REG), in the United States Bankruptcy Court, Southern District
of New York.
In the
Weisfelner
lawsuit, the plaintiffs seek to recover
damages from numerous parties, including Nell, Access and its
affiliates. The damages sought from Nell, Access and its
affiliates include, among other things, the return of all
amounts earned by them related to their acquisition of shares of
Lyondell Chemical Company prior to its acquisition by Basell AF
S.C.A. in December 2007, distributions by Basell AF S.C.A. to
its shareholders before it acquired Lyondell Chemical Company,
and management and transaction fees and expenses. We cannot at
this time determine the amount of liability, if any, that may be
sought from LBIH by way of indemnity if a judgment is rendered
or a settlement is paid in the
Weisfelner
lawsuit.
Nell and BI have also demanded that LBIH pay $50 million in
management fees for the years 2009 and 2010 and that LBIH pay
other unspecified amounts relating to advice purportedly given
in connection with financing and other strategic transactions.
Nell and BI assert that LBIH’s responsibility for indemnity
and the claimed fees and expenses arises out of a management
agreement entered into on December 11, 2007, between Nell
and Basell AF S.C.A. They assert that LBIH, as a former
subsidiary of Basell AF S.C.A., is jointly and severally liable
for Basell AF S.C.A.’s obligations under the agreement,
notwithstanding that LBIH was not a signatory to the agreement
and the liabilities of Basell AF S.C.A., which was a signatory,
were discharged in the LyondellBasell bankruptcy proceedings.
We do not believe that the management agreement is in effect or
that the Company, LBIH, or any other Company-affiliated entity
owes any obligations under the management agreement. We intend
to defend vigorously any proceedings, claims or demands that may
be asserted.
Environmental
Matters
From time to time we and our joint ventures receive notices or
inquiries from federal, state or local governmental entities
regarding alleged violations of environmental laws and
regulations pertaining to, among other things, the disposal,
emission and storage of chemical and petroleum substances,
including hazardous
42
Table of Contents
wastes. Item 103 of the SEC’s
Regulation S-K
requires disclosure of certain environmental matters when a
governmental authority is a party to the proceedings and the
proceedings involve potential monetary sanctions that we
reasonably believe could exceed $100,000. The following matters
pending as of December 31, 2010 are disclosed in accordance
with that requirement:
As part of the government settlement in the chapter 11
proceedings, the U.S., on behalf of EPA, was allowed a general
unsecured claim of $499,000 against Millennium Specialty
Chemicals Inc. and $480,000 against Houston Refining LP. These
allowed claims settled the penalty amounts for alleged
noncompliance based upon pre-petition activities. In the case of
the Houston refinery, the allegations arise from a 2007 EPA
Clean Air Act inspection. In the case of Millennium Specialty
Chemicals, EPA conducted an inspection in 2008 at the Colonels
Island, Georgia facility and questions were raised concerning
handling of contaminated wastewater. Final resolution regarding
these issues and any post-petition penalties is still subject to
further negotiations with the government.
| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our capital was issued effective April 30, 2010 in
connection with our emergence from bankruptcy proceedings. Our
shares have traded on the New York Stock Exchange, under the
symbol “LYB,” since October 14, 2010. From
April 30, 2010 until October 13, 2010, our shares they
were quoted in the Pink OTC Markets, Inc. (the “Pink
Sheets”) under the symbols “LALLF” and
“LBLLF.” The following table sets forth the range of
the high and low per share sales prices for our shares as
reported on the NYSE since October 14, 2010 and on the Pink
Sheets from April 30, 2010 through October 13, 2010.
|
2010
|
High | Low | ||||||
|
April 30, 2010 — June 30, 2010
|
$ | 23.25 | $ | 16.15 | ||||
|
Third Quarter
|
23.95 | 14.86 | ||||||
|
Fourth Quarter
|
34.54 | 23.71 | ||||||
|
2011
|
||||||||
|
First Quarter (through March 15, 2011)
|
$ | 40.90 | $ | 34.56 | ||||
On March 15, 2011, the closing price of our stock on the
NYSE was $38.28. As of March 15, 2011, we had approximately
3,700 shareholders, based on the number of record holders
on that date.
On April 30, 2010, when our capital was issued, we had both
class A and class B shares. The two classes were
identical in all respects, other than a liquidation preference
on the class B shares of an amount equal to $10.61 per
share after payments to our creditors and certain supermajority
voting rights with respect to transactions that would cause the
class B shares to be purchased, converted or exchanged at a
value less than $10.61 per share. The class B shares were
convertible upon request of holders into class A shares on
a
one-for-one
basis. Additionally, our Articles of Association provided that
on the first day on which the closing price per share exceeded
$21.22 for 45 consecutive trading days in a 60 day period
(provided that the threshold was met on each of the first and
last day of the 60 day period), the class B shares
would automatically, and without further action of the holders
thereof, convert to class A shares. At the close of
business on December 6, 2010, all class B shares
converted to class A shares pursuant to the automatic
conversion provision.
We have not yet paid any dividends on our shares. The payment of
dividends in the future will be subject to the requirements of
Dutch law and the discretion of our shareholders (in the case of
annual dividends), our Management Board and Supervisory Board.
The declaration of any future cash dividends and, if declared,
the amount of any such dividends, will depend upon general
business conditions, our financial condition, our earnings and
cash flow, our capital requirements, financial covenants and
other contractual restrictions on the payment of dividends or
distributions.
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Table of Contents
We are a holding company and all of our operations are conducted
through our subsidiaries. Consequently, we will rely on
dividends or advances from our subsidiaries to fund any
dividends. The ability of our operating subsidiaries to pay
dividends is subject to applicable local law. These laws could
limit the payment of dividends and distributions to us, which
would restrict our ability to pay dividends in the future.
Additionally, our financing arrangements include restrictive
covenants that currently limit payments to shareholder in the
form of dividends and share repurchases on an annual basis to
$50 million plus 1.75% of net tangible assets. Beginning in
the second quarter of 2012, this amount is increased by a
percentage of net income earned by the Company.
We have not repurchased any of our shares.
The graph below shows the relative investment performance of
LyondellBasell Industries shares, the S&P 500 Chemicals
Index and the S&P 500 Index since April 30, 2010, the
first date on which we had issued capital as a publicly traded
company. The graph assumes that $100 was invested on
April 30, 2010 and the reinvestment of any dividends at
date of payment. The graph is presented pursuant to SEC rules
and is not meant to be an indication of our future performance.
Comparison
of Cumulative Total Return
| As of the End of the Following Months Ended 2010 | ||||||||||||||||||||||||||||||||||||
| April | May | June | July | August | September | October | November | December | ||||||||||||||||||||||||||||
|
LyondellBasell Industries
|
$ | 100 | $ | 79.69 | $ | 72.42 | $ | 80.72 | $ | 91.93 | $ | 107.17 | $ | 120.45 | $ | 130.99 | $ | 154.26 | ||||||||||||||||||
|
S&P 500 Index
|
$ | 100 | $ | 92.02 | $ | 87.20 | $ | 93.31 | $ | 89.10 | $ | 97.05 | $ | 100.74 | $ | 100.75 | $ | 107.49 | ||||||||||||||||||
|
S&P 500 Chemicals Index
|
$ | 100 | $ | 89.16 | $ | 83.42 | $ | 96.35 | $ | 93.49 | $ | 99.91 | $ | 108.06 | $ | 108.52 | $ | 117.58 | ||||||||||||||||||
Recent
Sales of Unregistered Securities
As of April 30, 2010, the date of the emergence from
bankruptcy proceedings, we:
| • | issued 300,000,000 shares to eligible holders of certain claims against our predecessor, LyondellBasell AF, and its subsidiaries; | |
| • | issued 263,901,979 shares in connection with a rights offering that gave certain claim holders the right to subscribe for shares at a price of $10.61 per share; and | |
| • | issued warrants to purchase 11,508,204 shares with an exercise price of $15.90 per share. |
On April 23, 2010, the Bankruptcy Court entered a final
order that the offering, issuance, and distribution of any
securities contemplated by the Plan of Reorganization, including
the issuances described above and the issuance of shares upon
exercise of the warrants, shall be exempt from the registration
requirements of
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Section 5 of the Securities Act and any other applicable
law requiring registration or qualification prior to the
offering, issuance, distribution, or sale of securities. An
aggregate of 2,326,676 shares have been issued upon
exercise of warrants.
Additionally, up to 22,000,000 shares are authorized for
issuance to employees and directors of LyondellBasell Industries
N.V. and its subsidiaries pursuant to our incentive plan.
Pursuant to LyondellBasell Industries N.V.’s 2010 Long-Term
Incentive Plan, and effective as of April 30, 2010, we
issued Mr. Gallogly 1,771,794 shares of restricted
stock. The restricted shares vest on the fifth anniversary of
the date of Mr. Gallogly’s employment agreement of
May 14, 2009. We have issued an additional 2,036,582
restricted stock units to certain senior level employees and
members of the Supervisory Board. The employee restricted stock
units vest, subject to earlier forfeiture, on the fifth
anniversary of the date of grant. Each of the directors’
restricted stock unit awards vest on June 30 in the year of the
expiration of his term as a director, which is 2011, 2012 or
2013. All of these issuances were compensatory in nature and
made without cost to the employees or directors.
Effective April 30, 2010, we issued Mr. Gallogly
options to purchase 5,639,020 shares at an exercise price
of $17.61 per share. The options vest in equal annual increments
over the five year period beginning May 14, 2009. We have
issued additional options to purchase up to
3,087,573 shares to certain senior level employees at
exercise prices ranging from $16.45 to $26.75 per share. In each
case, the exercise price is equal to the fair market value of
our shares on the date of grant. These stock options vest in
three equal annual increments, beginning on the second
anniversary of the date of grant. The grants of the stock
options were compensatory in nature and made without cost to the
employees.
The grants of the restricted stock units and the stock options
were made from time to time between April 30 and
December 31, 2010.
These grants were made in reliance on Section 4(2) and
Rule 701 of the Securities Act related to securities issued
not involving a public offering and pursuant to certain
compensatory benefit plans and contracts or are deemed to not be
sales of securities under Section 2 of the Securities Act.
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Table of Contents
| Item 6. | SELECTED FINANCIAL DATA |
See Management’s 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 S.C.A. (“LyondellBasell
AF”) should be read in conjunction with the Consolidated
Financial Statements and related notes thereto and
“— Management’s 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 audited 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 annual report on
Form 10-K,
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.
| Successor | Predecessor | ||||||||||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||||||||||
|
through
|
through
|
||||||||||||||||||||||||
| December 31, | April 30, | For the Year Ended December 31, | |||||||||||||||||||||||
| 2010 | 2010 | 2009 | 2008 | 2007(a) | 2006 | ||||||||||||||||||||
|
In millions of dollars
|
|||||||||||||||||||||||||
|
Results of Operations Data:
|
|||||||||||||||||||||||||
|
Sales and other operating revenues
|
$ | 27,684 | $ | 13,467 | $ | 30,828 | $ | 50,706 | $ | 17,120 | $ | 13,175 | |||||||||||||
|
Interest expense
|
(545 | ) | (713 | ) | (1,795 | ) | (2,476 | ) | (353 | ) | (332 | ) | |||||||||||||
|
Income (loss) from equity investments(b)
|
86 | 84 | (181 | ) | 38 | 162 | 130 | ||||||||||||||||||
|
Income (loss) from continuing operations(c)
|
1,516 | 8,506 | (2,872 | ) | (7,343 | ) | 661 | 396 | |||||||||||||||||
|
Earnings per share from continuing operations:
|
|||||||||||||||||||||||||
|
Basic
|
2.68 | ||||||||||||||||||||||||
|
Diluted
|
2.67 | ||||||||||||||||||||||||
|
Income (loss) from discontinued operations, net of tax
|
64 | (2 | ) | 1 | 15 | — | — | ||||||||||||||||||
|
Earnings per share from discontinued operations:
|
|||||||||||||||||||||||||
|
Basic
|
0.11 | ||||||||||||||||||||||||
|
Diluted
|
0.11 | ||||||||||||||||||||||||
|
Balance Sheet Data:
|
|||||||||||||||||||||||||
|
Total assets
|
25,494 | 27,761 | 28,651 | 39,728 | 9,549 | ||||||||||||||||||||
|
Short-term debt
|
42 | 6,182 | 774 | 2,415 | 779 | ||||||||||||||||||||
|
Long-term debt(d)
|
6,040 | 802 | 23,195 | 22,000 | 3,364 | ||||||||||||||||||||
|
Cash and cash equivalents
|
4,222 | 558 | 858 | 560 | 830 | ||||||||||||||||||||
|
Accounts receivable
|
3,747 | 3,287 | 2,585 | 4,165 | 2,041 | ||||||||||||||||||||
|
Inventories
|
4,824 | 3,277 | 3,314 | 5,178 | 1,339 | ||||||||||||||||||||
|
Working capital
|
5,810 | 4,436 | 3,237 | 5,019 | 1,900 | ||||||||||||||||||||
|
Liabilities subject to compromise
|
— | 22,494 | — | — | — | ||||||||||||||||||||
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| Successor | Predecessor | ||||||||||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||||||||||
|
through
|
through
|
||||||||||||||||||||||||
| December 31, | April 30, | For the Year Ended December 31, | |||||||||||||||||||||||
| 2010 | 2010 | 2009 | 2008 | 2007(a) | 2006 | ||||||||||||||||||||
|
In millions of dollars
|
|||||||||||||||||||||||||
|
Cash Flow Data:
|
|||||||||||||||||||||||||
|
Cash provided by (used in):
|
|||||||||||||||||||||||||
|
Operating activities
|
2,957 | (936 | ) | (787 | ) | 1,090 | 1,180 | 1,034 | |||||||||||||||||
|
Investing activities
|
(312 | ) | (213 | ) | (611 | ) | (1,884 | ) | (11,899 | ) | (535 | ) | |||||||||||||
|
Expenditures for property, plant and equipment
|
(466 | ) | (226 | ) | (779 | ) | (1,000 | ) | (411 | ) | (263 | ) | |||||||||||||
|
Financing activities
|
(1,194 | ) | 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. |
| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 report. 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.”
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In addition to comparisons of current operating results with the
same period in the prior year, we have included, as additional
disclosure, certain “trailing quarter” comparisons of
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.
EMERGENCE
FROM CHAPTER 11 PROCEEDINGS
Bankruptcy Filing —
On January 6, 2009,
certain of LyondellBasell AF’s 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 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 AF’s 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
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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 AF’s 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.
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 most, if not all, 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.
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 was 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
49
Table of Contents
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 AF’s
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 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
for the twelve months ended December 31, 2009.
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
50
Table of Contents
revaluation of assets, see Note 4 to the Consolidated
Financial Statements. Depreciation and amortization as reported
for all periods presented is as follows:
| 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
|
|||||||||||||||||
|
Cost of sales:
|
|||||||||||||||||
|
Depreciation
|
$ | 394 | $ | 464 | $ | 1,412 | $ | 1,493 | |||||||||
|
Amortization
|
142 | 75 | 293 | 356 | |||||||||||||
|
Research and development expenses:
|
|||||||||||||||||
|
Depreciation
|
11 | 8 | 24 | 23 | |||||||||||||
|
Selling, general and administrative expenses:
|
|||||||||||||||||
|
Depreciation
|
11 | 18 | 45 | 39 | |||||||||||||
| $ | 558 | $ | 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 Company’s 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 | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Twelve Months
|
|||||||||||||||
| December 31, | April 30, | Ended December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Interest expense
|
$ | 545 | $ | 713 | $ | 1,795 | $ | 2,476 | |||||||||
Overview
of Results of Operations
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.
51
Table of Contents
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 AF’s 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 AF’s 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 AF’s aggressive cost reduction program.
Net income in 2009 also reflected charges related to
LyondellBasell AF’s 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 | ||||||||||||||||
|
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
|
$ | 27,684 | $ | 13,467 | $ | 30,828 | $ | 50,706 | |||||||||
|
Cost of sales
|
24,697 | 12,405 | 29,372 | 48,780 | |||||||||||||
|
Inventory valuation adjustment
|
42 | — | 127 | 1,256 | |||||||||||||
|
Impairments
|
28 | 9 | 17 | 5,207 | |||||||||||||
|
Selling, general and administrative expenses
|
564 | 308 | 850 | 1,197 | |||||||||||||
|
Research and development expenses
|
99 | 55 | 145 | 194 | |||||||||||||
|
Operating income (loss)
|
2,254 | 690 | 317 | (5,928 | ) | ||||||||||||
|
Interest expense
|
(545 | ) | (713 | ) | (1,795 | ) | (2,476 | ) | |||||||||
|
Interest income
|
17 | 5 | 18 | 69 | |||||||||||||
|
Other income (expense), net
|
(103 | ) | (263 | ) | 319 | 106 | |||||||||||
|
Income (loss) from equity investments
|
86 | 84 | (181 | ) | 38 | ||||||||||||
|
Reorganization items
|
(23 | ) | 7,580 | (2,961 | ) | — | |||||||||||
|
Provision for (benefit from) income taxes
|
170 | (1,123 | ) | (1,411 | ) | (848 | ) | ||||||||||
|
Income (loss) from discontinued operations, net of tax
|
64 | (2 | ) | 1 | 15 | ||||||||||||
|
Net income (loss)
|
$ | 1,580 | $ | 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.
52
Table of Contents
RESULTS
OF OPERATIONS
Revenues
— We had revenues of
$41,151 million in 2010, $30,828 million in 2009 and
$50,706 million in 2008. The $10,323 million increase
in 2010 compared to 2009 reflected higher demand, resulting in
higher average sales prices and higher sales volumes across most
business segments, partially 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.
Cost of Sales
— Cost of sales were
$37,102 million in 2010, $29,372 million in 2009 and
$48,780 million in 2008.
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 asset’s carrying amount. In 2008,
the Company recognized charges of $4,982 million and
$225 million, respectively, for impairment of goodwill
related to the December 20, 2007 acquisition of Lyondell
Chemical and 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
AF’s 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
53
Table of Contents
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
Company’s 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 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 the Consolidated Financial Statements) 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 and $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.
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 Company’s 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 $7,557 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
54
Table of Contents
remediation liabilities. These gains were partially offset by a
charge of $6,086 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
Company’s 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 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 the Consolidated
Financial Statements.
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 $1,123 million, representing a negative
effective tax rate of 15.2% on pre-tax income of
$7,383 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 | ) | 7,580 | (2,961 | ) | — | |||||||||||
|
Provision for (benefit from) income taxes
|
170 | (1,123 | ) | (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
Company’s equity investments in certain joint ventures (see
Note 13 to the Consolidated Financial Statements).
55
Table of Contents
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 | (7,580 | ) | 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 | (7,564 | ) | 3,236 | 6,541 | ||||||||||||
|
Tax effect of above items
|
(48 | ) | (1,068 | ) | (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 Company’s
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
56
Table of Contents
described in “Emergence from Chapter 11
Proceedings.” The impact of these items is addressed in the
discussion of each segment’s 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 | ||||||||||||||||
|
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:
|
|||||||||||||||||
|
O&P — Americas segment
|
$ | 8,406 | $ | 4,183 | $ | 8,614 | $ | 16,412 | |||||||||
|
O&P — EAI segment
|
8,729 | 4,105 | 9,401 | 13,489 | |||||||||||||
|
I&D segment
|
3,754 | 1,820 | 3,778 | 6,218 | |||||||||||||
|
Refining and Oxyfuels segment
|
10,321 | 4,748 | 12,078 | 18,362 | |||||||||||||
|
Technology segment
|
365 | 145 | 543 | 583 | |||||||||||||
|
Other, including intersegment eliminations
|
(3,891 | ) | (1,534 | ) | (3,586 | ) | (4,358 | ) | |||||||||
|
Total
|
$ | 27,684 | $ | 13,467 | $ | 30,828 | $ | 50,706 | |||||||||
|
Operating income (loss):
|
|||||||||||||||||
|
O&P — Americas segment
|
$ | 1,043 | $ | 320 | $ | 169 | $ | (1,355 | ) | ||||||||
|
O&P — EAI segment
|
411 | 115 | (2 | ) | 220 | ||||||||||||
|
I&D segment
|
512 | 157 | 250 | (1,915 | ) | ||||||||||||
|
Refining and Oxyfuels segment
|
241 | (99 | ) | (357 | ) | (2,378 | ) | ||||||||||
|
Technology segment
|
69 | 39 | 210 | 202 | |||||||||||||
|
Other, including intersegment eliminations
|
(22 | ) | (41 | ) | 18 | (134 | ) | ||||||||||
|
Current cost adjustment
|
— | 199 | 29 | (568 | ) | ||||||||||||
|
Total
|
$ | 2,254 | $ | 690 | $ | 317 | $ | (5,928 | ) | ||||||||
|
Income (loss) from equity investments:
|
|||||||||||||||||
|
O&P — Americas segment
|
$ | 16 | $ | 5 | $ | 7 | $ | 6 | |||||||||
|
O&P — EAI segment
|
68 | 80 | (172 | ) | 34 | ||||||||||||
|
I&D segment
|
2 | (1 | ) | (16 | ) | (2 | ) | ||||||||||
|
Total
|
$ | 86 | $ | 84 | $ | (181 | ) | $ | 38 | ||||||||
Olefins
and Polyolefins — Americas Segment
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 Company’s 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
57
Table of Contents
“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 AF’s 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.
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
58
Table of Contents
average cost of ethylene production, which is reduced by
co-product revenues, is based on CMAI’s 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
segment’s 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 and higher
ethylene and polypropylene sales volumes. The increases in
average sales prices and sales volumes in 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. The decrease in
2009 revenue of $7,798 million, or 48%, compared to 2008,
reflected the effect of lower average product sales prices and
net lower sale volumes. 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.
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
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Table of Contents
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
AF’s 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
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 AF’s cost
reduction program, fixed costs were significantly lower in 2009,
partly offsetting the negative effects of the weak markets.
60
Table of Contents
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, 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 (high density)
|
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
segment’s 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
|
|||||||||||||||||
|
Polypropylene
|
4,906 | 2,117 | 6,156 | 7,023 | |||||||||||||
|
Polyethylene
|
3,402 | 1,658 | 4,815 | 4,821 | |||||||||||||
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. The increase in 2010 revenues,
compared to 2009, was primarily due to the effect of higher
average product sales prices across most products, particularly
ethylene, butadiene, polyethylene and polypropylene, as well as
the effect of higher sales volumes, particularly polypropylene,
including
Catalloy
and PP Compounds.
The decrease in 2009 revenues compared to 2008 reflected the
effect of lower product sales prices and net lower sale volumes
as well as 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. Lower 2009 polypropylene
and ethylene co-product sales volumes 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
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Table of Contents
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 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 AF’s 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 AF’s 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
AF’s 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
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 segment’s 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 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 AF’s 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
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Table of Contents
is part of LyondellBasell AF’s joint venture with Bayer
(see Note 12 to the Consolidated Financial Statements). 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 segment’s 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. 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. In addition, the
unfavorable effects of changes in currency exchange rates
contributed to the decrease in revenue as the U.S. dollar
was stronger in relation to the Euro 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 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 AF’s 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 segment’s underlying fourth
quarter 2010
63
Table of Contents
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
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 refinery’s sulfur recovery units during the
second quarter 2009 and of a crude unit during the fourth
quarter 2009. As a result of LyondellBasell AF’s 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
refinery’s crude trains and coker units during the third
quarter 2008 that was delayed by an incident involving a
contractor’s crane and an unplanned second quarter 2008
outage of a FCC unit.
The following table sets forth the Refining and Oxyfuels
segment’s 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
64
Table of Contents
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. The increase in revenues from 2009 to 2010 is
primarily due to higher average sales prices at the Houston and
Berre refineries. 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.
The decrease in revenues in 2009 from 2008 was primarily due to
lower sales prices, partially offset by higher sales volumes at
the Houston refinery. 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 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.
65
Table of Contents
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 AF’s 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 refinery’s 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
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 segment’s 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 AF’s cost reduction
program and a government subsidy, and the effects of higher
catalyst sales volumes.
The following table sets forth the Technology segment’s
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 | |||||||||||||
66
Table of Contents
Revenues
— Revenues for 2010 decreased
$33 million, or 6% compared to 2009 and decreased
$40 million, or 7% from 2008 to 2009. The decreases in 2010
and 2009 revenues were attributable to lower process license
revenue, partially offset by higher catalyst 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. 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 | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Twelve Months Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Source (use) of cash:
|
|||||||||||||||||
|
Operating activities
|
$ | 2,957 | $ | (936 | ) | $ | (787 | ) | $ | 1,090 | |||||||
|
Investing activities
|
(312 | ) | (213 | ) | (611 | ) | (1,884 | ) | |||||||||
|
Financing activities
|
(1,194 | ) | 3,315 | 1,101 | 1,083 | ||||||||||||
Operating Activities
— 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 AF’s 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 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
67
Table of Contents
$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
Company’s 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 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 the
Consolidated Financial Statements). 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.
68
Table of Contents
The following table summarizes capital expenditures for the
periods presented:
| Successor | Predecessor | ||||||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||||||
|
through
|
through
|
For the Twelve Months Ended
|
|||||||||||||||||||
|
Plan
|
December 31,
|
April 30,
|
December 31, | ||||||||||||||||||
| 2011 | 2010 | 2010 | 2009 | 2008 | |||||||||||||||||
|
Millions of dollars
|
|||||||||||||||||||||
|
Capital expenditures by segment:
|
|||||||||||||||||||||
|
O&P — Americas
|
$ | 361 | $ | 146 | $ | 52 | $ | 142 | $ | 201 | |||||||||||
|
O&P — EAI
|
286 | 105 | 102 | 411 | 509 | ||||||||||||||||
|
I&D
|
122 | 77 | 8 | 23 | 66 | ||||||||||||||||
|
Refining and Oxyfuels
|
345 | 108 | 49 | 167 | 196 | ||||||||||||||||
|
Technology
|
38 | 19 | 12 | 32 | 33 | ||||||||||||||||
|
Other
|
15 | 12 | 3 | 6 | 24 | ||||||||||||||||
|
Total capital expenditures by segment
|
1,167 | 467 | 226 | 781 | 1,029 | ||||||||||||||||
|
Less:
|
|||||||||||||||||||||
|
Contributions to PO Joint Ventures
|
3 | 1 | — | 2 | 29 | ||||||||||||||||
|
Consolidated capital expenditures of continuing operations
|
$ | 1,164 | $ | 466 | $ | 226 | $ | 779 | $ | 1,000 | |||||||||||
The capital expenditures presented in the table above exclude
costs of major periodic maintenance and repair activities,
including turnarounds and catalyst recharges of
$71 million, $39 million and $164 million in the
Predecessor periods of 2010, 2009 and 2008, respectively.
Financing Activities
— 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 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 Consolidated Financial
Statements).
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
69
Table of Contents
$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 AF’s
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
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:
| • | $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. | |
| • | €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. |
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.
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
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our control. We believe that our cash, cash from operating
activities and proceeds from our revolving credit facilities
provide us with sufficient financial resources to meet our
anticipated capital requirements and obligations as they come
due.
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.
We are seeking to amend and restate our Senior Secured Term Loan
Agreement to, among other things, modify certain restrictive
covenants.
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.
| Payments Due By Period | ||||||||||||||||||||||||||||
| Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||
|
Total debt
|
$ | 6,082 | $ | 46 | $ | 10 | $ | 1 | $ | — | $ | 1 | $ | 6,024 | ||||||||||||||
|
Interest on total debt
|
4,460 | 609 | 608 | 608 | 589 | 579 | 1,467 | |||||||||||||||||||||
|
Pension benefits:
|
||||||||||||||||||||||||||||
|
PBO
|
2,933 | 161 | 166 | 236 | 186 | 205 | 1,979 | |||||||||||||||||||||
|
Assets
|
(1,760 | ) | — | — | — | — | — | (1,760 | ) | |||||||||||||||||||
|
Funded status
|
1,173 | |||||||||||||||||||||||||||
|
Other postretirement benefits
|
332 | 22 | 22 | 23 | 23 | 24 | 218 | |||||||||||||||||||||
|
Advances from customers
|
101 | 12 | 17 | 16 | 12 | 12 | 32 | |||||||||||||||||||||
|
Other
|
605 | 112 | 93 | 71 | 35 | 33 | 261 | |||||||||||||||||||||
|
Deferred income taxes
|
923 | 168 | 165 | 153 | 143 | 134 | 160 | |||||||||||||||||||||
|
Other obligations:
|
||||||||||||||||||||||||||||
|
Purchase obligations:
|
||||||||||||||||||||||||||||
|
Take-or-pay contracts
|
15,223 | 2,400 | 2,352 | 2,328 | 2,357 | 1,910 | 3,876 | |||||||||||||||||||||
|
Other contracts
|
41,593 | 13,484 | 6,325 | 5,612 | 5,405 | 4,767 | 6,000 | |||||||||||||||||||||
|
Operating leases
|
1,687 | 278 | 232 | 211 | 185 | 152 | 629 | |||||||||||||||||||||
|
Total
|
$ | 72,179 | $ | 17,292 | $ | 9,990 | $ | 9,259 | $ | 8,935 | $ | 7,817 | $ | 18,886 | ||||||||||||||
Total Debt
— Total debt includes our 8%
U.S. dollar and Euro Senior Secured Notes due 2017, Senior
Secured Term Loan Facility due 2016, 11% Senior Secured
Notes due 2018, 8.1% guaranteed notes due 2027 (the “2027
Notes”) and various
non-U.S. loans.
See Note 15 for a discussion of covenant requirements under
the credit facilities and indentures and additional information
regarding our debt facilities.
Interest
— Our debt and related party debt
agreements contain provisions for the payment of monthly,
quarterly or semi-annual interest at a stated rate of interest
over the term of the debt.
Pension Benefits
— We maintain several defined
benefit pension plans, as described in Note 18 to the
Consolidated Financial Statements. At December 31, 2010,
the projected benefit obligation for our pension plans exceeded
the fair value of plan assets by $1,173 million. Subject to
future actuarial gains and losses, as well as actual asset
earnings, we, together with our consolidated subsidiaries, will
be required to fund the
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$1,173 million, with interest, in future years. We
contributed $99 million to our pension plans in 2010 and
LyondellBasell AF made contributions to the plans of
$52 million in 2009 and $80 million in 2008. In
January 2011, we contributed $155 million of the
approximately $287 million of required contributions that
we expect to make to our pension plans in 2011. Estimates of
pension benefit payments through 2015 are included in the table
above.
Other Postretirement Benefits
— We provide
other postretirement benefits, primarily medical benefits to
eligible participants, as described in Note 18 to the
Consolidated Financial Statements. We pay other unfunded
postretirement benefits as incurred. Estimates of other
postretirement benefit payments through 2015 are included in the
table above.
Advances from Customers
— We are obligated to
deliver product, primarily at cost-based prices, in connection
with long-term sales agreements under which our Predecessor
received advances from customers in prior years. These advances
are treated as deferred revenue and will be amortized to
earnings as product is delivered over the remaining terms of the
respective contracts, which primarily range from 4 to
8 years. The unamortized long-term portion of such advances
totaled $101 million as of December 31, 2010.
Other
— Other primarily consists of accruals
for environmental remediation costs, obligations under deferred
compensation arrangements, and anticipated asset retirement
obligations. See “Critical Accounting Policies” below
for a discussion of obligations for environmental remediation
costs.
Deferred Income Taxes
— The scheduled
settlement of the deferred tax liabilities shown in the table is
based on the scheduled reversal of the underlying temporary
differences. Actual cash tax payments will vary depending upon
future taxable income.
Purchase Obligations
— We are party to various
obligations to purchase products and services, principally for
raw materials, utilities and industrial gases. These commitments
are designed to assure sources of supply and are not expected to
be in excess of normal requirements. The commitments are
segregated into
take-or-pay
contracts and other contracts. Under the
take-or-pay
contracts, we are obligated to make minimum payments whether or
not we take the product or service. Other contracts include
contracts that specify minimum quantities; however, in the event
that we do not take the contractual minimum, we are only
obligated for any resulting economic loss suffered by the
vendor. The payments shown for the other contracts assume that
minimum quantities are purchased. For contracts with variable
pricing terms, the minimum payments reflect the contract price
at December 31, 2010.
Operating Leases
— We lease various facilities
and equipment under noncancelable lease arrangements for various
periods. See Note 16 to the Consolidated Financial
Statements for related lease disclosures.
RELATED
PARTY TRANSACTIONS
We have related party transactions with certain of our major
shareholders and their affiliates and our joint venture
partners. We believe that such transactions are effected on
terms substantially no more or less favorable than those that
would have been agreed upon by unrelated parties on an
arm’s length basis.
LyondellBasell AF had related party transactions with its equity
investees and its affiliates as well as a member of its Board of
Directors (see Note 7 to the Consolidated Financial
Statements). In addition, prior to the Emergence Date,
LyondellBasell AF had related party transactions with Access
Industries.
CRITICAL
ACCOUNTING POLICIES
Management applies those accounting policies that it believes
best reflect the underlying business and economic events,
consistent with accounting principles generally accepted in the
U.S. (see Note 2 to the Consolidated Financial
Statements). Our more critical accounting policies include those
related to the valuation of inventory, long-lived assets, the
valuation of goodwill, accruals for long-term employee benefit
costs such as pension and other postretirement costs,
liabilities for anticipated expenditures to comply with
environmental regulations, and accruals for taxes based on
income. Inherent in such policies are certain key assumptions
and estimates made by management. Management periodically
updates its estimates used in the preparation of the
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financial statements based on its latest assessment of the
current and projected business and general economic environment.
Changes to these critical accounting policies have been reviewed
with LyondellBasell N.V.’s Supervisory Board.
Inventory
— LyondellBasell N.V. adopted the
LIFO method of accounting for inventory upon implementation of
fresh-start accounting. In conjunction with the implementation
of fresh-start accounting on April 30, 2010, the Company
recorded its inventory, which is primarily crude-oil derived, at
fair value. The resulting increase in inventory was primarily in
the U.S. and was largely driven by the price of crude oil.
The per barrel benchmark price of WTI crude oil at
April 30, 2010 had increased to $86.15. The price of crude
oil is subject to many factors, including changes in economic
conditions. The fluctuation in the price of crude oil from
period to period may result in the recognition of charges to
adjust the value of inventory to the lower of cost or market in
periods of falling prices and the reversal of those charges in
subsequent periods as market prices recover. Accordingly, our
cost of sales and results of operations may be affected by such
fluctuations.
Following the revaluation of our inventory on April 30,
2010, the per barrel benchmark price of WTI crude oil declined
to $75.63 on June 30, 2010, resulting in a
$333 million lower of cost or market adjustment primarily
to the Company’s raw materials and finished goods inventory
and associated increase in cost of sales for the period from May
1 through June 30, 2010. In the third quarter 2010, as a
result of lower market prices for certain of the Company’s
finished goods inventory, the Company recorded a non-cash charge
of $32 million to adjust the value to the lower of cost or
market. The recovery of the market price of crude oil in the
fourth quarter of 2010, resulted in a non-cash credit of
$323 million to earnings.
Long-Lived Assets
— With respect to long-lived
assets, key assumptions included the estimates of the asset fair
values and useful lives at the Emergence Date and the
recoverability of carrying values of fixed assets and other
intangible assets, as well as the existence of any obligations
associated with the retirement of fixed assets. Such estimates
could be significantly modified
and/or
the
carrying values of the assets could be impaired by such factors
as new technological developments, new chemical industry
entrants with significant raw material or other cost advantages,
uncertainties associated with the European, U.S. and world
economies, the cyclical nature of the chemical and refining
industries, and uncertainties associated with governmental
actions, whether regulatory or, in the case of Houston refinery,
with respect to its crude oil contract.
Earnings in the 2010 Successor period included a pretax charge
of $28 million primarily related to impairment of the
carrying value of capital additions at our Berre refinery
following an analysis of its discounted cash flow projections.
Predecessor earnings for 2009 included pretax impairment charges
of $17 million, primarily related to the impairment of
LyondellBasell AF’s emissions allowances that are subject
to reallocation to other industry participants under a proposed
regulation by the Texas Commission on Environmental Quality. As
part of its reorganization, LyondellBasell AF also recognized
charges totaling $679 million, including $624 million
for the write off of the carrying value and related assets of
its Chocolate Bayou olefins facility near Alvin, Texas and
$55 million for the write off of its ethylene glycol
facility in Beaumont, Texas.
Predecessor earnings for 2008 included a $218 million
pretax charge for impairment of the carrying value of the assets
related to LyondellBasell AF’s Berre Refinery. Also in
2008, LyondellBasell AF recognized a $7 million charge for
impairment of its ethylene glycol facility in Beaumont, Texas.
For purposes of recognition and measurement of the above-noted
impairments, long-lived assets were grouped with other assets
and liabilities at the lowest level for which identifiable cash
flows were largely independent of the cash flows of other assets
and liabilities.
The estimated useful lives of long-lived assets range from 3 to
30 years. Depreciation and amortization of these assets,
including amortization of deferred turnaround costs, under the
straight-line method over their estimated useful lives totaled
$1,123 million in 2010, including $558 million in the
Successor period. Based upon the estimated fair values and
re-assessed useful lives at the Emergence Date, depreciation and
amortization would be approximately $850 million per year.
If the useful lives of the assets were found to be shorter than
originally estimated, depreciation and amortization charges
would be accelerated over the revised useful life.
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Goodwill
— Goodwill of $787 million at
December 31, 2010 represents the tax effect of the
differences between the tax and book bases of the Company’s
assets and liabilities resulting from the Company’s
revaluation of those assets and liabilities to fair value in
connection with the Company’s emergence from bankruptcy and
adoption of fresh-start accounting. LyondellBasell N.V.
evaluates the carrying value of goodwill annually or more
frequently if events or changes in circumstances indicate that
the carrying amount may exceed fair value. Recoverability is
determined by comparing the estimated fair value of the
reporting unit to which the goodwill applies to the carrying
value, including goodwill, of that reporting unit.
The recoverability of LyondellBasell N.V.’s goodwill is
dependent upon the future operating results associated with its
reporting units, which could change significantly based upon
business performance or other factors.
Long-Term Employee Benefit Costs
— The costs to
LyondellBasell N.V. of long-term employee benefits, particularly
pension and other postretirement medical and life insurance
benefits, are incurred over long periods of time, and involve
many uncertainties over those periods. The net periodic benefit
cost attributable to current periods is based on several
assumptions about such future uncertainties, and is sensitive to
changes in those assumptions. It is management’s
responsibility, often with the assistance of independent
experts, to select assumptions that in its judgment represent
its best estimates of the future effects of those uncertainties.
It also is management’s responsibility to review those
assumptions periodically to reflect changes in economic or other
factors that affect those assumptions.
The current benefit service costs, as well as the existing
liabilities, for pensions and other postretirement benefits are
measured on a discounted present value basis. The discount rate
is a current rate, related to the rate at which the liabilities
could be settled. LyondellBasell N.V.’s assumed discount
rate is based on published average rates for high-quality (Aa
rating) ten-year fixed income securities. For the purpose of
measuring the benefit obligations at December 31, 2010,
LyondellBasell N.V. used a discount rate of 5.25% for most
U.S. plans while a rate of 5.0% was used for certain
U.S. plans to reflect the different terms of the related
benefit obligations. The discount rate used to measure
obligations for
non-U.S. plans
at December 31, 2010 was 4.97%, reflecting market interest
rates. The discount rates in effect at December 31, 2010
will be used to measure net periodic benefit cost during 2011.
The benefit obligation and the periodic cost of other
postretirement medical benefits also are measured based on
assumed rates of future increase in the per capita cost of
covered health care benefits. As of December 31, 2010, the
assumed rate of increase for our U.S. plans was 9.1%,
decreasing to 5% in 2026 and thereafter. The assumed rate of
increase for our Canadian plans, as of December 31, 2010,
was 8.5%, decreasing to 5% in 2018 and thereafter. A one
percentage point change in the health care cost trend rate
assumption would have no significant effect on either the
benefit liability or the net periodic cost, due to limits on
LyondellBasell N.V.’s maximum contribution level under the
medical plan.
The net periodic cost of pension benefits included in expense
also is affected by the expected long-term rate of return on
plan assets assumption. Investment returns that are recognized
currently in net income represent the expected long-term rate of
return on plan assets applied to a market-related value of plan
assets which, for LyondellBasell N.V., is defined as the market
value of assets. The expected rate of return on plan assets is a
longer term rate, and is expected to change less frequently than
the current assumed discount rate, reflecting long-term market
expectations, rather than current fluctuations in market
conditions.
The weighted average expected long-term rate of return on
U.S. and
non-U.S. plan
assets of 8% and 6.24%, respectively, is based on the average
level of earnings that its independent pension investment
advisor had advised could be expected to be earned over time.
The expectation is based on an asset allocation that varies by
region. The asset allocations are summarized in Note 18 to
the Consolidated Financial Statements. The actual returns in
2010 for U.S. and non- U.S. plan assets were 15.6% and
8.4%, respectively.
The actual rate of return on plan assets may differ from the
expected rate due to the volatility normally experienced in
capital markets. Management’s goal is to manage the
investments over the long term to achieve optimal returns with
an acceptable level of risk and volatility.
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Net periodic pension cost recognized each year includes the
expected asset earnings, rather than the actual earnings or
loss. This unrecognized amount, to the extent it exceeds 10% of
the projected benefit obligation for the respective plan, is
recognized as additional net periodic benefit cost over the
average remaining service period of the participants in each
plan.
In May 2010, LyondellBasell N.V. resumed matching contributions
under its defined contribution plans (the 401(k) Employee
Savings Plans). LyondellBasell AF had temporarily suspended its
matching contributions under the Company’s defined
contribution plans beginning in March 2009 as a result of the
bankruptcy.
Additional information on the key assumptions underlying these
benefit costs appears in Note 18 to the Consolidated
Financial Statements.
Liabilities for Environmental Remediation
Costs
— Anticipated expenditures related to
investigation and remediation of contaminated sites, which
include current and former plant sites and other remediation
sites, are accrued when it is probable a liability has been
incurred and the amount of the liability can be reasonably
estimated. Only ongoing operating and monitoring costs, the
timing of which can be determined with reasonable certainty, are
discounted to present value. Future legal costs associated with
such matters, which generally are not estimable, are not
included in these liabilities.
As of December 31, 2010, LyondellBasell N.V.’s accrued
liability for future environmental remediation costs at current
and former plant sites and other remediation sites totaled
$107 million. The liabilities for individual sites range
from less than $1 million to $37 million, and
remediation expenditures are expected to occur over a number of
years, and not to be concentrated in any single year. In the
opinion of management, it is reasonably possible that losses in
excess of the liabilities recorded for environmental remediation
may have been incurred. However, we cannot estimate any amount
or range of such possible additional losses. New information
about sites, new technology or future developments such as
involvement in investigations by regulatory agencies, could
require LyondellBasell N.V. to reassess potential exposure
related to environmental matters. See Note 21 to the
Consolidated Financial Statements for further discussion of
environmental remediation matters.
Accruals for Taxes Based on Income
— The
determination of our provision for income taxes and the
calculation of our tax benefits and liabilities is subject to
management’s estimates and judgments due to the complexity
of the tax laws and regulations in the tax jurisdictions in
which we operate. Uncertainties exist with respect to
interpretation of these complex laws and regulations.
Deferred tax assets and liabilities are determined based on
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases, and are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to reverse.
We recognize future tax benefits to the extent that the
realization of these benefits is more likely than not. Our
current provision for income taxes was impacted significantly by
the initial recognition of valuation allowances related to net
deferred assets in certain
non-U.S. jurisdictions.
Further changes to these valuation allowances may impact our
future provision for income taxes, which will include no tax
benefit with respect to losses incurred and no tax expense with
respect to income generated in these countries until the
respective valuation allowance is eliminated.
For further information related to our income taxes, see
Note 20 to the Consolidated Financial Statements of
LyondellBasell N.V. for the year ended December 31, 2010.
See Note 24 to LyondellBasell AF’s Consolidated
Financial Statements for the year ended December 31, 2009
for further information related to income taxes in the
predecessor periods.
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Accounting
and Reporting Changes
For a discussion of the potential impact of new accounting
pronouncements on our consolidated financial statements, see
Note 2 to the Consolidated Financial Statements.
| Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See Note 17 to the Consolidated Financial Statements for
discussion of LyondellBasell N.V.’s management of commodity
price risk, foreign currency exposure and interest rate risk
through its use of derivative instruments and hedging activities.
Commodity
Price Risk
A substantial portion of our products and raw materials are
commodities whose prices fluctuate as market supply and demand
fundamentals change. Accordingly, product margins and the level
of our profitability tend to fluctuate with changes in the
business cycle. We try to protect against such instability
through various business strategies. These include provisions in
sales contracts allowing us to pass on higher raw material costs
through timely price increases, formula price contracts to
transfer or share commodity price risk, and increasing the depth
and breadth of our product portfolio.
In addition, we selectively use commodity swap, option, and
futures contracts with various terms to manage the volatility
related to purchases of natural gas and raw materials, as well
as product sales. Such contracts are generally limited to
durations of one year or less. Cash-flow hedge accounting may be
elected for these derivative transactions; however, in some
cases, when the duration of a derivative is short, hedge
accounting is not elected. When hedge accounting is not elected,
the changes in fair value of these instruments will be recorded
in earnings. When hedge accounting is elected, gains and losses
on these instruments will be deferred in accumulated other
comprehensive income (“AOCI”), to the extent that the
hedge remains effective, until the underlying transaction is
recognized in earnings. Market risks created by these derivative
instruments and the
mark-to-market
valuations of open positions are monitored by management.
During 2010, we entered into futures contracts with respect to
sales of gasoline and heating oil, and purchases of crude oil
and sales of gasoline. At December 31, 2010, futures
contracts for 28 million gallons of gasoline and heating
oil in the notional amount of $70 million, maturing in
February 2011, were outstanding.
We use value at risk (“VAR”), stress testing and
scenario analysis for risk measurement and control purposes. VAR
estimates the maximum potential loss in fair market values,
given a certain move in prices over a certain period of time,
using specified confidence levels. Using sensitivity analysis
and hypothetical unfavorable changes in market prices ranging
from 27% to 28% from those in effect at December 31, 2010,
the effect would be to reduce net income by less than
$1 million. The quantitative information about market risk
is necessarily limited because it does not take into account the
effects of the underlying operating transactions.
Foreign
Exchange Risk
We manufacture and market our products in a number of countries
throughout the world and, as a result, are exposed to changes in
foreign currency exchange rates. Costs in some countries are
incurred, in part, in currencies other than the applicable
functional currency.
We enter into transactions denominated in other than the
functional currency and are, therefore, exposed to foreign
currency risk on receivables and payables. We maintain risk
management control systems intended to monitor foreign currency
risk attributable to both the outstanding foreign currency
balances and future commitments. The risk management control
systems involve the centralization of foreign currency exposure
management, offsetting exposures and estimating the expected
impacts of changes in foreign currency rates on our earnings. We
enter into foreign currency forward contracts to reduce the
effects of our net currency exchange exposures. For the 2010
Successor and Predecessor periods and the years ended
December 31, 2009 and 2008, other income (loss), net, in
the Consolidated Statements of Income reflected a gain of
$18 million, losses of $258 million and gains of
$123 million and $20 million, respectively, in net
exchange rate gains and
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losses. For forward contracts that economically hedge recognized
monetary assets and liabilities in foreign currencies, no hedge
accounting is applied. Changes in the fair value of foreign
currency forward contracts are reported in the Consolidated
Statements of Income and offset the currency exchange results
recognized on the assets and liabilities.
Interest
Rate Risk
We are exposed to interest rate risk with respect to variable
rate debt. Our variable rate debt consists of our
$1,750 million U.S. asset-based facility and our
receivable securitization facility. At December 31, 2010,
there were no outstanding borrowings under these facilities.
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| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Index to
the Consolidated Financial Statements
| Page | ||||
|
LYONDELLBASELL INDUSTRIES N.V.
|
||||
|
Reports of Independent Registered Public Accounting Firm
|
79 | |||
|
Consolidated Financial Statements:
|
||||
|
Consolidated Statements of Income
|
81 | |||
|
Consolidated Balance Sheets
|
82 | |||
|
Consolidated Statements of Cash Flows
|
83 | |||
|
Consolidated Statements of Stockholders’ Equity (Deficit)
|
84 | |||
|
Notes to the Consolidated Financial Statements
|
86 | |||
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and stockholders of LyondellBasell
Industries N.V.,
In our opinion, the accompanying consolidated balance sheet as
of December 31, 2010 and the related consolidated statement
of income, of stockholders’ equity (deficit) and of cash
flows for the period from May 1, 2010 through
December 31, 2010 present fairly, in all material respects,
the financial position of LyondellBasell Industries N.V. and its
subsidiaries (the “Successor Company”) at
December 31, 2010 and the results of their operations and
their cash flows for the period from May 1, 2010 through
December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the Successor
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audit of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial
statements, in 2009 LyondellBasell Industries AF S.C.A.
(“the Predecessor Company”), its
U.S. subsidiaries and a German subsidiary, each filed a
voluntary petition with the United States Bankruptcy Court for
reorganization under the provisions of Chapter 11 of the
United States Bankruptcy Code. The Predecessor Company’s
Third Amended and Restated Plan of Reorganization was confirmed
on April 23, 2010 and the Debtors emerged from
Chapter 11 protection on April 30, 2010. As of the
Emergence Date, the Predecessor Company’s equity interests
in its indirect subsidiaries terminated and the Successor
Company now owns and operates, directly and indirectly,
substantially the same business as the Predecessor Company owned
and operated prior to emergence from the Bankruptcy Cases. In
connection with its emergence from bankruptcy, the Successor
Company adopted fresh start accounting on May 1, 2010.
PricewaterhouseCoopers
LLP
Houston, Texas
March 17, 2011
79
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and stockholders of LyondellBasell
Industries N.V.
In our opinion, the accompanying consolidated balance sheet as
of December 31, 2009 and the related consolidated
statements of income, of stockholders’ equity (deficit) and
of cash flows for the period from January 1, 2010 through
April 30, 2010 and for each of the years ended
December 31, 2009 and 2008 present fairly, in all material
respects, the financial position of the Predecessor of
LyondellBasell Industries N.V. and its subsidiaries (the
“Predecessor Company”) at December 31, 2009 and
the results of their operations and their cash flows for the
period from January 1, 2010 through April 30, 2010 and
for each of the years ended December 31, 2009 and 2008 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Predecessor Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 3 to the consolidated financial
statements, in 2009 the Predecessor Company, its
U.S. subsidiaries and a German subsidiary, each filed a
voluntary petition with the United States Bankruptcy Court for
reorganization under the provisions of Chapter 11 of the
United States Bankruptcy Code. The Predecessor Company’s
Third Amended and Restated Plan of Reorganization was confirmed
on April 23, 2010 and the Debtors emerged from
Chapter 11 protection on April 30, 2010. As of the
Emergence Date, the Predecessor Company’s equity interests
in its indirect subsidiaries terminated and LyondellBasell
Industries N.V. (the “Successor Company”) now owns and
operates, directly and indirectly, substantially the same
business as the Predecessor Company owned and operated prior to
emergence from the Bankruptcy Cases. In connection with its
emergence from bankruptcy, the Successor Company adopted fresh
start accounting on May 1, 2010.
PricewaterhouseCoopers
LLP
Houston, Texas
March 17, 2011
80
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
||||||||||||||||
|
December 31,
|
April 30,
|
For the Year Ended December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars, except earnings per share
|
|||||||||||||||||
|
Sales and other operating revenues:
|
|||||||||||||||||
|
Trade
|
$ | 26,961 | $ | 13,260 | $ | 30,207 | $ | 49,903 | |||||||||
|
Related parties
|
723 | 207 | 621 | 803 | |||||||||||||
| 27,684 | 13,467 | 30,828 | 50,706 | ||||||||||||||
|
Operating costs and expenses:
|
|||||||||||||||||
|
Cost of sales
|
24,697 | 12,405 | 29,372 | 48,780 | |||||||||||||
|
Inventory valuation adjustment
|
42 | — | 127 | 1,256 | |||||||||||||
|
Impairments
|
28 | 9 | 17 | 5,207 | |||||||||||||
|
Selling, general and administrative expenses
|
564 | 308 | 850 | 1,197 | |||||||||||||
|
Research and development expenses
|
99 | 55 | 145 | 194 | |||||||||||||
| 25,430 | 12,777 | 30,511 | 56,634 | ||||||||||||||
|
Operating income (loss)
|
2,254 | 690 | 317 | (5,928 | ) | ||||||||||||
|
Interest expense
|
(545 | ) | (713 | ) | (1,795 | ) | (2,476 | ) | |||||||||
|
Interest income
|
17 | 5 | 18 | 69 | |||||||||||||
|
Other income (expense), net
|
(103 | ) | (263 | ) | 319 | 106 | |||||||||||
|
Income (loss) from continuing operations before equity
investments, reorganization items and income taxes
|
1,623 | (281 | ) | (1,141 | ) | (8,229 | ) | ||||||||||
|
Income (loss) from equity investments
|
86 | 84 | (181 | ) | 38 | ||||||||||||
|
Reorganization items
|
(23 | ) | 7,580 | (2,961 | ) | — | |||||||||||
|
Income (loss) from continuing operations before income taxes
|
1,686 | 7,383 | (4,283 | ) | (8,191 | ) | |||||||||||
|
Provision for (benefit from) income taxes
|
170 | (1,123 | ) | (1,411 | ) | (848 | ) | ||||||||||
|
Income (loss) from continuing operations
|
1,516 | 8,506 | (2,872 | ) | (7,343 | ) | |||||||||||
|
Income (loss) from discontinued operations, net of tax
|
64 | (2 | ) | 1 | 15 | ||||||||||||
|
Net income (loss)
|
1,580 | 8,504 | (2,871 | ) | (7,328 | ) | |||||||||||
|
Less: net loss attributable to non-controlling interests
|
7 | 60 | 6 | 7 | |||||||||||||
|
Net income (loss) attributable to the Company
|
$ | 1,587 | $ | 8,564 | $ | (2,865 | ) | $ | (7,321 | ) | |||||||
|
Earnings per share:
|
|||||||||||||||||
|
Net income:
|
|||||||||||||||||
|
Basic
|
|||||||||||||||||
|
Continuing operations
|
$ | 2.68 | |||||||||||||||
|
Discontinued operations
|
0.11 | ||||||||||||||||
| $ | 2.79 | ||||||||||||||||
|
Diluted
|
|||||||||||||||||
|
Continuing operations
|
$ | 2.67 | |||||||||||||||
|
Discontinued operations
|
0.11 | ||||||||||||||||
| $ | 2.78 | ||||||||||||||||
See Notes to the Consolidated Financial Statements.
81
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
| Successor | Predecessor | ||||||||
|
December 31,
|
December 31,
|
||||||||
| 2010 | 2009 | ||||||||
|
Millions, except shares and par value data
|
|||||||||
|
ASSETS
|
|||||||||
|
Current assets:
|
|||||||||
|
Cash and cash equivalents
|
$ | 4,222 | $ | 558 | |||||
|
Short-term investments
|
— | 11 | |||||||
|
Accounts receivable:
|
|||||||||
|
Trade, net
|
3,482 | 3,092 | |||||||
|
Related parties
|
265 | 195 | |||||||
|
Inventories
|
4,824 | 3,277 | |||||||
|
Prepaid expenses and other current assets
|
986 | 1,119 | |||||||
|
Total current assets
|
13,779 | 8,252 | |||||||
|
Property, plant and equipment, net
|
7,190 | 15,152 | |||||||
|
Investments and long-term receivables:
|
|||||||||
|
Investment in PO joint ventures
|
437 | 922 | |||||||
|
Equity investments
|
1,587 | 1,085 | |||||||
|
Related party receivables
|
14 | 14 | |||||||
|
Other investments and long-term receivables
|
67 | 112 | |||||||
|
Goodwill
|
787 | — | |||||||
|
Intangible assets, net
|
1,360 | 1,861 | |||||||
|
Other assets
|
273 | 363 | |||||||
|
Total assets
|
$ | 25,494 | $ | 27,761 | |||||
|
LIABILITIES AND EQUITY (DEFICIT)
|
|||||||||
|
Current liabilities:
|
|||||||||
|
Current maturities of long-term debt
|
$ | 4 | $ | 497 | |||||
|
Short-term debt
|
42 | 6,182 | |||||||
|
Accounts payable:
|
|||||||||
|
Trade
|
1,968 | 1,627 | |||||||
|
Related parties
|
793 | 501 | |||||||
|
Accrued liabilities
|
1,705 | 1,390 | |||||||
|
Deferred income taxes
|
244 | 170 | |||||||
|
Total current liabilities
|
4,756 | 10,367 | |||||||
|
Long-term debt
|
6,036 | 305 | |||||||
|
Other liabilities
|
2,183 | 1,361 | |||||||
|
Deferred income taxes
|
923 | 2,081 | |||||||
|
Commitments and contingencies
|
|||||||||
|
Liabilities subject to compromise
|
— | 22,494 | |||||||
|
Stockholders’ equity (deficit):
|
|||||||||
|
Ordinary shares, €0.04 par value, 1,000 million
shares authorized and 565,676,222 shares issued at
December 31, 2010
|
30 | — | |||||||
|
Predecessor common stock, €124 par value,
403,226 shares authorized and issued at December 31,
2009
|
— | 60 | |||||||
|
Additional paid-in capital
|
9,837 | 563 | |||||||
|
Retained earnings (deficit)
|
1,587 | (9,313 | ) | ||||||
|
Accumulated other comprehensive income (loss)
|
81 | (286 | ) | ||||||
|
Treasury stock, at cost, 1,122,651 class A ordinary shares
at December 31, 2010
|
— | — | |||||||
|
Total Company share of stockholders’ equity (deficit)
|
11,535 | (8,976 | ) | ||||||
|
Non-controlling interests
|
61 | 129 | |||||||
|
Total equity (deficit)
|
11,596 | (8,847 | ) | ||||||
|
Total liabilities and equity (deficit)
|
$ | 25,494 | $ | 27,761 | |||||
See Notes to the Consolidated Financial Statements.
82
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Cash flows from operating activities:
|
|||||||||||||||||
|
Net income (loss)
|
$ | 1,580 | $ | 8,504 | $ | (2,871 | ) | $ | (7,328 | ) | |||||||
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|||||||||||||||||
|
Depreciation and amortization
|
558 | 565 | 1,774 | 1,911 | |||||||||||||
|
Asset impairments
|
28 | 9 | 17 | 5,207 | |||||||||||||
|
Amortization of debt-related costs
|
23 | 307 | 347 | 513 | |||||||||||||
|
Charge related to payment of debt
|
18 | — | — | — | |||||||||||||
|
Accrued
debtor-in-possession
exit fees
|
— | — | 159 | — | |||||||||||||
|
Inventory valuation adjustment
|
42 | — | 127 | 1,256 | |||||||||||||
|
Equity investments —
|
|||||||||||||||||
|
Equity (income) loss
|
(86 | ) | (84 | ) | 181 | (38 | ) | ||||||||||
|
Distributions of earnings
|
34 | 18 | 26 | 98 | |||||||||||||
|
Deferred income taxes
|
20 | (1,129 | ) | (1,399 | ) | (831 | ) | ||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
23 | (7,580 | ) | 2,961 | — | ||||||||||||
|
Reorganization-related payments, net
|
(349 | ) | (407 | ) | (340 | ) | — | ||||||||||
|
(Gain) loss on sale of assets
|
(64 | ) | 4 | 8 | (9 | ) | |||||||||||
|
Unrealized foreign currency exchange loss (gains)
|
22 | 264 | (193 | ) | (20 | ) | |||||||||||
|
Changes in assets and liabilities that provided (used) cash:
|
|||||||||||||||||
|
Accounts receivable
|
(52 | ) | (650 | ) | (129 | ) | 1,367 | ||||||||||
|
Inventories
|
(27 | ) | (368 | ) | (40 | ) | 943 | ||||||||||
|
Accounts payable
|
392 | 249 | 99 | (1,563 | ) | ||||||||||||
|
Repayment of accounts receivable securitization facility
|
— | — | (503 | ) | — | ||||||||||||
|
Prepaid expenses and other current assets
|
22 | 47 | (329 | ) | 101 | ||||||||||||
|
Other, net
|
773 | (685 | ) | (682 | ) | (517 | ) | ||||||||||
|
Net cash provided by (used in) operating activities
|
2,957 | (936 | ) | (787 | ) | 1,090 | |||||||||||
|
Cash flows from investing activities:
|
|||||||||||||||||
|
Expenditures for property, plant and equipment
|
(466 | ) | (226 | ) | (779 | ) | (1,000 | ) | |||||||||
|
Proceeds from insurance claims
|
— | — | 120 | 89 | |||||||||||||
|
Acquisition of businesses, net of cash
|
— | — | (1,061 | ) | |||||||||||||
|
Advances and contributions to affiliates
|
— | — | (4 | ) | (60 | ) | |||||||||||
|
Proceeds from disposal of assets
|
154 | 1 | 20 | 173 | |||||||||||||
|
Short-term investments
|
— | 12 | 23 | (32 | ) | ||||||||||||
|
Other
|
— | — | 9 | 7 | |||||||||||||
|
Net cash used in investing activities
|
(312 | ) | (213 | ) | (611 | ) | (1,884 | ) | |||||||||
|
Cash flows from financing activities:
|
|||||||||||||||||
|
Issuance of class B ordinary shares
|
— | 2,800 | — | — | |||||||||||||
|
Proceeds from note payable
|
— | — | 100 | — | |||||||||||||
|
Repayment of note payable
|
— | — | (100 | ) | — | ||||||||||||
|
Net proceeds from (repayments of)
debtor-in-possession
term loan facility
|
— | (2,170 | ) | 1,986 | — | ||||||||||||
|
Net borrowings (repayments) under
debtor-in-possession
revolving credit facility
|
— | (325 | ) | 325 | — | ||||||||||||
|
Net borrowings (repayments) under pre-petition revolving credit
facilities
|
— | — | (766 | ) | 1,510 | ||||||||||||
|
Net borrowings (repayments) on revolving credit facilities
|
(412 | ) | 38 | (298 | ) | — | |||||||||||
|
Proceeds from short-term debt
|
6 | 8 | 42 | 5 | |||||||||||||
|
Repayments of short-term debt
|
(8 | ) | (14 | ) | (6 | ) | (7 | ) | |||||||||
|
Issuance of long-term debt
|
— | 3,242 | — | 1 | |||||||||||||
|
Repayments of long-term debt
|
(778 | ) | (9 | ) | (68 | ) | (384 | ) | |||||||||
|
Payments of equity and debt issuance costs
|
(2 | ) | (253 | ) | (93 | ) | (42 | ) | |||||||||
|
Other, net
|
— | (2 | ) | (21 | ) | — | |||||||||||
|
Net cash provided by (used in) financing activities
|
(1,194 | ) | 3,315 | 1,101 | 1,083 | ||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
60 | (13 | ) | (3 | ) | 9 | |||||||||||
|
Increase (decrease) in cash and cash equivalents
|
1,511 | 2,153 | (300 | ) | 298 | ||||||||||||
|
Cash and cash equivalents at beginning of period
|
2,711 | 558 | 858 | 560 | |||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 4,222 | $ | 2,711 | $ | 558 | $ | 858 | |||||||||
|
Supplemental Cash Flow Information:
|
|||||||||||||||||
|
Interest paid
|
$ | 281 | $ | 360 | $ | 1,221 | $ | 1,457 | |||||||||
|
Net income taxes paid
|
$ | 75 | $ | 12 | $ | 57 | $ | 145 | |||||||||
See Notes to the Consolidated Financial Statements.
83
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
|
Accumulated
|
Total
|
|||||||||||||||||||||||||||||||
|
Common Stock/
|
Additional
|
Retained
|
Other
|
Stockholders’
|
Non-
|
|||||||||||||||||||||||||||
| Ordinary Shares |
Paid-In
|
Earnings
|
Comprehensive
|
Equity
|
Controlling
|
Comprehensive
|
||||||||||||||||||||||||||
| Issued | Treasury | Capital | (Deficit) | Income (Loss) | (Deficit) | Interests | Income (Loss) | |||||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||||||
|
Predecessor
|
||||||||||||||||||||||||||||||||
|
Balance, January 1, 2008
|
$ | 60 | $ | — | $ | 563 | $ | 881 | $ | 417 | $ | 1,921 | $ | 144 | ||||||||||||||||||
|
Net loss
|
— | — | — | (7,321 | ) | — | (7,321 | ) | (7 | ) | $ | (7,328 | ) | |||||||||||||||||||
|
Financial derivatives, net of tax of ($68)
|
— | — | — | — | (89 | ) | (89 | ) | — | (89 | ) | |||||||||||||||||||||
|
Unrealized gain on
held-for-sale
securities held by equity investees
|
— | — | — | — | (23 | ) | (23 | ) | — | (23 | ) | |||||||||||||||||||||
|
Changes in unrecognized employee benefits gains and losses, net
of tax of ($127)
|
— | — | — | — | (378 | ) | (378 | ) | — | (378 | ) | |||||||||||||||||||||
|
Foreign currency translation, net of tax of ($12)
|
— | — | — | — | (191 | ) | (191 | ) | (2 | ) | (191 | ) | ||||||||||||||||||||
|
Comprehensive loss
|
$ | (8,009 | ) | |||||||||||||||||||||||||||||
|
Balance, December 31, 2008
|
$ | 60 | $ | — | $ | 563 | $ | (6,440 | ) | $ | (264 | ) | $ | (6,081 | ) | $ | 135 | |||||||||||||||
|
Net loss
|
— | — | — | (2,865 | ) | — | (2,865 | ) | (6 | ) | $ | (2,871 | ) | |||||||||||||||||||
|
Net distributions to non-controlling interests
|
— | — | — | — | — | — | (1 | ) | — | |||||||||||||||||||||||
|
Financial derivatives, net of tax of ($27)
|
— | — | — | — | 29 | 29 | — | 29 | ||||||||||||||||||||||||
|
Unrealized gain on
held-for-sale
securities held by equity investees
|
— | — | — | — | 31 | 31 | — | 31 | ||||||||||||||||||||||||
|
Changes in unrecognized employee benefits gains and losses, net
of tax of $(15)
|
— | — | — | — | (36 | ) | (36 | ) | — | (36 | ) | |||||||||||||||||||||
|
Foreign currency translation, net of tax of $(6)
|
— | — | — | — | (46 | ) | (46 | ) | — | (46 | ) | |||||||||||||||||||||
|
Other
|
— | — | — | (8 | ) | — | (8 | ) | 1 | — | ||||||||||||||||||||||
|
Comprehensive loss
|
$ | (2,893 | ) | |||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
$ | 60 | $ | — | $ | 563 | $ | (9,313 | ) | $ | (286 | ) | $ | (8,976 | ) | $ | 129 | |||||||||||||||
See Notes to the Consolidated Financial Statements.
84
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT) — (Continued)
|
Accumulated
|
Total
|
|||||||||||||||||||||||||||||||
|
Common Stock/
|
Additional
|
Retained
|
Other
|
Stockholders’
|
Non-
|
|||||||||||||||||||||||||||
| Ordinary Shares |
Paid-In
|
Earnings
|
Comprehensive
|
Equity
|
Controlling
|
Comprehensive
|
||||||||||||||||||||||||||
| Issued | Treasury | Capital | (Deficit) | Income (Loss) | (Deficit) | Interests | Income (Loss) | |||||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||||||
|
Predecessor
|
||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
$ | 60 | $ | — | $ | 563 | $ | (9,313 | ) | $ | (286 | ) | $ | (8,976 | ) | $ | 129 | |||||||||||||||
|
Net income (loss)
|
— | — | — | 8,564 | — | 8,564 | (60 | ) | $ | 8,504 | ||||||||||||||||||||||
|
Net distributions to non-controlling interests
|
— | — | — | — | — | — | (15 | ) | — | |||||||||||||||||||||||
|
Financial derivatives, net of tax of $51
|
— | — | — | — | 90 | 90 | — | 90 | ||||||||||||||||||||||||
|
Unrealized gain on
held-for-sale
securities held by equity investees
|
— | — | — | — | (13 | ) | (13 | ) | — | (13 | ) | |||||||||||||||||||||
|
Changes in unrecognized employee benefits gains and losses, net
of tax of $3
|
— | — | — | — | (48 | ) | (48 | ) | — | (48 | ) | |||||||||||||||||||||
|
Foreign currency translation net of tax of $(9)
|
— | — | — | — | (25 | ) | (25 | ) | — | (25 | ) | |||||||||||||||||||||
|
Comprehensive loss
|
$ | 8,508 | ||||||||||||||||||||||||||||||
|
Balance, April 30, 2010
|
60 | — | 563 | (749 | ) | (282 | ) | (408 | ) | 54 | ||||||||||||||||||||||
|
Fresh-start reporting adjustments:
|
||||||||||||||||||||||||||||||||
|
Elimination of predecessor common stock, capital surplus and
accumulated earnings
|
(60 | ) | — | (563 | ) | 749 | — | 126 | — | |||||||||||||||||||||||
|
Elimination of predecessor accumulated other comprehensive loss
|
— | — | — | — | 282 | 282 | — | |||||||||||||||||||||||||
|
Balance, May 1, 2010, Successor
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 54 | ||||||||||||||||||
|
Successor
|
||||||||||||||||||||||||||||||||
|
Balance May 1, 2010
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 54 | ||||||||||||||||||
|
Issuance of class A and class B ordinary shares
|
30 | — | 9,815 | — | — | 9,845 | — | |||||||||||||||||||||||||
|
Share-based compensation expense
|
— | — | 22 | — | — | 22 | — | |||||||||||||||||||||||||
|
Net income
|
— | — | — | 1,587 | — | 1,587 | (7 | ) | $ | 1,580 | ||||||||||||||||||||||
|
Contributions from non-controlling interests
|
— | — | — | — | — | — | 14 | — | ||||||||||||||||||||||||
|
Unrealized gain on
held-for-sale
securities held by equity investees
|
— | — | — | — | 1 | 1 | — | 1 | ||||||||||||||||||||||||
|
Changes in unrecognized employee benefits gains and losses, net
of tax of ($30)
|
— | — | — | — | (33 | ) | (33 | ) | — | (33 | ) | |||||||||||||||||||||
|
Foreign currency translation, net of tax of $4
|
— | — | — | — | 113 | 113 | — | 113 | ||||||||||||||||||||||||
|
Comprehensive income (loss)
|
$ | 1,661 | ||||||||||||||||||||||||||||||
|
Balance, December 31, 2010
|
$ | 30 | $ | — | $ | 9,837 | $ | 1,587 | $ | 81 | $ | 11,535 | $ | 61 | ||||||||||||||||||
See Notes to the Consolidated Financial Statements.
85
LYONDELLBASELL
INDUSTRIES N.V.
TABLE OF
CONTENTS
| Page | ||||||||
|
1.
|
Description of Company and Operations | 87 | ||||||
|
2.
|
Summary of Significant Accounting Policies | 87 | ||||||
|
3.
|
Emergence from Chapter 11 Proceedings | 93 | ||||||
|
4.
|
Fresh-Start Accounting | 96 | ||||||
|
5.
|
Business Acquisitions and Dispositions | 105 | ||||||
|
6.
|
Insurance Claims | 106 | ||||||
|
7.
|
Related Party Transactions | 106 | ||||||
|
8.
|
Short-Term Investments | 108 | ||||||
|
9.
|
Accounts Receivable | 108 | ||||||
|
10.
|
Inventories | 109 | ||||||
|
11.
|
Property, Plant and Equipment, Goodwill, Intangible and Other Assets | 110 | ||||||
|
12.
|
Investment in PO Joint Ventures | 113 | ||||||
|
13.
|
Equity Investments | 115 | ||||||
|
14.
|
Accrued Liabilities | 118 | ||||||
|
15.
|
Debt | 118 | ||||||
|
16.
|
Lease Commitments | 123 | ||||||
|
17.
|
Financial Instruments and Derivatives | 124 | ||||||
|
18.
|
Pension and Other Postretirement Benefits | 131 | ||||||
|
19.
|
Incentive and Share-Based Compensation | 147 | ||||||
|
20.
|
Income Taxes | 151 | ||||||
|
21.
|
Commitments and Contingencies | 157 | ||||||
|
22.
|
Stockholders’ Equity (Deficit) and Non-Controlling Interests | 160 | ||||||
|
23.
|
Per Share Data | 162 | ||||||
|
24.
|
Segment and Related Information | 163 | ||||||
|
25.
|
Unaudited Quarterly Results | 168 | ||||||
|
26.
|
Subsequent Events | 169 | ||||||
86
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 1. | Description of Company and Operations |
LyondellBasell Industries N.V. is a limited liability company
(
Naamloze Vennootschap
) incorporated under Dutch law by
deed of incorporation dated October 15, 2009.
LyondellBasell Industries N.V. was formed to serve as the parent
holding company for certain subsidiaries of LyondellBasell
Industries AF S.C.A. (together with its subsidiaries,
“LyondellBasell AF,” the “Predecessor
Company” or the “Predecessor”) after completion
of proceedings under chapter 11
(“chapter 11”) of title 11 of the United
States Bankruptcy Code (the “U.S. Bankruptcy
Code”). LyondellBasell Industries AF S.C.A. and 93 of its
subsidiaries were debtors (“the Debtors”) in jointly
administered bankruptcy cases (the “Bankruptcy Cases”)
in the United States Bankruptcy Court in the Southern District
of New York (the “Bankruptcy Court”). As of
April 30, 2010 (the “Emergence Date”),
LyondellBasell Industries AF S.C.A.’s equity interests in
its indirect subsidiaries terminated and LyondellBasell
Industries N.V. now owns and operates, directly and indirectly,
substantially the same business as LyondellBasell Industries AF
S.C.A. owned and operated prior to emergence from the Bankruptcy
Cases, which business includes subsidiaries of LyondellBasell
Industries AF S.C.A. that were not involved in the Bankruptcy
Cases. LyondellBasell Industries N.V. is 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 world’s
largest private petrochemical companies with significant
worldwide scale and leading product positions. LyondellBasell
Industries AF S.C.A. is no longer part of the LyondellBasell
group.
LyondellBasell Industries N.V., together with its consolidated
subsidiaries (collectively “LyondellBasell N.V.,” the
“Successor Company” or the “Successor”), is
a worldwide manufacturer of chemicals and polymers, a refiner of
crude oil, a significant producer of gasoline blending
components and a developer and licensor of technologies for
production of polymers. When we use the terms
“LyondellBasell N.V.,” the “Successor
Company,” the “Successor,” “we,”
“us,” “our” or similar words, unless the
context otherwise requires, we are referring to LyondellBasell
N.V. after April 30, 2010. References herein to the
“Company” for periods through April 30, 2010 are
to the Predecessor Company, LyondellBasell AF, and for periods
after the Emergence Date, to the Successor Company,
LyondellBasell N.V.
LyondellBasell Industries AF S.C.A. was formed in the Grand
Duchy of Luxembourg as a corporate partnership limited by shares
in April 2005 by BI S.à.r.l., a Luxembourg private limited
liability company, affiliated with Access Industries
(“Access Industries”), which is a privately held
industrial group based in the United States (“U.S.”).
On July 2, 2009, Nell Limited (“Nell”), an
affiliate of Access Industries and the indirect owner of 100% of
the share capital of LyondellBasell AF, transferred its indirect
ownership interest in LyondellBasell AF to Prochemie GmbH
(“Prochemie”), a wholly owned subsidiary of ProChemie
Holding Ltd. (“ProChemie Holding”). As of July 2,
2009, Nell and ProChemie Holding each owned 50% of Prochemie,
which owned 100% of the share capital of LyondellBasell AF.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
— The accompanying
consolidated financial statements have been prepared from the
books and records of LyondellBasell N.V. and its majority-owned
subsidiaries after April 30, 2010 and LyondellBasell AF and
its majority-owned subsidiaries for periods up to and including
that date under accounting principles generally accepted in the
U.S. (“U.S. GAAP”). All inter company
transactions and balances have been eliminated in consolidation.
87
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Summary of Significant Accounting Policies — (Continued) |
The Company identified adjustments in its opening fresh start
balance sheet as a result of deferred tax liabilities either
omitted or included in error. These amounts in the aggregate
were not material to the Predecessor period or the fresh start
opening balance sheet. However, the Company has revised its
consolidated financial statements for the four months ending
April 30, 2010 to correct for an overstatement of goodwill
and deferred income taxes with corresponding adjustments to
Reorganization items and Benefit from income taxes resulting
from these errors as follows:
| Predecessor | ||||||||||||
|
As Previously
|
||||||||||||
| Reported | Adjustment | Revised | ||||||||||
|
Millions of dollars
|
||||||||||||
|
Statement of Income
|
||||||||||||
|
Reorganization items
|
$ | 8,010 | $ | (430 | ) | $ | 7,580 | |||||
|
Income from continuing operations before income taxes
|
7,813 | (430 | ) | 7,383 | ||||||||
|
Benefit from income taxes
|
(693 | ) | (430 | ) | (1,123 | ) | ||||||
|
Net income
|
8,504 | — | 8,504 | |||||||||
|
Statement of Cash Flows
|
||||||||||||
|
Reorganization items
|
(8,010 | ) | 430 | (7,580 | ) | |||||||
|
Deferred income taxes
|
(610 | ) | (519 | ) | (1,129 | ) | ||||||
|
Other*
|
(761 | ) | 76 | (685 | ) | |||||||
|
Net cash used in operating activities
|
(936 | ) | — | (936 | ) | |||||||
| * | The adjustment for Other includes the reclassification of $9 million to Asset impairments and $4 million to Gain (loss) on sale of assets to conform to classifications at December 31, 2010. |
Amounts presented in Note 4 changed as follows:
|
Balance Sheet
|
||||||||||||
|
Goodwill
|
1,098 | (314 | ) | 784 | ||||||||
|
Total assets
|
24,312 | (314 | ) | 23,998 | ||||||||
|
Deferred income taxes
|
920 | (314 | ) | 606 | ||||||||
|
Total liabilities and equity
|
24,312 | (314 | ) | 23,998 |
Investments in joint ventures where we exert a certain level of
management control, but lack full decision making ability over
all major issues, are accounted for using the equity method.
Under those circumstances, the equity method is used even though
our ownership percentage may exceed 50%.
The Accounting Policies of LyondellBasell N.V. in the Successor
period are as follows:
Fresh Start Accounting
— In accordance with
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 852,
Reorganizations, (“ASC 852”), we applied
“fresh-start” accounting as of May 1, 2010.
Fresh-start accounting requires us to initially record the
assets and liabilities at their fair value based on the
Company’s reorganization value. Reorganization value is the
fair value of the emerged entity before considering liabilities.
The Debtors’ reorganization proceedings associated with
their emergence from bankruptcy resulted in a new reporting
entity. Financial information presented for the Successor is on
a basis different from, and is therefore not comparable to,
financial information for the Predecessor. The Predecessor
information in the financial statements is for periods through
April 30, 2010, including the impact of plan of
reorganization provisions and the adoption of fresh-start
accounting. For additional information on fresh-start
accounting, see Note 4.
88
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Summary of Significant Accounting Policies — (Continued) |
Revenue Recognition
— Revenue from product
sales is recognized at the time of transfer of title and risk of
loss to the customer, which usually occurs at the time of
shipment. Revenue is recognized at the time of delivery if we
retain the risk of loss during shipment. For products that are
shipped on a consignment basis, revenue is recognized when the
customer uses the product. Costs incurred in shipping products
sold are included in cost of sales. Billings to customers for
shipping costs are included in sales revenue.
With respect to licensing contracts we recognize revenue on a
contract-by-contract
basis when we determine that we have sold our product or
rendered service. For proven technologies for which we are
contractually entitled to receive the vast majority of the
contract value in cash at or before the date of customer
acceptance, we will generally recognize revenue at the date of
delivery of the process design package and the related license,
provided that the undelivered items are considered
inconsequential or perfunctory. Revenue for remaining
perfunctory items for these contracts is recognized when the
uncertainties are resolved. For contracts involving unproven
process technology or post-delivery technical assistance that is
not considered inconsequential or perfunctory, we recognize
revenue at the date of customer acceptance up to the amount of
fixed fees due at customer acceptance date. Future fixed fees
for these contracts are recognized when the uncertainties are
resolved. Royalties under these contracts are recognized when
earned, typically based on production volumes.
Research and Development
— Research and
Development (“R&D”) costs are expensed when
incurred. Subsidies for research and development are included in
Other income. Depreciation expense related to R&D assets is
included as a cost of R&D. To the extent the purchase price
in a business combination is allocated to in-process research
and development assets, those assets are capitalized at fair
value as an intangible asset with an indefinite life. When the
related R&D project is abandoned, the assets are impaired
and when the related R&D project activities are completed,
we make a determination of the useful lives and amortize those
assets over their useful lives.
Cash and Cash Equivalents
— Cash equivalents
consist of highly liquid debt instruments such as certificates
of deposit, commercial paper and money market accounts. Cash
equivalents include instruments with maturities of three months
or less when acquired. Cash equivalents are stated at cost,
which approximates fair value. Cash and cash equivalents exclude
restricted cash. Our cash equivalents are placed in high-quality
commercial paper, money market funds and time deposits with
major international banks and financial institutions.
We have no requirements for compensating balances in a specific
amount at a specific point in time. We maintain compensating
balances for some of our banking services and products. Such
balances are maintained on an average basis and are solely at
our discretion.
Allowance for Doubtful Accounts
— We establish
provisions for doubtful accounts receivable based on our
estimates of amounts that we believe are unlikely to be
collected. Collectability of receivables is reviewed and the
allowance for doubtful accounts is adjusted at least quarterly,
based on aging of specific accounts and other available
information about the associated customers. Provisions for an
allowance for doubtful accounts are included in selling, general
and administrative expenses.
Inventories
— Inventories are carried at the
lower of current market value or cost. Cost is determined using
the
last-in,
first-out (“LIFO”) method for raw materials, work in
progress (“WIP”) and finished goods, and the moving
average cost method for materials and supplies.
Inventory exchange transactions, which involve fungible
commodities and do not involve the payment or receipt of cash,
are not accounted for as purchases and sales. Any resulting
volumetric exchange balances are accounted for as inventory,
with cost determined using the LIFO method.
89
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Summary of Significant Accounting Policies — (Continued) |
Property, Plant and Equipment
— Property, plant
and equipment was recorded at fair value at emergence and then
at cost subsequently. Depreciation is computed using the
straight-line method over the estimated useful asset lives,
generally up to 25 years for major manufacturing equipment,
30 years for buildings, 5 to 15 years for light
equipment and instrumentation, 15 years for office
furniture and 3 to 5 years for information system
equipment. Upon retirement or sale, we remove the cost of the
asset and the related accumulated depreciation from the accounts
and reflect any resulting gain or loss in the Consolidated
Statements of Income. Our policy is to capitalize interest cost
incurred on debt during the construction of major projects
exceeding one year.
Costs of major maintenance and repairs incurred as part of
turnarounds of major units at our manufacturing facilities are
deferred and amortized using the straight-line method over the
period until the next planned turnaround, predominantly 4 to
7 years. These costs are necessary to maintain, extend and
improve the operating capacity and efficiency rates of the
production units.
Long-Lived Asset Impairment
— We evaluate
long-lived assets, including identifiable intangible assets, for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
When it is probable that undiscounted future cash flows will not
be sufficient to recover an asset’s carrying amount, the
asset is written down to its estimated fair value.
Goodwill
— We recorded goodwill upon
application of fresh-start accounting (see Note 4).
Goodwill is not amortized, but is tested for impairment annually
during the fourth quarter, or sooner if events or changes in
circumstances indicate the carrying amount may exceed fair
value. Recoverability is determined by comparing the estimated
fair value of a reporting unit to the carrying value, including
the related goodwill, of that reporting unit. We use the present
value of expected net cash flows to determine the estimated fair
value of the reporting units. The impairment test requires us to
make cash flow assumptions including, among other things, future
margins, volumes, operating costs, capital expenditures, growth
rates and discount rates. Our assumptions regarding future
margins and volumes require significant judgment as actual
margins and volumes have fluctuated in the past and will likely
continue to do so.
Identifiable Intangible Assets
— Costs to
purchase and to develop software for internal use are deferred
and amortized over periods of 3 to 10 years. Other
intangible assets were stated at fair value at emergence and
carried at cost or amortized cost subsequently. Such assets
primarily consist of emission allowances, various contracts, and
in-process research and development. These assets are amortized
using the straight-line method over their estimated useful lives
or over the term of the related agreement, if shorter.
Environmental Remediation Costs
— Anticipated
expenditures related to investigation and remediation of
contaminated sites, which include current and former plant sites
and other remediation sites, are accrued when it is probable a
liability has been incurred and the amount of the liability can
reasonably be estimated. Only ongoing operating and monitoring
costs, the timing of which can be determined with reasonable
certainty, are discounted to present value. Future legal costs
associated with such matters, which generally are not estimable,
are not included in these liabilities.
Legal Costs
— We expense legal costs, including
those incurred in connection with loss contingencies, as
incurred.
Income Taxes
— Deferred income taxes reflect
the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes,
as well as the net tax effects of net operating loss
carryforwards. Valuation allowances are provided against
deferred tax assets when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
90
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Summary of Significant Accounting Policies — (Continued) |
We recognize the financial statement effects of an uncertain
income tax position when it is more likely than not, based on
the technical merits, that the position will be sustained upon
examination. We accrue for other tax contingencies when it is
probable that a liability to a taxing authority has been
incurred and the amount of the contingency can be reasonably
estimated.
Liabilities Subject to Compromise
— Pursuant to
U.S. GAAP, certain pre-petition liabilities of the Debtors
have been reclassified as of December 31, 2009, to
long-term liabilities on the accompanying consolidated balance
sheets as liabilities subject to compromise (see Note 3).
Liabilities subject to compromise included the Debtors’
long-term debt that was considered undersecured and amounts that
were due from the Debtors to vendors and employees for goods and
services received prior to the January 6, 2009,
April 24, 2009 and May 8, 2009 petition dates and
include damage claims created by the Debtors’ rejection of
executory contracts. The Debtors recognized claims at the
probable allowed amounts. Claims for rejected contracts were
recorded at the earlier of default by the Debtors under the
contract or notification to the U.S. Bankruptcy Court of
rejection. Liabilities subject to compromise were distinguished
from pre-petition liabilities of the Debtors estimated to be
fully secured, post-petition liabilities of the Debtors and
liabilities of the non-Debtors for all of which the balance
sheet classification was unchanged.
Stock-Based Compensation
— The Company grants
stock-based compensation awards that vest over a specified
period or upon employees meeting certain service criteria. The
fair value of equity instruments issued to employees is measured
on the grant date and is recognized over the vesting period.
Non controlling interests
— Non-controlling
interests primarily represent the interests of unaffiliated
investors in a partnership that owns our PO/SM II plant at the
Channelview, Texas complex and a subsidiary owning an equity
investment in the Al-Waha Petrochemicals Ltd. joint venture.
Foreign Currency Translation
— Our reporting
currency for the accompanying financial statements is the
U.S. dollar. We have significant operations in several
countries of which functional currencies are primarily the
U.S. dollar for U.S. operations and the Euro for
operations in Europe.
Adjustments resulting from the process of translating foreign
functional currency financial statements are included in
Accumulated other comprehensive income (loss) in
Stockholders’ equity. Foreign currency transaction gains
and losses are included in current earnings.
Financial Instruments and Derivatives —
We
selectively enter into derivative transactions to manage
volatility related to market risks associated with changes in
commodity pricing, currency exchange rates and interest rates.
We categorize assets and liabilities, measured at fair value,
into one of three different levels depending on the
observability of the inputs employed in the measurement.
Level 1 inputs are quoted prices in active markets for
identical assets or liabilities. Level 2 inputs are
observable inputs other than quoted prices included within
Level 1 for the asset or liability, either directly or
indirectly through market corroborated inputs. Level 3
inputs are unobservable inputs for the asset or liability
reflecting significant modifications to observable related
market data or our assumptions about pricing by market
participants. For a discussion related to financial instruments
and derivatives policies, see Note 17.
Use of Estimates
— The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
Classification
— Our consolidated financial
statements classify precious metals and catalysts as components
of Property, plant and equipment. Catalysts and precious metals
were previously reported by the
91
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Summary of Significant Accounting Policies — (Continued) |
Predecessor as Intangible assets and Other assets, respectively.
Debt issuance costs, which were previously reported as
Intangible assets, net, by the Predecessor, are classified as
Other assets by the Successor.
The accounting policies of LyondellBasell A.F. in the
Predecessor period were the same as for the Successor period
except as follows:
Inventories
— Inventories are carried at the
lower of current market value or cost. Cost is determined using
the FIFO method, except for certain U.S. inventories for
which cost is required to be determined using the LIFO method,
and the average cost method for materials and supplies.
New
Accounting Standards
Business Combinations
— In December 2010, the
FASB issued guidance related to ASC Topic 805
, Business
Combinations,
to clarify that if a public entity presents
comparative financial statements, the entity should disclose
pro-forma revenue and earnings of the combined entity as though
the business combination(s) that occurred during the current
year had occurred as of the beginning of the comparable prior
annual reporting period only. This guidance also expands the
supplemental pro forma disclosures to include a description of
the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. This
guidance is effective prospectively for business combinations
for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after
December 15, 2010. Early adoption is permitted. Adoption of
this amendment is not expected to have a material effect on our
consolidated financial statements.
Goodwill
— In December 2010, the FASB issued
guidance related to ASC Topic 350
, Intangibles —
Goodwill and Other,
to require a company with reporting
units having a carrying amount of zero or less to perform Step 2
of the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. This guidance is effective
for fiscal years, and interim periods within those years,
beginning December 15, 2010. Early adoption is not
permitted. Adoption of this amendment is not expected to have a
material effect on our consolidated financial statements.
Pension and Other Post Retirement Benefits
— In
September 2010, the FASB issued guidance related to ASC Topic
962
, Plan Accounting — Defined Contribution Pension
Plans,
to clarify how loans to participants should be
classified and measured by defined contribution pension benefit
plans. The guidance requires that participant loans be
classified as notes receivable from participants, which are
segregated from plan investments and measured at their unpaid
principal balance, plus any accrued but unpaid interest. This
guidance is effective for fiscal years ending after
December 15, 2010, and should be applied retrospectively to
all prior periods presented. Early adoption is permitted.
Adoption of this amendment is not expected to have a material
effect on our consolidated financial statements.
Revenue Recognition
— In April 2010, the FASB
issued additional guidance on the criteria that should be met
for determining whether the milestone method of revenue
recognition is appropriate. Under this guidance, a vendor can
recognize consideration that is contingent upon achievement of a
milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria
to be considered substantive. Our adoption of this amendment
effective July 1, 2010 did not have a material effect on
our consolidated financial statements.
In October 2009, the FASB ratified the consensus reached by its
emerging issues task force to require companies to allocate
revenue in multiple-element arrangements based on the estimated
selling price of an element if vendor-specific or other
third-party evidence of value is not available. The adoption of
these changes, in January 2011, will not have a material effect
on our consolidated financial statements.
92
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Summary of Significant Accounting Policies — (Continued) |
Income Taxes
— In April 2010, the FASB issued
additional guidance on accounting for certain tax effects of the
2010 Health Care Reforms Act. The guidance requires entities to
recognize the impact of changes in tax law in continuing
operations in the Consolidated Statements of Income for the
period that includes the enactment date. The adoption of these
changes in March 2010 did not have a material effect on the
Company’s consolidated financial statements.
Fair Value Measurement
— In January 2010, the
FASB issued additional guidance on improving disclosures
regarding fair value measurements. The guidance requires the
disclosure of the amounts of, and the rationale for, significant
transfers between Level 1 and Level 2 of the fair
value hierarchy, as well as the rationale for transfers in or
out of Level 3. We have adopted all of the amendments
regarding fair value measurements except for a requirement to
disclose information about purchases, sales, issuances, and
settlements in the reconciliation of recurring Level 3
measurements on a gross basis. The requirement to separately
disclose purchases, sales, issuances, and settlements of
recurring Level 3 measurements beginning in 2011 will not
have a material impact on our consolidated financial statements.
Transfer and Servicing
— In June 2009, the FASB
revised the requirements for accounting for transfers of
financial assets. These revisions eliminate the concept of a
“qualifying special-purpose entity,” change the
requirements for de-recognizing financial assets, and require
additional disclosures regarding transfers of financial assets,
securitization transactions, and exposures to risks related to
transferred financial assets. These changes were effective for
the Company beginning in 2010. The adoption of these changes did
not have a material effect on the Company’s consolidated
financial statements.
| 3. | Emergence from Chapter 11 Proceedings |
On April 23, 2010, the U.S. Bankruptcy Court confirmed
LyondellBasell AF’s Third Amended and Restated Plan of
Reorganization and the Debtors emerged from chapter 11
protection on April 30, 2010.
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 were permitted to
make distributions to their creditors in accordance with the
terms of the Plan of Reorganization.
General unsecured non-priority claims against the Debtors were
addressed through the bankruptcy process and were reported as
liabilities subject to compromise and adjusted to the estimated
allowed claim amount as determined through the bankruptcy
process if determined to be probable and estimable. Certain of
these claims were resolved and satisfied on or before the
Debtors’ emergence on April 30, 2010. Except for
certain specific non-priority claims, the unsecured non-priority
claims were resolved as part of the Plan of Reorganization.
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)
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 (as defined in the
Plan), 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 to the
Millennium Custodial Trust and approximately $170 million
to fund the Environmental Custodial Trust and to make certain
direct payments to the U.S. EPA and certain state
environmental agencies.
93
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 3. | Emergence from Chapter 11 Proceedings — (Continued) |
As part of the Debtors’ emergence from chapter 11
proceedings, approximately 563.9 million shares of common
stock of LyondellBasell N.V. were issued under the Plan,
including 300 million shares of class A ordinary
shares issued in exchange for allowed claims under the Plan of
Reorganization. Approximately 263.9 million shares of
LyondellBasell N.V. class B ordinary shares were issued in
connection with a rights offering for gross proceeds of
$2.8 billion.
Pursuant to the Plan of Reorganization, administrative and
priority claims, as well as the new money
debtor-in-possession
(“DIP”) financing, were repaid in full. The lenders of
certain DIP loans, which represented a
dollar-for-dollar
roll-up
or
conversion of previously outstanding senior secured loans
(“DIP
Roll-up
Notes”), received new senior secured third lien notes in
the same principal amount as the DIP
Roll-up
Notes. In accordance with the Plan of Reorganization, 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. stock warrants; and cash. Allowed general
unsecured claims received a combination of cash and class A
ordinary shares of LyondellBasell N.V. pursuant to the Amended
Lender Litigation Settlement approved by the
U.S. Bankruptcy Court on March 11, 2010.
In conjunction with the Debtors’ emergence from
chapter 11, LyondellBasell N.V., through its wholly owned
subsidiary, LBI Escrow Corporation, (“LBI Escrow”)
issued $3.25 billion of first priority debt, including
$2.25 billion and €375 million offerings of
senior secured notes in a private placement and borrowings of
$500 million under a senior term loan facility. Upon
emergence, LBI Escrow merged with and into Lyondell Chemical
Company (“Lyondell Chemical”), which replaced LBI
Escrow as the issuer of the senior secured notes and as borrower
under the term loan. On April 30, 2010, Lyondell Chemical
issued $3,240 million of Senior Secured 11% Notes due
2018 (the “Senior Secured 11% Notes”) in exchange
for DIP
Roll-up
Notes incurred as part of the
debtor-in-possession
financing. The net proceeds from the sale of the senior secured
notes, together with borrowings under the term loan, a new
European securitization facility, and proceeds from the
$2.8 billion rights offering, were used to repay and
replace certain existing debt, including the
debtor-in-possession
credit facilities and an existing European securitization
facility, and to make certain related payments. In addition, we
entered into a new $1,750 million U.S. asset-based
revolving credit facility, which can be used for advances or to
issue up to $700 million of letters of credit. For
additional information on the Company’s debt, see
Note 15.
Liabilities Subject to Compromise
— Certain
prepetition liabilities subject to compromise were reported at
the expected allowed amount, even if they could potentially be
settled for lesser amounts in accordance with the terms of the
Plan of Reorganization. The total amount to be paid by the
Debtors to settle claims is fixed under the Plan of
Reorganization. As a result, all of the Debtors’
liabilities subject to compromise at April 30, 2010 have
been effectively resolved at the Emergence Date. As of
December 31, 2010, approximately $98 million of
priority and administrative claims have yet to be paid.
94
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 3. | Emergence from Chapter 11 Proceedings — (Continued) |
Liabilities subject to compromise included in the
Predecessor’s balance sheet consist of the following:
| Predecessor | ||||||||
|
April 30,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Millions of dollars
|
||||||||
|
Accounts payable
|
$ | 473 | $ | 602 | ||||
|
Employee benefits
|
994 | 997 | ||||||
|
Accrued interest
|
295 | 277 | ||||||
|
Conversion fee — Interim Loan
|
161 | 161 | ||||||
|
Estimated claims
|
1,392 | 1,726 | ||||||
|
Interest rate swap obligations
|
218 | 201 | ||||||
|
Related party payable
|
— | 82 | ||||||
|
Other accrued liabilities
|
102 | 78 | ||||||
|
Long-term debt
|
18,310 | 18,370 | ||||||
|
Total liabilities subject to compromise
|
$ | 21,945 | $ | 22,494 | ||||
The April 30, 2010 liabilities subject to compromise in the
above table represent such liabilities immediately prior to
their discharge in accordance with the Plan of Reorganization.
The Plan of Reorganization required that, upon emergence,
certain liabilities previously reported as liabilities subject
to compromise be retained by LyondellBasell N.V. Accordingly, on
the Emergence Date, approximately $854 million of pension
and other post-retirement benefit liabilities, included in
employee benefits in the above table, were reclassified from
liabilities subject to compromise to current or long-term
liabilities, as appropriate.
Long-term debt classified as liabilities subject to compromise
immediately prior to the Debtors’ emergence from bankruptcy
included amounts outstanding under the Interim Loan; the Senior
Secured Credit Facility, including the Term Loan A
U.S. Dollar tranche, the U.S. dollar and German
tranches of Term Loan B and the Revolving Credit Facility;
10.25% Debentures due 2010; 9.8% Debentures due 2020;
7.55% Debentures due 2026; the Senior Notes due 2015;
7.625% Senior Debentures due 2026; and loans from the State
of Maryland and KIC Ltd.
All of the long-term debt classified in liabilities subject to
compromise at April 30, 2010, except for a $6 million
loan from KIC Ltd., was discharged pursuant to the Plan of
Reorganization through distributions of a combination of
LyondellBasell N.V. class A ordinary shares, the rights to
purchase class B ordinary shares of LyondellBasell N.V. in
a rights offering, warrants to purchase class A ordinary
shares of LyondellBasell N.V. and cash. The loan from KIC Ltd.
was transferred to the Millennium Custodial Trust under the Plan
of Reorganization.
Reorganization Items
— Reorganization items,
including professional advisory fees and other costs directly
associated with our reorganization, recognized by the Debtors
since the January 6, 2009 bankruptcy are classified as
Reorganization items on the Consolidated Statements of Income.
Post-emergence reorganization items are primarily related to
professional fees associated with claim settlements, plan
implementation and other transition costs attributable to the
reorganization. Pre-emergence reorganization items include
provisions and adjustments to record the carrying value of
certain pre-petition liabilities at their estimated allowable
claim amounts, as well as the costs incurred by non-Debtor
companies as a result of the Debtors’ chapter 11
proceedings.
95
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 3. | Emergence from Chapter 11 Proceedings — (Continued) |
The Company’s charges (credits) for reorganization items,
including charges recognized by the Debtors, were as follows:
| Successor | Predecessor | ||||||||||||
|
For the
|
|||||||||||||
|
May 1
|
January 1
|
Year
|
|||||||||||
|
through
|
Through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Change in net assets resulting from the application of
fresh-start accounting
|
$ | — | $ | 6,086 | $ | — | |||||||
|
Gain on discharge of liabilities subject to compromise
|
— | (13,617 | ) | — | |||||||||
|
Asset write-offs and rejected contracts
|
— | 25 | 679 | ||||||||||
|
Estimated claims
|
(1 | ) | (262 | ) | 1,548 | ||||||||
|
Accelerated amortization of debt issuance costs
|
— | — | 228 | ||||||||||
|
Professional fees
|
21 | 172 | 218 | ||||||||||
|
Employee severance costs
|
(1 | ) | — | 201 | |||||||||
|
Plant closures costs
|
— | 12 | 53 | ||||||||||
|
Other
|
4 | 4 | 34 | ||||||||||
|
Total
|
$ | 23 | $ | (7,580 | ) | $ | 2,961 | ||||||
Estimated claims in the above table include adjustments made to
reflect the Debtors’ estimated claims to be allowed. Such
claims were classified as Liabilities subject to compromise.
| 4. | Fresh-Start Accounting |
Effective May 1, 2010, we adopted fresh-start accounting
pursuant to ASC 852. Accordingly, the basis of the assets
and liabilities in LyondellBasell AF’s financial statements
for periods prior to May 1, 2010 will not be comparable to
the basis of the assets and liabilities in the financial
statements prepared for LyondellBasell N.V. after emergence from
bankruptcy.
In order to qualify for fresh-start accounting, ASC 852
requires that total post-petition liabilities and allowed claims
be in excess of the reorganization value and that prepetition
stockholders receive less than 50% of LyondellBasell N.V.’s
common stock. Based on the estimated reorganization value and
the terms of the Plan of Reorganization, the criteria of
ASC 852 were met and, as a result, we applied fresh-start
accounting on May 1, 2010.
In determining the range of reorganization values, we used a
combination of customary valuation techniques, including, among
other things:
| • | The peer group trading analysis methodology, which calculates the total reorganization value of LyondellBasell N.V. by applying valuation metrics derived from an analysis of publicly traded peer companies to LyondellBasell N.V.’s estimated earnings before interest, tax, depreciation and amortization (“EBITDA”): |
| • | Valuation metrics consist of implied market trading multiples and are calculated by dividing the publicly traded peer company’s market capitalization by its respective EBITDA; | |
| • | The peer group trading analysis was performed on both a consolidated and reported segment basis; and |
96
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
| • | Public peer companies were selected based on their comparability to LyondellBasell N.V.’s reportable operating segments, with those comparable companies primarily operating in the diversified commodity chemicals, refining and technology businesses. |
| • | Discounted cash flow valuation methodology, which calculates the reorganization value of LyondellBasell N.V. as the sum of the present value of its projected unlevered, after-tax free cash flows. The resulting reorganization valuation is representative of LyondellBasell N.V. on a cash-free, debt-free basis: |
| • | Financial projections beginning May 1, 2010 were estimated based on a 4-year and 8-month detailed forecast followed with a higher level 10-year forecast. These projections reflected certain economic and industry information relevant to the operating businesses of LyondellBasell N.V. and estimated cyclical trends where appropriate. Various time periods within the approximately 15-year forecast period were evaluated including the entire period itself. To the extent that such cycles are, or commodity price volatility within any cycle is, greater or smaller than estimated, the estimate of the reorganization value could vary significantly; | |
| • | The projected cash flows associated with the projections were discounted at a range of rates that reflected the estimated range of weighted average cost of capital (“WACC”); | |
| • | The imputed discounted cash flow value comprises the sum of (i) the present value of the projected unlevered free cash flows over the projection period; and (ii) the present value of a terminal value, which represents the estimate of value attributable to performance beyond the projection period. Cash flows and associated imputed values were calculated on both a consolidated and reportable segment basis; | |
| • | WACCs utilized in the consolidated discounted cash flow analysis ranged from 11% to 12%. The range of WACCs utilized were developed from an analysis of the yields associated with LyondellBasell N.V.’s own debt financings and the equity costs of peer companies as well as the anticipated mix of LyondellBasell N.V.’s debt and equity; | |
| • | A range of terminal value EBITDA multiples were selected which, where appropriate, represented estimated industry cycle average market capitalization/EBITDA multiples; and | |
| • | Additional discounted cash flow analysis was performed for LyondellBasell N.V.’s unconsolidated joint ventures. |
In April 2010 the U.S. Bankruptcy Court approved the total
reorganization enterprise value on a cash-free and debt-free
basis for consolidated LyondellBasell AF at approximately
$14.2 billion to $16.2 billion, with a midpoint of
$15.2 billion. This estimate incorporated adjustments to
include the estimated reorganization value of LyondellBasell
AF’s interests in unconsolidated joint ventures, and
deducted the estimated book value of third party non-controlling
interests in consolidated joint ventures. The Plan of
Reorganization, which was confirmed and approved by the
U.S. Bankruptcy Court on April 23, 2010, without
objection by any third party, adopted the midpoint of
$15.2 billion as the reorganization value used to calculate
and settle claims.
Fresh-start accounting requires us to allocate the
reorganization value approved by the U.S. Bankruptcy Court
to the individual assets and liabilities based upon their
estimated fair values. The determination of fair values of
assets and liabilities is subject to significant estimation and
assumptions. The following balance sheet information illustrates
the financial effects as of May 1, 2010 of implementing the
Plan of Reorganization and the adoption of fresh-start
accounting. Adjustments recorded to the Predecessor balance
sheet, resulting from the consummation of the Plan of
Reorganization and the adoption of fresh-start accounting, are
summarized below.
97
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
CONSOLIDATED
BALANCE SHEET
| Predecessor |
Reorganization
|
Fresh Start
|
Successor | |||||||||||||||||||||
| LyondellBasell AF | Adjustments | Adjustments | LyondellBasell N.V. | |||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 817 | $ | 1,894 | a | $ | — | $ | 2,711 | |||||||||||||||
|
Accounts receivable
|
3,771 | 1 | — | 3,772 | ||||||||||||||||||||
|
Inventories
|
3,552 | — | 1,297 | h | 4,849 | |||||||||||||||||||
|
Prepaid expenses and other current assets
|
1,098 | (20 | ) | (30 | ) | 1,048 | ||||||||||||||||||
|
Total current assets
|
9,238 | 1,875 | 1,267 | 12,380 | ||||||||||||||||||||
|
Property, plant and equipment, net
|
14,554 | — | (7,474 | ) | i | 7,080 | ||||||||||||||||||
|
Investments and long-term receivables:
|
||||||||||||||||||||||||
|
Investments in PO joint ventures
|
867 | — | (415 | ) | j | 452 | ||||||||||||||||||
|
Equity investments
|
1,173 | — | 351 | k | 1,524 | |||||||||||||||||||
|
Other investments and long-term receivables
|
97 | — | (46 | ) | k | 51 | ||||||||||||||||||
|
Goodwill
|
— | — | 784 | l | 784 | |||||||||||||||||||
|
Intangible assets, net
|
1,689 | — | (215 | ) | m | 1,474 | ||||||||||||||||||
|
Other assets
|
340 | 154 | b | (241 | ) | n | 253 | |||||||||||||||||
|
Total assets
|
$ | 27,958 | $ | 2,029 | $ | (5,989 | ) | $ | 23,998 | |||||||||||||||
98
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
| Predecessor |
Reorganization
|
Fresh Start
|
Successor | |||||||||||||||||||||
| LyondellBasell AF | Adjustments | Adjustments | LyondellBasell N.V. | |||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||
|
Liabilities not subject to compromise —
|
||||||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||||||
|
Current maturities of long-term debt
|
$ | 485 | $ | (480 | ) | c | $ | — | $ | 5 | ||||||||||||||
|
Short-term debt
|
6,842 | (6,392 | ) | c | — | 450 | ||||||||||||||||||
|
Accounts payable
|
2,351 | 1 | — | 2,352 | ||||||||||||||||||||
|
Accrued liabilities
|
1,373 | 46 | d | (18 | ) | 1,401 | ||||||||||||||||||
|
Deferred income taxes
|
162 | (4 | ) | 285 | o | 443 | ||||||||||||||||||
|
Total current liabilities
|
11,213 | (6,829 | ) | 267 | 4,651 | |||||||||||||||||||
|
Long-term debt
|
304 | 6,477 | c | — | 6,781 | |||||||||||||||||||
|
Other liabilities
|
1,416 | 808 | e | (163 | ) | p | 2,061 | |||||||||||||||||
|
Deferred income taxes
|
2,009 | 1,408 | o | (2,811 | ) | o | 606 | |||||||||||||||||
|
Commitments and contingencies
|
||||||||||||||||||||||||
|
Liabilities subject to compromise
|
21,945 | (21,945 | ) | f | — | — | ||||||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||||||||||
|
Ordinary shares, €0.04 par value, 1,000 million
shares authorized and 565,673,773 shares issued at
May 1, 2010
|
— | 30 | g | — | 30 | |||||||||||||||||||
|
Additional paid-in capital
|
— | 9,815 | g | — | 9,815 | |||||||||||||||||||
|
Predecessor common stock, €124 par value,
403,226 shares authorized and issued at April 30, 2010
|
60 | (60 | ) | — | — | |||||||||||||||||||
|
Predecessor additional paid-in capital
|
563 | (563 | ) | — | — | |||||||||||||||||||
|
Predecessor retained earnings (deficit)
|
(9,452 | ) | 12,958 | f | (3,506 | ) | q | — | ||||||||||||||||
|
Predecessor accumulated other comprehensive income (loss)
|
(212 | ) | (70 | ) | 282 | — | ||||||||||||||||||
|
Total stockholders’ equity (deficit)
|
(9,041 | ) | 22,110 | (3,224 | ) | 9,845 | ||||||||||||||||||
|
Non-controlling interests
|
112 | — | (58 | ) | r | 54 | ||||||||||||||||||
|
Total equity (deficit)
|
(8,929 | ) | 22,110 | (3,282 | ) | 9,899 | ||||||||||||||||||
|
Total liabilities and equity (deficit)
|
$ | 27,958 | $ | 2,029 | $ | (5,989 | ) | $ | 23,998 | |||||||||||||||
Reorganization
and Fresh-Start Accounting Adjustments
Reorganization
a.
Cash and cash equivalents
— The
adjustments to Cash and cash equivalents represent net cash
inflows, after giving effect to transactions pursuant to the
Plan of Reorganization, including proceeds from the issuance of
new notes, borrowings under the new Senior Term Loan Facility,
receipt of proceeds from the rights
99
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
offering; payments relating to the discharge of debts and other
liabilities subject to compromise; and the funding of the
custodial and litigation trusts.
|
Millions of dollars
|
||||
|
Sources of funds:
|
||||
|
Senior Secured Notes due 2017, $2,250 million, 8.0%
|
$ | 2,250 | ||
|
Senior Secured Notes due 2017, €375 million, 8.0%
|
497 | |||
|
Senior Term Loan Facility due 2016 ($5 million of discount)
|
495 | |||
|
Issuance of class B ordinary shares
|
2,714 | |||
| 5,956 | ||||
|
Use of funds:
|
||||
|
Debtor-in-Possession
Credit Agreements —
|
||||
|
Term Loan facility due 2010:
|
||||
|
New Money Loans
|
(2,167 | ) | ||
|
ABL Facility
|
(985 | ) | ||
|
Settlement with unsecured creditors
|
(260 | ) | ||
|
DIP exit fees
|
(195 | ) | ||
|
Funding of Millennium and environmental custodial trusts
|
(270 | ) | ||
|
Deferred financing costs
|
(156 | ) | ||
|
Other
|
(29 | ) | ||
| (4,062 | ) | |||
|
Net cash proceeds from reorganization
|
$ | 1,894 | ||
b.
Other assets
— Changes to Other assets
primarily comprise capitalized debt issuance costs resulting
from the incurrence of new debt.
100
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
c.
Debt
— The changes in debt are
summarized below:
|
Millions of dollars
|
||||
|
Current maturities of senior secured credit facility settled
with class A ordinary shares —
|
||||
|
Senior secured credit facility:
|
||||
|
Term Loan A due 2013, Dutch tranche
|
$ | (322 | ) | |
|
$1,000 million revolving credit facility
|
(163 | ) | ||
| (485 | ) | |||
|
Current maturities — New Senior Term Loan Facility due
2016
|
5 | |||
| $ | (480 | ) | ||
|
Debtor-in-Possession
Credit Agreements —
|
||||
|
Term Loan facility due 2010:
|
||||
|
New Money Loans
|
$ | (2,167 | ) | |
|
Roll-up
Loans — Senior Secured Credit Facility
|
(3,240 | ) | ||
|
ABL Facility
|
(985 | ) | ||
| $ | (6,392 | ) | ||
|
New long-term debt:
|
||||
|
Senior Secured Notes due 2017, $2,250 million, 8.0%
|
$ | 2,250 | ||
|
Senior Secured Notes due 2017, €375 million, 8.0%
|
497 | |||
|
Senior Term Loan Facility due 2016 ($5 million of discount)
|
495 | |||
|
Senior Secured Notes due 2018, $3,240 million, 11.0%
|
3,240 | |||
| 6,482 | ||||
|
Less: Current maturities
|
(5 | ) | ||
|
Additional long-term debt
|
$ | 6,477 | ||
d.
Accrued liabilities
— The net of
payments and accruals related to the Plan of Reorganization,
including the issuance of warrants to purchase class A
ordinary shares with a fair value of $101 million.
e.
Other liabilities
— The adjustments to
Other liabilities primarily reflect the Company’s agreement
to continue sponsoring the pension plans previously reported as
Liabilities subject to compromise.
101
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
f.
Liabilities subject to compromise
— The
adjustment to Liabilities subject to compromise reflects the
discharge of Liabilities subject to compromise through a series
of transactions involving liabilities, equity and cash. The
table below summarizes the discharge of debt:
|
Millions of dollars
|
||||
|
Liabilities subject to compromise
|
$ | 21,945 | ||
|
Current maturities of senior secured credit facility settled
with class A ordinary shares
|
485 | |||
| 22,430 | ||||
|
Issuance of class A ordinary shares
|
(7,131 | ) | ||
|
Warrants
|
(101 | ) | ||
|
Assumption of pension plan liabilities
|
(854 | ) | ||
|
Settlement unsecured creditors
|
(300 | ) | ||
|
Loss of receivables from deconsolidated companies
|
(75 | ) | ||
|
Other
|
(352 | ) | ||
|
Gain on discharge of liabilities subject to compromise before tax
|
$ | 13,617 | ||
|
Millions of dollars
|
||||
|
Gain on discharge of liabilities subject to compromise before tax
|
$ | 13,617 | ||
|
Provision for income taxes
|
(1,413 | ) | ||
|
Gain on discharge of liabilities subject to compromise after tax
|
12,204 | |||
|
Elimination of Predecessor’s retained earnings
|
754 | |||
|
Retained earnings adjustment
|
$ | 12,958 | ||
g.
Equity
— The changes to Equity reflect
LyondellBasell N.V.’s issuance of common stock.
Fresh-Start
Accounting
In applying fresh-start accounting at May 1, 2010, we
recorded the assets acquired and the liabilities assumed from
LyondellBasell AF at fair value, except for deferred income
taxes and certain liabilities associated with employee benefits,
which were recorded in accordance with ASC 852 and
ASC 740, respectively. The significant assumptions related
to the valuations of our assets and liabilities recorded in
connection with fresh-start accounting are discussed herein. All
valuation inputs, with the exception of the calculation of crude
oil related raw material inventories, are considered to be
Level 3 inputs, as they are based on significant inputs
that are not observable in the market. Crude oil related raw
material inventories were valued using a combination of
Level 1 and Level 2 inputs depending on the
availability of publicly available quoted market prices. For
additional information on Level 1, Level 2 and
Level 3 inputs, see Note 2.
h.
Inventory
— We recorded Inventory at
its fair value of $4,849 million, which was determined as
follows:
| • | Finished goods were valued based on the estimated selling price of finished goods on hand less costs to sell, including disposal and holding period costs, and a reasonable profit margin on the selling and disposal effort for each specific category of finished goods being evaluated; | |
| • | Work in process was valued based on the estimated selling price once completed less total costs to complete the manufacturing process, costs to sell including disposal and holding period costs, a reasonable profit margin on the remaining manufacturing, selling, and disposal effort; and |
102
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
| • | Raw materials were valued based on current replacement cost. |
Compared to amounts recorded by LyondellBasell AF, finished
goods increased by $888 million, work in process increased
by $65 million, raw materials increased by
$313 million and other inventories increased by
$31 million.
i.
Property, Plant and Equipment
— We
recorded Property, plant and equipment, which includes land,
buildings and equipment, furniture and fixtures and construction
in progress, at its fair value. Fair value was based on the
highest and best use of the assets. We considered and applied
two approaches to determine fair value:
| • | The market, sales comparison or trended cost approach was utilized for land, buildings and land improvements. This approach relies upon recent sales, offerings of similar assets or a specific inflationary adjustment to original purchase price to arrive at a probable selling price. Certain adjustments were made to reconcile differences in attributes between the comparable sales and the appraised assets. | |
| • | The cost approach was utilized for certain assets primarily consisting of our machinery and equipment. This approach considers the amount required to construct or purchase a new asset of equal utility at current prices, with adjustments in value for physical deterioration, and functional and economic obsolescence. The machinery and equipment amounts determined under the cost approach were adjusted for functional obsolescence, which represents a loss in value due to unfavorable external conditions such as the facilities’ locality, comparative inherent technology and comparative energy efficiency. Physical deterioration is an adjustment made in the cost approach to reflect the real operating age of any individual asset. LyondellBasell N.V.’s estimated economic obsolescence is the difference between the discounted cash flows (income approach) expected to be realized from utilization of the assets as a group, compared to the initial estimate of value from the cost approach method. In the analysis, the lower of the income approach and cost approach was used to determine the fair value of machinery and equipment in each reporting segment. Where the value per reportable segment, using the income approach, exceeded the value of machinery and equipment plus separately identifiable intangible assets, goodwill was generated. |
The following table summarizes the components of Property, plant
and equipment, net, at April 30, 2010, and reflects the
application of fresh-start accounting at May 1, 2010:
| Successor | Predecessor | ||||||||
|
May 1,
|
April 30,
|
||||||||
| 2010 | 2010 | ||||||||
|
Millions of dollars
|
|||||||||
|
Land
|
$ | 290 | $ | 280 | |||||
|
Manufacturing facilities and equipment
|
6,176 | 13,219 | |||||||
|
Construction in progress
|
614 | 1,055 | |||||||
|
Total property, plant and equipment, net
|
$ | 7,080 | $ | 14,554 | |||||
There would have been no impairment of our assets during the
Predecessor period because undiscounted cash flows exceeded
their carrying values.
j.
Investments in Propylene Oxide (“PO”) Joint
Ventures
— Investments in PO Joint Ventures were
valued using the techniques described above to value Property,
plant and equipment. The equity ownership reflects our direct
proportional share of the property, plant and equipment of the
PO Joint Ventures. The fair value of the Company’s equity
interests in PO Joint Ventures is $452 million.
103
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
k.
Equity Investments and Other Investments and
Long-term Receivables
— Our equity in the net
assets of our nonconsolidated affiliates was recorded at fair
value of $1,575 million determined using discounted cash
flow analyses, and included the following assumptions and
estimates:
| • | Forecasted cash flows, which incorporate projections of sales volumes, revenues, variable costs, fixed costs, other income and costs, and capital expenditures, after considering potential changes in unconsolidated affiliates portfolio and local market conditions; | |
| • | A terminal value calculated for investments and long-term receivables with forecasted cash flows, not limited by contractual terms or the estimated life of the main investment asset, by assuming a maintainable level of after-tax debt-free cash flow multiplied by a capitalization factor reflecting the investor’s WACC adjusted for the estimated long-term perpetual growth rate; and | |
| • | A discount rate ranging from 11% to 15% that considered various factors, including market and country risk premiums and tax rates to determine the investor’s WACC given the assumed capital structure of comparable companies. |
The aggregate fair value of equity in net assets of
nonconsolidated affiliates accounted for using the equity method
was $1,524 million.
l.
Goodwill
— We recorded Goodwill of
$784 million, primarily resulting from the requirement to
record the tax effect of the differences for the tax and book
basis of the Company’s assets and liabilities. The reported
goodwill and deferred tax liabilities reflect an adjustment of
$314 million related to the overstatement of goodwill and
deferred income taxes reported in previous quarterly financial
statements (see Note 2). This correction has no cumulative
impact on retained earnings.
m.
Intangible Assets
— We recorded
Intangible assets at their fair values of $1,474 million.
The following is a summary of the approaches used to determine
the fair value of significant intangible assets:
| • | We recorded the fair value of developed proprietary technology licensing and catalyst contracts of $210 million using an excess earnings methodology. Significant assumptions used in the calculation included: |
| • | Forecasted contractual income (fees generated) for each license technology category less directly attributable marketing as well as research and development costs; | |
| • | Discount rates of 17% based on LyondellBasell N.V.’s WACC adjusted for perceived business risks related to the developed technologies; and | |
| • | Economic lives estimated from 4 to 9 years. |
| • | We recorded the fair value of favorable utility contracts of $355 million using discounted cash flows. Significant assumptions used in this calculation included: |
| • | The forward price of natural gas; | |
| • | The projected market settlement price of electricity; | |
| • | Discount rates of 17% based on LyondellBasell N.V’s WACC adjusted for perceived business risks; and | |
| • | Economic lives estimated from 11 to 16 years. |
| • | We recorded the fair value of $132 million for in-process research and development at the cost incurred to date adjusted for the probability of future marketability. |
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Fresh-Start Accounting — (Continued) |
| • | We recorded the fair value of emission allowances of $731 million. Observed market activity for emission allowance trades is primarily generated only by legislation changes. As participants react to legislation, market trades occur as companies pursue their individual lowest cost compliance strategies. Trading, in the absence of an additional significant market participant, generally ceases once compliance is attained. As such, we could not identify any objective inputs based on market activity and an avoided cost of replacement methodology was used to determine estimated fair value. The significant assumptions used in valuing emission allowances include: |
| • | Business demand for utilization of the allowances held; | |
| • | Engineering and construction costs required to reduce each marginal emission denomination; and | |
| • | Development of new technologies to aid in the cost and effectiveness of compliance. |
| • | In addition we recorded other intangible assets, including capitalized software and software licenses, at its fair value of $46 million. |
n.
Other Assets
— The adjustment primarily
relates to the current deferred taxes and the change in the
classification of precious metals from Other assets to Property,
plant and equipment.
o.
Deferred Income Taxes, Current and
Non-current
— The application of fresh-start
accounting on May 1, 2010 resulted in the remeasurement of
deferred income tax liabilities associated with the revaluation
of the company’s assets and liabilities pursuant to
ASC 852. Deferred income taxes were recorded at amounts
determined in accordance with ASC 740.
p.
Other Liabilities
— The adjustment in
accrued liabilities is primarily a result of the revaluation of
deferred revenues based on discounted net cash outflows.
q.
Retained Deficit
— The changes to
retained deficit reflect our revaluation of the assets and
liabilities of $5,598 million recorded in Reorganization
items in the Consolidated Statements of Income, net of
$2,092 million related tax adjustments.
r.
Non-controlling Interests
— We recorded
the fair value of non-controlling interests which resulted in a
decrease of $58 million.
| 5. | Business Acquisitions and Dispositions |
In December 2010 LyondellBasell N.V. completed the sale of
LyondellBasell Flavors & Fragrances, LLC (the
“Flavor & Fragrance chemicals business”),
receiving proceeds of $154 million and recognized an
after-tax gain of $64 million. The Flavor &
Fragrance chemicals business has manufacturing facilities at
Jacksonville, Florida, and Brunswick, Georgia, and approximately
200 employees. It produces terpene-based fragrance
ingredients and flavor ingredients for the oral-care,
confectionery and beverage market.
The capital gain generated by the sale of the Flavor &
Fragrance chemicals business was offset by capital loss and
carryforwards, for which a full valuation allowance had been
recorded and, as such, no tax was provided.
In September 2008, the Predecessor completed the sale of its
toluene diisocyanate (“TDI”) business for net proceeds
of €77 million ($113 million). The income related
to the sale of the Flavor & Fragrance chemicals
business and the TDI business has been classified as
discontinued operations in the consolidated statements of
income. The combined revenues and operating expenses of these
businesses are not material.
Acquisition of Shell Oil Refinery in Berre l’Etang,
France
— In April 2008, LyondellBasell AF acquired
the Shell oil refinery, inventory and associated infrastructure
and businesses at the Berre l’Etang petrochemical complex
in France (the “Berre Refinery”) for a purchase price
of $927 million including a final adjustment for
105
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 5. | Business Acquisitions and Dispositions — (Continued) |
working capital and $112 million for settlement of an
accrued contingent consideration. The contingent consideration
resulted from the 2005 acquisition of the remaining 50% of
Société du Craqueur de l’Aubette S.A.S.
(“SCA”) from its previous joint venture partner Shell
Pétrochimie Méditerranée.
The refinery is a source of raw materials for, and allowed for
vertical integration at, one of our core integrated European
sites, which operates world-scale polypropylene and polyethylene
plants, a steam cracker and a butadiene extraction unit at Berre
l’Etang and a polyethylene plant at nearby Fos sur Mer. The
acquisition also allows optimization opportunities with our
global fuels and chemicals businesses and provides us with
access to significant local logistics assets, including pipeline
access, storage terminals and harbor access to the Mediterranean
Sea. The refinery’s products include naphtha, VGO,
liquefied petroleum gas, fuels for a variety of applications,
heating oil and bitumen.
Consolidation of the refinery’s operations prospectively
from April 1, 2008 added revenues of $2,750 million
and a $147 million operating loss, excluding the impairment
discussed below, to the 2008 results of operations.
In the fourth quarter 2008, LyondellBasell AF evaluated the
long-lived assets of the Berre Refinery for impairment and
recorded a $218 million charge representing the net book
value of the assets acquired in April 2008.
Acquisition of Solvay Engineered Polymers
— In
February 2008, LyondellBasell AF acquired Solvay Engineered
Polymers, Inc. (“Solvay”), a leading supplier of
polypropylene compounds in North America for $134 million.
The acquisition of Solvay complements our existing polymer-based
composite materials and alloys business in North America.
| 6. | Insurance Claims |
LyondellBasell AF received insurance proceeds during 2009 and
2008 of $120 million and $89 million, respectively,
representing partial settlements of outstanding insurance claims
related to damages sustained in 2005 at the polymers plant in
Münchsmünster, Germany. These proceeds were used to
finance the construction of the polyethylene plant in
Münchsmünster, Germany (see Note 21).
LyondellBasell AF recognized gains on involuntary conversion in
2009 and 2008 of $120 million and $79 million,
respectively, all of which were included in “Other income,
net,” in the Consolidated Statements of Income.
| 7. | Related Party Transactions |
The Company has related party transactions with affiliates of
our major shareholders, Access Industries (“Access”)
and Apollo Management (“Apollo”), and with the
Company’s joint venture partners (see Note 13).
Access
— Past Access related party transactions
included a management and a tax-sharing agreement.
Upon emergence, in May 2010, we entered into a tax cooperation
agreement with Access. The tax cooperation agreement allows
either party to provide the other with information and support
in connection with tax return preparation and audits for a fee.
There were no payments made or received under this agreement
during 2010.
In December 2007, LyondellBasell AF also entered into a
tax-sharing agreement with a subsidiary of Access entitling
Access to consideration equal to 17.5% of the net operating loss
carryforwards used by LyondellBasell AF entities to reduce their
Dutch or French income tax liability. Payments under this
agreement are limited to a maximum of $175 million. There
were no payments under this agreement during 2010, 2009 and
2008. This agreement was not assumed upon the Company’s
emergence from chapter 11.
In December 2007, in connection with the Lyondell Chemical
acquisition, LyondellBasell AF entered into a management
agreement with Access. The agreement included a periodic annual
fee of $25 million.
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 7. | Related Party Transactions — (Continued) |
Management fees of $25 million in 2009 and 2008 are
reflected as expense in Selling, general and administrative
expenses. The 2009 management fee, which was not paid, was
discharged pursuant to the Plan of Reorganization. This
agreement was not assumed upon the Company’s emergence from
chapter 11.
On December 20, 2010, one of our subsidiaries received
demand letters from affiliates of Access. The Access affiliates
have demanded that our subsidiary, LyondellBasell Industries
Holdings B.V. (“LBIH”), indemnify them and their
shareholders, members, affiliates, officers, directors,
employees and other related parties for all losses, including
attorney’s fees and expenses, arising out of a pending
lawsuit and pay $50 million in management fees for 2009 and
2010 in addition to other unspecified amounts related to advice
purportedly given in connection with financing and other
strategic transactions. For additional information related to
this matter, see Note 21.
Apollo —
As a result of the distribution of
ordinary shares of LyondellBasell N.V. common stock pursuant to
the Plan of Reorganization and the issuance of ordinary shares
of LyondellBasell N.V. common stock under a rights offering on
the Emergence Date, we began reporting transactions between the
Company and entities in which Apollo and its affiliates own
interests as related party transactions. These transactions
include the sales of product under a long-term contract that
renews automatically each year on July 31, unless a
90 day notice of termination has been received. Other
product sales are made on the spot market.
Consultant Fee
— In connection with the
Bankruptcy cases, LyondellBasell AF retained the services of and
entered into a Bankruptcy Court-approved contractual agreement
with one of its directors. The director received a
$10 million success fee from the Company upon emergence
from chapter 11.
Joint Venture Partners —
The Company has
related party transactions with its equity investees. These
related party transactions include the sales and purchases of
goods in the normal course of business as well as certain
financing arrangements. In addition, under contractual
arrangements with certain of the Company’s equity
investees, we receive certain services, utilities, materials and
facilities at some of our manufacturing sites and we provide
certain services to our equity investees.
In December 2009, LyondellBasell N.V. advanced
€10 million ($14 million) to its joint venture
partner, Basell Orlen Polyolefins SP.Z.O.O. under a loan
agreement that matures on December 31, 2013. The note bears
interest, which is due semi-annually, at EURIBOR plus 4% through
June 30, 2012 and EURIBOR plus 4.5% thereafter.
107
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 7. | Related Party Transactions — (Continued) |
Related party transactions are summarized as follows:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
The Company billed related parties for:
|
|||||||||||||||||
|
Sales of products —
|
|||||||||||||||||
|
Apollo affiliates
|
$ | 235 | $ | — | $ | — | $ | — | |||||||||
|
Joint venture partners
|
488 | 207 | 621 | 803 | |||||||||||||
|
Shared services agreements —
|
|||||||||||||||||
|
Apollo affiliates
|
— | — | — | — | |||||||||||||
|
Joint venture partners
|
22 | 3 | 21 | 14 | |||||||||||||
|
Interest —
|
|||||||||||||||||
|
Joint venture partners
|
— | — | 4 | 18 | |||||||||||||
|
Related parties billed the Company for:
|
|||||||||||||||||
|
Sales of products —
|
|||||||||||||||||
|
Joint venture partners
|
803 | 432 | 1,856 | 2,418 | |||||||||||||
|
Shared services agreements —
|
|||||||||||||||||
|
Joint venture partners
|
56 | 28 | 100 | 111 | |||||||||||||
| 8. | Short-term Investments |
As a result of financial difficulties experienced by major
financial institutions beginning in the latter part of the third
quarter of 2008, LyondellBasell AF received notice that rights
of redemption had been suspended with respect to a money market
fund in which LyondellBasell AF invested approximately
$174 million. LyondellBasell AF had been advised that
additional redemptions were forthcoming, subject to
LyondellBasell AF’s pro rata share of a $3.5 billion
loss reserve established by the fund in February 2009.
Accordingly, LyondellBasell AF recorded a provision in 2008 for
an estimated loss of $5 million related to the money market
fund. However, on May 5, 2009, the SEC filed an application
for injunctive and other relief with The United States District
Court for the Southern District of New York
(“U.S. District Court”) that objected to the
creation of the $3.5 billion loss reserve and instead
proposed a plan to distribute the remaining assets of the money
market fund on a pro rata basis to shareholders that have not
been fully redeemed since September 15, 2008. A majority of
the claimants agreed with the SEC’s plan and on
November 25, 2009, the U.S. District Court issued an
order which provided for a pro rata distribution of the
remaining assets. The Company received redemptions totaling
$172 million through December 31, 2010, including
$12 million in 2010, $23 million in 2009 and
$137 million in 2008. The 2010 redemption exceeded the
$9 million carrying value. Accordingly, the Predecessor
recognized a $3 million gain on redemption in January 2010.
| 9. | Accounts Receivable |
We sell our products primarily to other industrial concerns in
the petrochemicals and refining industries. We perform ongoing
credit evaluations of our customers’ financial condition
and, in certain circumstances, require letters of credit or
corporate guarantees from them. As part of fresh-start
accounting our Accounts receivable were valued at market. Our
allowance for doubtful accounts at December 31, 2010, which
is reflected in the Consolidated Balance Sheets as a reduction
of accounts receivable, was $12 million. LyondellBasell
AF’s allowance for doubtful accounts receivable totaled
$109 million at December 31, 2009.
108
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 9. | Accounts Receivable — (Continued) |
Our provisions for doubtful accounts receivable, which are
recorded in the Consolidated Statements of Income, were
$12 million for the eight months ended December 31,
2010. LyondellBasell AF recorded provisions for doubtful
accounts receivable of $7 million, $18 million, and
$47 million in the four months ended April 30, 2010
and for the full years 2009 and 2008, respectively.
| 10. | Inventories |
Inventories consisted of the following components at December 31:
| Successor | Predecessor | ||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Finished goods
|
$ | 3,127 | $ | 2,073 | |||||
|
Work-in-process
|
230 | 164 | |||||||
|
Raw materials and supplies
|
1,467 | 1,040 | |||||||
|
Total inventories
|
$ | 4,824 | $ | 3,277 | |||||
In connection with application of fresh-start accounting on
May 1, 2010, we recorded inventory at its fair value of
$4,849 million (see Note 4). The increase in inventory
of $1,297 million was primarily in the U.S. and
largely due to the price of crude oil.
We recorded non-cash charges in the 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. These non-cash 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.
LyondellBasell AF recorded charges of $127 million and
$1,256 million in 2009 and 2008, respectively, to adjust
the value of its inventory to market value, which was lower than
the carrying cost at December 31, 2009 and 2008.
At December 31, 2010, approximately 87% of our inventories
were valued using the LIFO method. Approximately 42% of the
Predecessor inventory was valued using the LIFO method at
December 31, 2009, and the remainder, excluding materials
and supplies, was valued using the FIFO method. The excess of
current replacement cost over LIFO cost of inventories amounted
to $257 million and $801 million at December 31,
2010 and 2009, respectively. During 2010 and 2009, liquidations
of LIFO inventory layers resulted in charges of $9 million
and $5 million, respectively.
109
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. | Property, Plant and Equipment, Goodwill, Intangible and Other Assets |
Plant, Property and Equipment
— The components
of Property, plant and equipment, at cost, and the related
accumulated depreciation were as follows at December 31:
| Successor | Predecessor | ||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Land
|
$ | 286 | $ | 297 | |||||
|
Manufacturing facilities and equipment
|
6,752 | 17,665 | |||||||
|
Construction in progress
|
569 | 1,029 | |||||||
|
Total property, plant and equipment
|
7,607 | 18,991 | |||||||
|
Less accumulated depreciation
|
(417 | ) | (3,839 | ) | |||||
|
Property, plant and equipment, net
|
$ | 7,190 | $ | 15,152 | |||||
In connection with application of fresh-start accounting on
May 1, 2010, we recorded Property, plant and equipment,
which includes land, buildings and equipment, furniture and
fixtures and construction in progress, at its fair value of
$7,080 million (see Note 4).
On February 25, 2010, based on the continued impact of
global economic conditions on polypropylene demand,
LyondellBasell AF announced a project to cease production at,
and permanently shut down, its polypropylene plant at Terni,
Italy. LyondellBasell AF recognized charges of $23 million
in cost of sales related to plant and other closure costs in the
first quarter of 2010. In July 2010 the plant ceased production.
Following an analysis of the cash flow projections for the Berre
refinery, we concluded that the capital additions in 2010 are
impaired. Accordingly, we recognized a $25 million charge
for impairment of the carrying value of those assets.
The full carrying value of the Berre Refinery assets was
impaired in 2008 resulting in a charge of $218 million. The
analysis that was conducted resulting in the impairment was
triggered by a downward revision of the Company’s long
range cash flow projections due to the significantly
deteriorating business conditions experienced in the fourth
quarter of 2008.
Capitalized interest expense related to Property, plant and
equipment for the eight months ended December 31, 2010, the
four months ended April 30, 2010 and for the years ended
December 31, 2009 and 2008 was $2 million,
$4 million, $35 million and $13 million,
respectively.
Goodwill
— We recorded goodwill of
$784 million upon application of fresh-start accounting
(see Note 4). Goodwill at December 31, 2010 reflects a
$3 million effect of changes in currency exchange rates
since April 30, 2010. This was the only movement in
goodwill during the Successor period.
During the fourth quarter of 2008, LyondellBasell AF determined
that the goodwill associated with its Refining and Oxyfuels,
O&P — Americas and Intermediates and Derivatives
business segments was impaired. The impairment was based on a
review of the business segments performed by Management in which
discounted cash flows did not support the carrying value of the
goodwill due to the rapid deterioration in the global economy
and the effects on LyondellBasell AF’s operations in the
latter part of the fourth quarter of 2008. Accordingly, in the
fourth quarter of 2008, LyondellBasell AF recorded a charge to
earnings of $4,982 million, for impairment of goodwill,
including $4,921 million related to the December 20,
2007 acquisition of Lyondell Chemical. In the fourth quarter of
2009, LyondellBasell AF recorded an adjustment related to prior
periods which increased income from operations and net income
for the three-month period
110
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. | Property, Plant and Equipment, Goodwill, Intangible and Other Assets — (Continued) |
ended December 31, 2009 by $65 million. The adjustment
related to an overstatement of goodwill impairment in 2008.
Intangible Assets
— In connection with
application of fresh-start accounting on May 1, 2010, we
recorded Intangible assets at their fair values of
$1,474 million (see Note 4).
The components of identifiable intangible assets, at cost, and
the related accumulated amortization were as follows at December
31:
| Successor | Predecessor | ||||||||||||||||||||||||
| 2010 | 2009 | ||||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
||||||||||||||||||||||||
| Cost | Amortization | Net | Cost | Amortization | Net | ||||||||||||||||||||
|
Millions of dollars
|
|||||||||||||||||||||||||
|
In-process research and development costs
|
$ | 132 | $ | (3 | )* | $ | 129 | $ | — | $ | — | $ | — | ||||||||||||
|
Technology, patent and license costs
|
2 | — | 2 | 1,021 | (338 | ) | 683 | ||||||||||||||||||
|
Emission allowances
|
731 | (46 | ) | 685 | 733 | (62 | )* | 671 | |||||||||||||||||
|
Various contracts
|
567 | (74 | ) | 493 | 350 | (118 | ) | 232 | |||||||||||||||||
|
Debt issuance costs
|
— | — | — | 598 | (477 | ) | 121 | ||||||||||||||||||
|
Software costs
|
53 | (2 | ) | 51 | 71 | (6 | ) | 65 | |||||||||||||||||
|
Catalyst costs
|
— | — | — | 127 | (89 | ) | 38 | ||||||||||||||||||
|
Other
|
— | — | — | 111 | (60 | ) | 51 | ||||||||||||||||||
|
Total intangible assets
|
$ | 1,485 | $ | (125 | ) | $ | 1,360 | $ | 3,011 | $ | (1,150 | ) | $ | 1,861 | |||||||||||
| * | Includes impairments discussed in the paragraphs below. |
Amortization of these identifiable intangible assets for the
next five years is expected to be $133 million in each of
2011, 2012, 2013 and 2014 and $126 million in 2015.
During the Successor period we recognized an impairment of
$3 million related to certain in-process research and
development projects which were abandoned.
During the fourth quarter 2009 LyondellBasell AF recognized a
$44 million charge related to surplus highly-reactive
volatile organic compound (“HRVOC”) emissions
allowances. For purposes of the annual impairment test, fair
value was measured based on estimates of cost to implement
alternative emission reduction technology. Also in December
2009, LyondellBasell AF recognized a $9 million impairment
for
non-U.S. emission
rights. These charges are reflected in Impairments on the
Consolidated Statements of Income.
111
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. | Property, Plant and Equipment, Goodwill, Intangible and Other Assets — (Continued) |
The components of Other assets were as follows at December 31:
| Successor | Predecessor | ||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Precious metals
|
$ | — | $ | 90 | |||||
|
Debt issuance costs
|
126 | — | |||||||
|
Company-owned life insurance
|
58 | 52 | |||||||
|
Pension assets
|
21 | 19 | |||||||
|
Deferred tax assets
|
41 | 115 | |||||||
|
Other
|
27 | 87 | |||||||
|
Total other assets
|
$ | 273 | $ | 363 | |||||
Depreciation and Amortization Expense
— Depreciation
and amortization expense is summarized as follows:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Property, plant and equipment
|
$ | 413 | $ | 499 | $ | 1,515 | $ | 1,628 | |||||||||
|
Investment in PO joint ventures
|
16 | 19 | 57 | 59 | |||||||||||||
|
Emission allowances
|
46 | — | — | — | |||||||||||||
|
Various contracts
|
81 | — | — | — | |||||||||||||
|
Technology, patent and license costs
|
— | 25 | 123 | 93 | |||||||||||||
|
Software costs
|
2 | 12 | 21 | 15 | |||||||||||||
|
Other
|
— | 10 | 58 | 116 | |||||||||||||
|
Total depreciation and amortization
|
$ | 558 | $ | 565 | $ | 1,774 | $ | 1,911 | |||||||||
Asset Retirement Obligations
— At some sites we
are contractually obligated to decommission our plants upon site
exit. The Company has provided for the net present value of the
estimated costs. Typically such
112
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. | Property, Plant and Equipment, Goodwill, Intangible and Other Assets — (Continued) |
costs are incurred within three years after a plant’s
closure. The changes in the Company’s asset retirement
obligations were as follows:
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For the Year
|
|||||||||||
|
Through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Beginning balance
|
$ | 138 | $ | 132 | $ | 108 | |||||||
|
Payments
|
(11 | ) | (3 | ) | — | ||||||||
|
Changes in estimates
|
(2 | ) | (11 | ) | — | ||||||||
|
Accretion expense
|
5 | 40 | 17 | ||||||||||
|
Effects of exchange rate changes
|
2 | (10 | ) | 7 | |||||||||
|
Divestitures
|
— | (2 | ) | — | |||||||||
|
Other
|
— | (3 | ) | — | |||||||||
|
Ending balance
|
$ | 132 | $ | 143 | $ | 132 | |||||||
In connection with application of fresh-start accounting on
May 1, 2010, we recorded asset retirement obligations at
their fair values of $138 million.
We believe that there are asset retirement obligations
associated with some of our facilities, but that the present
value of those obligations is not material in the context of an
indefinite expected life of the facilities. We continually
review the optimal future alternatives for our facilities. Any
decision to retire one or more facilities may result in an
increase in the present value of such obligations.
| 12. | Investment in PO Joint Ventures |
We, together with Bayer AG and Bayer Corporation (collectively
“Bayer”), share ownership in a U.S. propylene
oxide (“PO”) manufacturing joint venture (the
“U.S. PO Joint Venture”) and a separate joint
venture for certain related PO technology. Bayer’s
ownership interest represents ownership of annual in-kind PO
production of the U.S. PO Joint Venture of 1.5 billion
pounds in 2010 and 2009. We take in kind the remaining PO
production and all co-product (styrene monomer (“SM”
or “styrene”) and tertiary butyl ether
(“TBA”) production from the U.S. PO Joint Venture.
In addition, we and Bayer each have a 50% interest in a separate
manufacturing joint venture (the “European PO Joint
Venture”), which includes a world-scale PO/SM plant at
Maasvlakte near Rotterdam, The Netherlands. We and Bayer each
are entitled to 50% of the PO and SM production at the European
PO Joint Venture.
We and Bayer do not share marketing or product sales under the
U.S. PO Joint Venture. We operate the U.S. PO Joint
Venture’s and the European PO Joint Venture’s
(collectively the “PO joint ventures”) plants and
arrange and coordinate the logistics of product delivery. The
partners share in the cost of production and logistics based on
their product offtake.
We report the cost of our product offtake as inventory and cost
of sales in our consolidated financial statements. Related cash
flows are reported in the operating cash flow section of the
consolidated statements of cash flows. Our investment in the PO
joint ventures is reduced through recognition of our share of
the depreciation and amortization of the assets of the PO joint
ventures, which is included in cost of sales. Other changes in
the investment balance are principally due to additional capital
investments in the PO joint ventures
113
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 12. | Investment in PO Joint Ventures — (Continued) |
by us. Our contributions to the PO joint ventures are reported
as “Contributions and advances to affiliates” in the
Consolidated Statements of Cash Flows.
Total assets reflected in the books and records of the PO joint
ventures, primarily property, plant and equipment, were
$1,205 million and $1,916 million as of
December 31, 2010 and 2009, respectively.
Changes in the Company’s investment in the U.S. and
European PO joint ventures for 2010 and 2009 are summarized
below:
|
U.S. PO Joint
|
European PO Joint
|
Total PO Joint
|
||||||||||
| Venture | Venture | Ventures | ||||||||||
|
Millions of dollars
|
||||||||||||
|
Successor
|
||||||||||||
|
Investments in PO joint ventures — May 1, 2010
|
$ | 303 | $ | 149 | $ | 452 | ||||||
|
Cash contributions
|
1 | — | 1 | |||||||||
|
Depreciation and amortization
|
(13 | ) | (3 | ) | (16 | ) | ||||||
|
Effect of exchange rate changes
|
— | — | — | |||||||||
|
Investments in PO joint ventures — December 31,
2010
|
$ | 291 | $ | 146 | $ | 437 | ||||||
|
Predecessor
|
||||||||||||
|
Investments in PO joint ventures — January 1, 2010
|
$ | 533 | $ | 389 | $ | 922 | ||||||
|
Return of investment
|
— | (5 | ) | (5 | ) | |||||||
|
Depreciation and amortization
|
(14 | ) | (5 | ) | (19 | ) | ||||||
|
Effect of exchange rate changes
|
— | (31 | ) | (31 | ) | |||||||
|
Investments in PO joint ventures — April 30, 2010
|
$ | 519 | $ | 348 | $ | 867 | ||||||
|
Investments in PO joint ventures — January 1, 2009
|
$ | 562 | $ | 392 | $ | 954 | ||||||
|
Cash contributions
|
12 | 2 | 14 | |||||||||
|
Depreciation and amortization
|
(41 | ) | (16 | ) | (57 | ) | ||||||
|
Effect of exchange rate changes
|
— | 11 | 11 | |||||||||
|
Investments in PO joint ventures — December 31,
2009
|
$ | 533 | $ | 389 | $ | 922 | ||||||
In connection with application of fresh-start accounting on
May 1, 2010, our equity interests in PO joint ventures were
valued at their fair value of $452 million (see
Note 4).
114
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 13. | Equity Investments |
Direct and indirect Equity investments held by the Company are
as follows:
|
December 31,
|
December 31,
|
|||||||
|
Percent of Ownership
|
2010 | 2009 | ||||||
|
Basell Orlen Polyolefins Sp. Z.o.o.
|
50.00 | % | 50.00 | % | ||||
|
PolyPacific Pty. Ltd.
|
50.00 | % | 50.00 | % | ||||
|
SunAllomer Ltd.
|
50.00 | % | 50.00 | % | ||||
|
Saudi Polyolefins Company
|
25.00 | % | 25.00 | % | ||||
|
Saudi Ethylene & Polyethylene Company Ltd.
|
25.00 | % | 25.00 | % | ||||
|
Al-Waha Petrochemicals Ltd.
|
20.95 | % | 20.95 | % | ||||
|
PolyMirae Co. Ltd.
|
42.59 | % | 42.59 | % | ||||
|
HMC Polymers Company Ltd.
|
28.56 | % | 28.56 | % | ||||
|
Indelpro S.A. de C.V.
|
49.00 | % | 49.00 | % | ||||
|
Kazakhstan Petro-Chemicals Industries, Inc.
|
— | 24.00 | % | |||||
|
Ningbo ZRCC Lyondell Chemical Co. Ltd.
|
26.65 | % | 26.65 | % | ||||
|
Ningbo ZRCC Lyondell Chemical Marketing Co.
|
50.00 | % | 50.00 | % | ||||
|
Nihon Oxirane Company
|
40.00 | % | 40.00 | % | ||||
|
NOC Asia Ltd.
|
40.00 | % | 40.00 | % | ||||
|
Geosel
|
27.00 | % | 27.00 | % | ||||
The changes in Equity investments are as follows for the years
2010 and 2009:
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For the Year
|
|||||||||||
|
through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Beginning balance
|
$ | 1,524 | $ | 1,085 | $ | 1,215 | |||||||
|
Investee net income
|
86 | 84 | 47 | ||||||||||
|
Impairment recognized by investor
|
— | — | (228 | ) | |||||||||
|
Income (loss) from equity investments
|
86 | 84 | (181 | ) | |||||||||
|
Dividends received
|
(34 | ) | (18 | ) | (19 | ) | |||||||
|
Contributions to joint venture
|
— | 20 | 8 | ||||||||||
|
Currency exchange effects
|
(7 | ) | (8 | ) | 48 | ||||||||
|
Other
|
18 | 10 | 14 | ||||||||||
|
Ending balance
|
$ | 1,587 | $ | 1,173 | $ | 1,085 | |||||||
We capitalize interest on the projects of our equity investees
that are necessary for the commencement of their principal
operations. During 2010 and 2009, the Company capitalized
interest of $2 million and $17 million, respectively,
for qualified projects of Saudi Ethylene &
Polyethylene Company Ltd. and Al-Waha Petrochemicals Ltd.
The subsidiary that holds the Company’s equity interest in
Saudi Al-Waha Petrochemicals Ltd has a minority shareholder,
which holds 16.21% of its equity. The equity interest held by
the minority shareholder
115
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 13. | Equity Investments — (Continued) |
can be called by the Company or can be put to the Company by the
minority interest shareholder at any time after May 23,
2009. The price of the call option is the nominal value of the
shares (initial $18 million investment) plus accrued
interest based on LIBOR plus 40 basis points, less paid
dividends. The price of the put option is €1 plus the
minority shareholder’s undistributed pro-rata earnings. As
of December 31, 2010 and 2009, the put would have a minimal
redemption amount and the call could be redeemed for
$21 million and $20 million, respectively, the value
of the initial investment plus accrued interest.
Summarized balance sheet information and the Company’s
share of Equity investments was as follows:
| Successor | Predecessor | ||||||||||||||||
| December 31, 2010 | December 31, 2009 | ||||||||||||||||
|
Company
|
Company
|
||||||||||||||||
| 100% | Share | 100% | Share | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Current assets
|
$ | 3,793 | $ | 1,343 | $ | 2,760 | $ | 1,016 | |||||||||
|
Noncurrent assets
|
6,849 | 1,998 | 6,887 | 2,172 | |||||||||||||
|
Total assets
|
10,642 | 3,341 | 9,647 | 3,188 | |||||||||||||
|
Current liabilities
|
2,923 | 1,016 | 1,881 | 695 | |||||||||||||
|
Noncurrent liabilities
|
3,926 | 1,100 | 4,207 | 1,180 | |||||||||||||
|
Net assets
|
$ | 3,793 | $ | 1,225 | $ | 3,559 | $ | 1,313 | |||||||||
Summarized income statement information and the Company’s
share for the periods for which the respective equity
investments were accounted for under the equity method is set
forth below:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
||||||||||||||||
| December 31, 2010 | April 30, 2010 | ||||||||||||||||
|
Company
|
Company
|
||||||||||||||||
| 100% | Share | 100% | Share | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Revenues
|
$ | 6,249 | $ | 2,248 | $ | 3,127 | $ | 989 | |||||||||
|
Cost of sales
|
(5,622 | ) | (2,042 | ) | (2,699 | ) | (869 | ) | |||||||||
|
Gross profit
|
627 | 206 | 428 | 120 | |||||||||||||
|
Net operating expenses
|
(169 | ) | (55 | ) | (82 | ) | (29 | ) | |||||||||
|
Operating income
|
458 | 151 | 346 | 91 | |||||||||||||
|
Interest income
|
4 | 2 | 2 | 1 | |||||||||||||
|
Interest expense
|
(151 | ) | (43 | ) | (43 | ) | (13 | ) | |||||||||
|
Foreign currency translation
|
5 | (1 | ) | 83 | 24 | ||||||||||||
|
Income (loss) from equity investments
|
(2 | ) | (3 | ) | 3 | 2 | |||||||||||
|
Income before income taxes
|
314 | 106 | 391 | 105 | |||||||||||||
|
Provision for income taxes
|
43 | 20 | 67 | 21 | |||||||||||||
|
Net income
|
$ | 271 | $ | 86 | $ | 324 | $ | 84 | |||||||||
116
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 13. | Equity Investments — (Continued) |
| Predecessor | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
|
Company
|
Company
|
|||||||||||||||
| 100% | Share | 100% | Share | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
Revenues
|
$ | 6,640 | $ | 2,099 | $ | 7,252 | $ | 2,609 | ||||||||
|
Cost of sales
|
(5,973 | ) | (1,891 | ) | (6,532 | ) | (2,418 | ) | ||||||||
|
Gross profit
|
667 | 208 | 720 | 191 | ||||||||||||
|
Net operating expenses
|
(169 | ) | (71 | ) | (423 | ) | (106 | ) | ||||||||
|
Operating income
|
498 | 137 | 297 | 85 | ||||||||||||
|
Interest income
|
18 | 3 | 24 | 8 | ||||||||||||
|
Interest expense
|
(202 | ) | (61 | ) | (62 | ) | (26 | ) | ||||||||
|
Foreign currency translation
|
(10 | ) | (5 | ) | (57 | ) | (16 | ) | ||||||||
|
Income from equity investments
|
4 | 2 | 23 | 4 | ||||||||||||
|
Income before income taxes
|
308 | 76 | 225 | 55 | ||||||||||||
|
Provision for income taxes
|
92 | 29 | 58 | 17 | ||||||||||||
|
Net income
|
$ | 216 | $ | 47 | $ | 167 | $ | 38 | ||||||||
In connection with application of fresh-start accounting on
May 1, 2010, we recorded equity investments at their fair
value of $1,524 million (see Note 4). The carrying
value of our equity investments at December 31, 2010 of
$1,587 million reflects the 2010 aggregate fair value
adjustment, which is different than our share of its equity
investment in the underlying assets of $1,225 million. In
2009, the Company recognized pretax impairment charges totaling
$228 million for impairment of the carrying value of its
investments in certain joint ventures.
A joint venture of ours is in default under its financing
arrangement due to a delay in the
start-up
of
its assets and as a result of LyondellBasell AF’s voluntary
filing for relief under chapter 11 of the
U.S. Bankruptcy Code on April 24, 2009. The parties
are currently negotiating in good faith to resolve the default
and at present there is no evidence that such negotiations will
not be concluded successfully or that the resolution of this
matter will have a material adverse impact on our operations or
liquidity.
117
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 14. | Accrued Liabilities |
Accrued liabilities consisted of the following components at
December 31:
| Successor | Predecessor | ||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Payroll and benefits
|
$ | 386 | $ | 403 | |||||
|
Taxes other than income taxes
|
235 | 209 | |||||||
|
Interest
|
202 | 26 | |||||||
|
Product sales rebates
|
210 | 156 | |||||||
|
Warrants
|
215 | — | |||||||
|
Debtor-in-possession
exit fees
|
— | 195 | |||||||
|
Income taxes
|
99 | 84 | |||||||
|
Priority and administrative claims
|
98 | — | |||||||
|
Deferred revenues
|
49 | 36 | |||||||
|
Other
|
211 | 281 | |||||||
|
Total accrued liabilities
|
$ | 1,705 | $ | 1,390 | |||||
| 15. |
|
Long-term loans, notes and other long-term debt due to banks and
other unrelated parties consisted of the following:
| Successor | Predecessor | ||||||||
|
December 31,
|
December 31,
|
||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Bank credit facilities:
|
|||||||||
|
Senior Term Loan Facility due 2016
|
$ | 5 | $ | — | |||||
|
Senior secured credit facility:
|
|||||||||
|
Term loan A due 2013 — Dutch tranche
|
— | 331 | |||||||
|
$1,000 million revolving credit facility
|
— | 164 | |||||||
|
Senior Secured Notes due 2017, $2,250 million, 8.0%
|
2,025 | — | |||||||
|
Senior Secured Notes due 2017, €375 million, 8.0%
|
452 | — | |||||||
|
Senior Secured Notes due 2018, $3,240 million, 11.0%
|
3,240 | — | |||||||
|
Guaranteed Notes, due 2027
|
300 | 300 | |||||||
|
Other
|
18 | 7 | |||||||
|
Total
|
6,040 | 802 | |||||||
|
Less current maturities
|
(4 | ) | (497 | ) | |||||
|
Long-term debt
|
$ | 6,036 | $ | 305 | |||||
118
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Debt — (Continued) |
Short-term loans, notes and other short-term debt due to banks
and other unrelated parties consisted of the following:
| Successor | Predecessor | ||||||||
|
December 31,
|
December 31,
|
||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Bank credit facilities:
|
|||||||||
|
$1,750 million Senior Secured Asset-Based Revolving Credit
Agreement
|
$ | — | $ | — | |||||
|
Debtor-in-Possession
Credit Agreements:
|
|||||||||
|
Term Loan facility due 2010:
|
|||||||||
|
New Money Loans
|
— | 2,167 | |||||||
|
Roll-up
Loans — Senior Secured Credit Facility:
|
|||||||||
|
Term Loan A due 2013 — U.S. tranche
|
— | 385 | |||||||
|
Term Loan A due 2013 — Dutch tranche
|
— | 122 | |||||||
|
Term Loan B due 2014 — U.S. tranche
|
— | 2,012 | |||||||
|
Term Loan B due 2014 — German tranche
|
— | 465 | |||||||
|
Revolving Credit Facility — U.S. tranche
|
— | 202 | |||||||
|
Revolving Credit Facility — Dutch tranche
|
— | 54 | |||||||
|
ABL Facility
|
— | 325 | |||||||
|
Receivables securitization program
|
— | 377 | |||||||
|
Accounts receivable factoring facility
|
— | 24 | |||||||
|
Financial payables to equity investees
|
11 | 12 | |||||||
|
Other
|
31 | 37 | |||||||
|
Total short-term debt
|
$ | 42 | $ | 6,182 | |||||
Aggregate maturities of debt during the next five years are
$46 million in 2011, $10 million in 2012,
$1 million in each of the years 2013 and 2015, and
$6,024 million thereafter
On April 30, 2010, in accordance with provisions in the
Plan of Reorganization, payments totaling $2,362 million
were made to repay, in full, $2,167 million outstanding
under the DIP Term Loan Facility and a related $195 million
exit fee. The outstanding amount of $985 million under the
DIP ABL Facility was also repaid on April 30, 2010. In
addition, $18,310 million of debt classified as liabilities
subject to compromise was discharged pursuant to the Plan of
Reorganization (see Note 4).
Senior Secured 8% Notes
— On April 8,
2010, LBI Escrow issued $2,250 million of 8% senior
secured notes due 2017 and €375 million of senior
secured notes due 2017, (collectively, the “Senior Secured
8% Notes”). We paid fees of $62 million related
to the issuance of these facilities. On April 30, 2010,
Lyondell Chemical was merged with and replaced LBI Escrow as
issuer of the Senior Secured 8% Notes and borrower under
the Senior Term Loan Facility.
The Senior Secured 8% Notes are jointly and severally, and
fully and unconditionally guaranteed by LyondellBasell N.V. and,
subject to certain exceptions, each existing and future wholly
owned U.S. restricted subsidiary of LyondellBasell N.V.
(other than Lyondell Chemical, as issuer), other than any such
subsidiary that is a subsidiary of a
non-U.S. subsidiary
(the “Subsidiary Guarantors” and, together with
LyondellBasell N.V., the “Guarantors”).
119
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Debt — (Continued) |
The Senior Secured 8% Notes rank equally in right of
payment with all existing and future senior debt of Lyondell
Chemical and the Guarantors; the notes and guarantees rank
junior to obligations of our subsidiaries that do not guarantee
the Senior Secured 8% Notes.
The Senior Secured 8% Notes and guarantees are secured by:
| • | a first priority lien on substantially all of Lyondell Chemical’s and the Subsidiary Guarantors’ existing and future property and assets other than the assets securing the U.S. ABL Facility; | |
| • | a first priority lien on the capital stock of Lyondell Chemical and all Subsidiary Guarantors (other than any such subsidiary that is a subsidiary of a non-U.S. subsidiary); | |
| • | a first priority lien on 65% of the capital stock and 100% of the non-voting capital stock of the first-tier non-U.S. subsidiaries of Lyondell Chemical or of LyondellBasell N.V.; | |
| • | a second priority lien on the accounts receivables, inventory, related contracts and other rights and assets related to the foregoing and proceeds thereof that secure the U.S. ABL Facility on a first priority basis; | |
| • | subject, in each case, to certain exceptions permitted liens and releases under certain circumstances. |
The Senior Secured 8% Notes are redeemable by Lyondell
Chemical (i) prior to maturity at specified redemption
premium percentages according to the date the notes are redeemed
or (ii) from time to time at a redemption price of 100% of
such principal amount plus generally applicable premium as
calculated pursuant to a formula.
In addition, Lyondell Chemical has the option to redeem up to
10% of the outstanding Senior Secured 8% Notes annually
prior to May 1, 2013 at a redemption price equal to 103% of
such notes’ principal amount. Also prior to May 1,
2013, Lyondell Chemical has the option to redeem up to 35% of
the original aggregate principal amount of the Senior Secured
8% Notes (plus any additional notes), generally at a
redemption price of 108% of such principal amount, with the net
proceeds of one or more equity offerings, provided that
(i) at least 50% of the original aggregate principal amount
remains outstanding immediately after such redemption and
(ii) the redemption occurs within 90 days of the
closing of the equity offering. The value of this embedded
derivative is nominal.
The Senior Secured 8% Notes are redeemable at par after
May 1, 2016 and contain covenants, subject to certain
exceptions, that restrict, among other things, debt and lien
incurrence; investments; certain restricted payments; sales of
assets and mergers; and affiliate transactions.
Several of the restrictive covenants would be suspended if we
receive an investment grade rating from two rating agencies. The
Senior Secured 8% Notes are not subject to the maintenance
of any specific financial covenant.
In December 2010 we redeemed $225 million of
8.0% Senior Secured dollar notes and
€37.5 million ($50 million) of 8.0% Senior
Secured Euro notes maturing in 2017, pursuant to the terms of
the indenture representing repayment of 10% of the outstanding
bonds. Interest expense in the 2010 Successor period reflects
the effect of prepayment premiums of $7 million and
$1 million, respectively, paid in connection with the
repayment of the 8% Senior Secured dollar notes and
8% Senior Secured Euro notes.
Senior Secured 11% Notes
— Consistent with
the terms of the Plan of Reorganization, on the Emergence Date,
Lyondell Chemical issued Senior Secured 11% Notes under an
indenture of approximately $3,240 million, replacing the
DIP
Roll-up
Notes issued as part of the DIP Term Loan Facility in January
2009.
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Debt — (Continued) |
The Senior Secured 11% Notes are guaranteed by the same
Guarantors that support the Senior Secured 8% Notes, the
Senior Term Loan Facility and the U.S. ABL Facility. The
Senior Secured 11% Notes are secured by the same security
package as the Senior Secured 8% Notes, the Senior Term
Loan Facility and the U.S. ABL Facility on a third priority
basis and bear interest at a rate equal to 11%.
The Senior Secured 11% Notes are redeemable by Lyondell
Chemical (i) at par on or after May 1, 2013 and
(ii) from time to time at a redemption price of 100% of
such principal amount plus generally applicable premium as
calculated pursuant to a formula.
In addition, Lyondell Chemical has the option to redeem up to
35% of the original aggregate principal amount of the Senior
Secured 11% Notes (plus any additional notes), generally at
a redemption price of 111% of such principal amount, with the
net proceeds of one or more equity offerings, provided that
(i) at least 50% of the original aggregate principal amount
remains outstanding immediately after such redemption and
(ii) the redemption occurs within 90 days of the
closing of the equity offering. The value of this embedded
derivative is nominal. The exercise of this option is subject to
certain limitations under the Senior Term Loan Facility.
Registration Rights Agreement —
In connection
with the issuance of the Senior Secured 8% Notes and the
Senior Secured 11% Notes (collectively, the “Senior
Secured Notes”), we entered into registration rights
agreements that require us to exchange the Senior Secured Notes
for notes with substantially identical terms as the Senior
Secured Notes except the new notes will be registered with the
SEC under the Securities Act of 1933, as amended, and will
therefore be free of any transfer restrictions. The registration
rights agreement requires a registration statement for the
exchange to be effective with the SEC by April 30, 2011 and
the exchange to be consummated within 45 days thereafter.
If we do not meet these deadlines, the interest rate on the
Senior Secured Notes will be increased by 0.25% per annum for
the
90-day
period following April 30, 2011 and will increase by an
additional 0.25% for each subsequent
90-day
period that the registration and exchange are not completed, up
to a maximum of 1.00% per annum.
Senior Term Loan Facility
— On April 8,
2010, LBI Escrow borrowed $500 million under a new
six-year, $500 million senior term loan facility (the
“Senior Term Loan Facility”) and received proceeds,
net of discount, of $495 million. We paid fees of
$10 million related to the issuance of this facility.
Borrowings under the Senior Term Loan Facility will bear
interest at either (a) a LIBOR rate adjusted for certain
additional costs or (b) a base rate determined by reference
to the highest of the administrative agent’s prime rate,
the federal funds effective rate plus 0.5%, or one-month LIBOR
plus 1.0% (the “Base Rate”), in each case plus an
applicable margin.
The Senior Term Loan Facility is guaranteed, jointly and
severally, and fully and unconditionally, on a senior secured
basis, initially by the Guarantors. Subject to permitted liens
and other exceptions, Lyondell Chemical’s obligations and
guarantees will be secured on a pari passu basis with the Senior
Secured Notes by first priority security interests in the
collateral securing the Senior Secured Notes and by a second
priority security interest in the collateral securing the
U.S. ABL Facility described below.
The Senior Term Loan Facility contains covenants that are
substantially similar to the Senior Secured Notes. The Senior
Term Loan Facility is not subject to the maintenance of any
specific financial covenant.
During the Successor period, we made payments under the Senior
Term Loan Facility totaling $495 million, including a
$1 million mandatory quarterly amortization payment in
September 2010 and $494 million in December 2010. The
payment in December 2010 satisfied all future amortization
payments under the loan.
U.S. ABL Facility
— On April 8, 2010,
Lyondell Chemical completed the financing of a new four-year,
$1,750 million U.S. asset-based facility
(“U.S. ABL Facility”), which may be used for
advances or to issue up to $700 million of letters of
credit. Lyondell Chemical paid fees of $70 million related
to the completion of
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Debt — (Continued) |
this financing. Borrowings under the U.S. ABL Facility bear
interest at the Base Rate or LIBOR, plus an applicable margin,
and the lenders are paid a commitment fee on the average daily
unused commitments.
At December 31, 2010, there were no borrowings outstanding
under the U.S. ABL facility and outstanding letters of
credit totaled $370 million. Pursuant to the U.S. ABL
facility, Lyondell Chemical could, subject to a borrowing base,
borrow up to $1,380 million. The borrowing base is
determined using formulae applied to accounts receivable and
inventory balances, and is reduced to the extent of outstanding
letters of credit under the facility. Advances under this new
facility are available to our subsidiaries, Lyondell Chemical,
Equistar Chemicals LP (“Equistar”), Houston Refining
LP, or LyondellBasell Acetyls LLC.
Obligations under the U.S. ABL Facility are guaranteed
jointly and severally, and fully and unconditionally, on a
senior secured basis, by the Guarantors (except, in the case of
any Guarantor that is a borrower under the facility, to the
extent of its own obligations in its capacity as a borrower).
The borrowers’ obligations under the U.S. ABL Facility
and the related guarantees are secured by (i) a first
priority lien on all present and after-acquired inventory,
accounts receivable, related contracts and other rights, deposit
accounts into which proceeds of the foregoing are credited, and
books and records related thereto, together with all proceeds of
the foregoing, in each case to the extent of the rights, title
and interest therein of any ABL borrowers and (ii) a second
priority lien on the Senior Secured Notes and Senior Term Loan
Facility collateral.
Mandatory prepayments of the loans under the U.S. ABL
Facility will be made from net cash proceeds from certain sales
of collateral securing the facility and insurance and
condemnation awards involving the facility.
The U.S. ABL Facility contains covenants that are
substantially similar to the Senior Secured Notes.
In addition, during the first two years, in the event
(i) excess availability under the U.S. ABL Facility
falls below $300 million for five consecutive business days
or below $250 million on any business day, or
(ii) total liquidity falls below $550 million for five
consecutive business days or below $500 million on any
business day, we are required to comply with a minimum fixed
charge coverage ratio of not less than 1.00 to 1.00, measured
quarterly. Following the second anniversary of the effective
date, in the event (i) excess availability under the
U.S. ABL Facility falls below $400 million for five
consecutive business days or below $325 million on any
business day, or (ii) total liquidity falls below
$650 million for five consecutive business days or below
$575 million on any business day, we are also required to
meet the minimum fixed charge coverage ratio. The fixed charge
coverage ratio is defined in the facility, generally, as the
ratio of earnings before interest, taxes, depreciation and
amortization less capital expenditures to consolidated interest
expense, plus dividends on preferred or other preferential
stock, adjusted for relevant taxes, and scheduled repayments of
debt. The availability under the U.S. ABL Facility was
$1,380 million as of December 31, 2010.
Guaranteed Notes due 2027
— We have outstanding
fixed interest rate Guaranteed Notes of $300 million with a
maturity date of March 15, 2027. The interest rate is 8.1%
and the interest payment dates are September 15 and
March 15.
The Guaranteed Notes are guaranteed by LyondellBasell Industries
Holdings B.V., a subsidiary of LyondellBasell N.V. The 2027
Guaranteed Notes provide certain restrictions with respect to
the level of maximum debt that can be incurred and security that
can be granted by the operating companies in Italy and The
Netherlands that are direct or indirect wholly owned
subsidiaries of LyondellBasell Industries Holdings B.V.
The 2027 Notes contain customary provisions for default,
including, among others, the non-payment of principal and
interest on the 2027 Notes, certain failures to perform or
observe any other obligation under the 2027 Agreement on the
2027 Notes, the occurrence of certain defaults under other
indebtedness, failure to pay certain indebtedness and the
insolvency or bankruptcy of certain LyondellBasell N.V.
subsidiaries.
122
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Debt — (Continued) |
Receivables securitization programs
— On
December 20, 2007, in connection with the acquisition of
Lyondell Chemical, certain U.S. subsidiaries entered into a
$1,150 million accounts receivable securitization facility
to sell, through a wholly owned, bankruptcy-remote subsidiary,
on an ongoing basis and without recourse, interests in a pool of
U.S. accounts receivable to financial institutions
participating in the facility.
The amount of outstanding receivables sold under the new
facility was $503 million as of December 31, 2008. On
January 9, 2009, as a result of the filing for relief under
chapter 11 of the U.S. Bankruptcy Code, the
$1,150 million accounts receivable sales facility was
terminated and repaid in full, using $503 million of the
initial proceeds of the DIP Financing.
The Company had an accounts receivable securitization program
under which it could receive funding of up to
€450 million against eligible receivables of certain
European subsidiaries. This facility was refinanced, in full, on
May 4, 2010 and replaced with a new three-year European
securitization facility. Transfers of accounts receivable under
this 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. In October 2010, the
amounts outstanding under the receivable securitization program
were repaid. The lenders will receive a commitment fee on the
unused commitments.
Accounts Receivable Factoring Facility
— On
October 8, 2009, the Company entered into an accounts
receivable factoring facility for up to €100 million.
The factoring facility was for an indefinite period,
non-recourse, unsecured and terminable by either party subject
to notice. In November 2010, the facility was paid in full and
terminated.
Other
— In the eight months ended
December 31, 2010, and in the four months ended
April 30, 2010, amortization of debt premiums and debt
issuance costs resulted in amortization expense of
$23 million and $307 million, respectively, that was
included in interest expense in the Consolidated Statements of
Income. For the years ended December 31, 2009 and 2008,
such amortization was $499 million and $513 million,
respectively, including adjustments to fair values included in
accounting for the acquisition of Lyondell Chemical, and debt
issuance costs.
In 2009, in conjunction with the reclassification of debt to
“Liabilities Subject to Compromise,” LyondellBasell AF
wrote off the associated unamortized debt issuance costs of
$228 million, which are reflected in “Reorganization
items” in the Consolidated Statements of Income.
Contractual interest for the Debtors was $914 million for
the four-months ended April 30, 2010; and
$2,720 million for the year ended December 31, 2009.
Our 2010 weighted average interest rate on outstanding
short-term debt was 5% and 9.2% in the 2010 Successor and
Predecessor periods, respectively, and 8.8% in 2009.
| 16. | Lease Commitments |
We lease office facilities, railcars, vehicles, and other
equipment under long-term operating leases. Some leases contain
renewal provisions, purchase options and escalation clauses.
Additionally, we have entered into a long-term agreement with an
information technology service provider that is cancellable by
us with a six-month notice period and payment of a cancellation
fee. This agreement is classified as an operating lease.
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 16. | Lease Commitments — (Continued) |
The aggregate future estimated payments under these commitments
are:
|
Millions of dollars
|
||||
|
2011
|
$ | 278 | ||
|
2012
|
232 | |||
|
2013
|
211 | |||
|
2014
|
185 | |||
|
2015
|
152 | |||
|
Thereafter
|
629 | |||
|
Total minimum lease payments
|
$ | 1,687 | ||
Rental expense for the years ended December 31, 2010, 2009
and 2008 was $276 million, $315 million and
$556 million, respectively.
| 17. | Financial Instruments and Derivatives |
Cash Concentration
— Our cash equivalents are
placed in high-quality commercial paper, money market funds and
time deposits with major international banks and financial
institutions.
Market Risks
— We are exposed to market risks,
such as changes in commodity pricing, currency exchange rates
and interest rates. To manage the volatility related to these
exposures, we selectively enter into derivative transactions
pursuant to our policies. Designation of the derivatives as
fair-value or cash-flow hedges is performed on a specific
exposure basis. Hedge accounting may or may not be elected with
respect to certain short-term exposures. The changes in fair
value of these hedging instruments are offset in part or in
whole by corresponding changes in the fair value or cash flows
of the underlying exposures being hedged.
Commodity Prices
— We are exposed to commodity
price volatility related to anticipated purchases of natural
gas, crude oil and other raw materials and sales of our
products. We selectively use commodity swap, option, and futures
contracts with various terms to manage the volatility related to
these risks. Such contracts are generally limited to durations
of one year or less. Cash-flow hedge accounting may be elected
for these derivative transactions. In cases, when the duration
of a derivative is short, hedge accounting generally would not
be elected. When hedge accounting is not elected, the changes in
fair value of these instruments will be recorded in earnings.
When hedge accounting is elected, gains and losses on these
instruments will be deferred in accumulated other comprehensive
income (“AOCI”), to the extent that the hedge remains
effective, until the underlying transaction is recognized in
earnings.
The Company entered into futures contracts with respect to sales
of gasoline and heating oil. These futures transactions were not
designated as hedges, and the changes in the fair value of the
futures contracts were recognized in earnings. In the eight
months ended December 31, 2010, we settled futures
positions for gasoline and heating oil of 355 million
gallons and 349 million gallons, respectively, resulting in
net gains of $3 million and $8 million, respectively.
At December 31, 2010, futures contracts for 28 million
gallons of gasoline and heating oil in the notional amount of
$70 million, maturing in February 2011, were outstanding.
The fair values, based on quoted market prices, resulted in a
net payable of $1 million at December 31, 2010.
In addition, we settled futures positions for crude oil of
6 million barrels in during the eight months ended
December 31, 2010, resulting in net gains of
$3 million. These futures transactions were not designated
as hedges.
We also entered into futures contracts during the eight months
ended December 31, 2010 with respect to purchases of crude
oil and sales of gasoline. These futures transactions were not
designated as hedges. We settled futures positions for gasoline
of 1 million barrels in the eight months ended
December 31, 2010,
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
resulting in a net gain of $5 million. We settled futures
positions for crude oil of 1 million barrels in the eight
months ended December 31, 2010, resulting in a net loss of
$7 million.
Foreign Currency Rates
— We have significant
operations in several countries of which functional currencies
are primarily the U.S. dollar for U.S. operations and
the Euro for operations in Europe. We enter into transactions
denominated in other than our functional currency and the
functional currencies of our subsidiaries and are, therefore,
exposed to foreign currency risk on receivables and payables. We
maintain risk management control systems intended to monitor
foreign currency risk attributable to both the outstanding
foreign currency balances and future commitments. The risk
management control systems involve the centralization of foreign
currency exposure management, the offsetting of exposures and
the estimating of expected impacts of changes in foreign
currency rates on our earnings. We enter into foreign currency
forward contracts to reduce the effects of our net currency
exchange exposures. At December 31, 2010, foreign currency
forward contracts in the notional amount of $93 million,
maturing in January and February 2011, were outstanding. The
fair value, based on quoted market exchange rates, resulted in a
net payable of $1 million at December 31, 2010.
For forward contracts that economically hedge recognized
monetary assets and liabilities in foreign currencies, no hedge
accounting is applied. Changes in the fair value of foreign
currency forward contracts are reported in the Consolidated
Statements of Income and offset the currency exchange results
recognized on the assets and liabilities.
Foreign Currency Gain (Loss)
— Other income,
net, in the Consolidated Statements of Income reflected a gain
of $18 million for the eight months ended December 31,
2010; losses of $258 million for the four months ended
April 30, 2010; and gains of $123 million and
$20 million, for the years ended December 31, 2009 and
2008, respectively, related to changes in currency exchange
rates.
Interest Rates
— Pursuant to the provisions of
the Plan of Reorganization, $201 million in liabilities
associated with interest rate swaps designated as cash-flow
hedges in the notional amount of $2,350 million were
discharged on April 30, 2010. The Predecessor Company
discontinued accounting for the interest rate swap as a hedge
and, in April 2010, $153 million of unamortized loss was
released from AOCI and recognized in Interest expense on the
Consolidated Statements of Income.
Warrants
— As of December 31, 2010,
LyondellBasell N.V. has warrants to purchase 11,508,104 ordinary
shares at an exercise price of $15.90 per ordinary share issued
and outstanding. The warrants have anti-dilution protection for
in-kind stock dividends, stock splits, stock combinations and
similar transactions and may be exercised at any time during the
period from April 30, 2010 to the close of business on
April 30, 2017. Upon an affiliate change of control, the
holders of the warrants may put the warrants to LyondellBasell
N.V. at a price equal to, as applicable, the
in-the-money
value of the warrants or the Black-Scholes value of the warrants.
The fair value of each warrant granted is estimated based on
quoted market price as of December 31, 2010. A
Black-Scholes option-pricing model was used to estimate the fair
value of the warrants at April 30, 2010; therefore, the
$84 million fair value as of June 30, 2010 has been
transferred from Level 3 to Level 1 in the
reconciliation of the beginning and ending balances of
Level 1, Level 2 and Level 3 inputs, below.
The fair values of the warrants were determined to be
$215 million and $101 million at December 31,
2010 and at April 30, 2010, respectively.
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
The following table summarizes financial instruments outstanding
as of December 31, 2010 and 2009 that are measured at fair
value on a recurring basis and the bases used to determine their
fair value in the consolidated balance sheets.
|
Quoted Prices
|
||||||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||||||
|
Markets for
|
Other
|
Significant
|
||||||||||||||||||
|
Identical
|
Observable
|
Unobservable
|
||||||||||||||||||
|
Notional
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||||||
| Amount | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||
|
Successor
|
||||||||||||||||||||
|
December 31, 2010:
|
||||||||||||||||||||
|
Liabilities at fair value:
|
||||||||||||||||||||
|
Derivatives:
|
||||||||||||||||||||
|
Gasoline and heating oil
|
$ | 70 | $ | 1 | $ | — | $ | 1 | $ | — | ||||||||||
|
Warrants
|
183 | 215 | 215 | — | — | |||||||||||||||
|
Foreign currency
|
93 | 1 | — | 1 | — | |||||||||||||||
| $ | 346 | $ | 217 | $ | 215 | $ | 2 | $ | — | |||||||||||
|
Predecessor
|
||||||||||||||||||||
|
December 31, 2009:
|
||||||||||||||||||||
|
Liabilities at fair value:
|
||||||||||||||||||||
|
Derivatives:
|
||||||||||||||||||||
|
Gasoline, heating oil and crude oil
|
$ | 38 | $ | 2 | $ | — | $ | 2 | $ | — | ||||||||||
|
Foreign currency
|
234 | 20 | — | 20 | — | |||||||||||||||
| $ | 272 | $ | 22 | $ | — | $ | 22 | $ | — | |||||||||||
The fair value of all non-derivative financial instruments
included in current assets, including cash and cash equivalents
and accounts receivable, and accounts payable, approximated the
applicable carrying value due to the short maturity of those
instruments.
The following table provides the fair value of derivative
instruments and their balance sheet classifications at
December 31, 2010:
| Successor | Predecessor | ||||||||||
|
Balance Sheet
|
December 31,
|
December 31,
|
|||||||||
|
Classification
|
2010 | 2009 | |||||||||
|
Millions of dollars
|
|||||||||||
|
Fair Value of Derivative Instruments Liability Derivatives
|
|||||||||||
|
Not designated as hedges:
|
|||||||||||
|
Warrants
|
Accrued liabilities | $215 | $ | — | |||||||
|
Foreign currency
|
Accrued liabilities | 1 | 20 | ||||||||
|
Commodities
|
Accrued liabilities | 1 | 2 | ||||||||
| $217 | $ | 22 | |||||||||
126
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
The following table summarizes the pretax effect of derivative
instruments charged directly to income:
| Effect of Financial Instruments | ||||||||||||||
|
Gain (Loss)
|
Additional
|
|||||||||||||
|
Gain (Loss)
|
Reclassified
|
Gain (Loss)
|
||||||||||||
|
Recognized
|
from AOCI
|
Recognized
|
Income Statement
|
|||||||||||
| in AOCI | to Income | in Income |
Classification
|
|||||||||||
|
Millions of dollars
|
||||||||||||||
|
Successor
|
||||||||||||||
|
For the period May 1 through December 31, 2010:
|
||||||||||||||
|
Derivatives not designated as hedges:
|
||||||||||||||
|
Warrants
|
$ | — | $ | — | $ | (114 | ) |
Other income
(expense), net |
||||||
|
Commodities
|
— | — | 11 | Cost of sales | ||||||||||
|
Foreign currency
|
— | — | (2 | ) |
Other income
(expense), net |
|||||||||
| $ | — | $ | — | $ | (105 | ) | ||||||||
|
Predecessor
|
||||||||||||||
|
For the period January 1 through April 30, 2010:
|
||||||||||||||
|
Derivatives designated as cash-flow hedges:
|
||||||||||||||
|
Interest rate
|
$ | — | $ | (17 | ) | $ | — | Interest Expense | ||||||
|
Derivatives not designated as hedges:
|
||||||||||||||
|
Commodities
|
— | — | 6 | Cost of sales | ||||||||||
|
Foreign currency
|
— | — | 8 |
Other income
(expense), net |
||||||||||
| — | — | 14 | ||||||||||||
| $ | — | $ | (17 | ) | $ | 14 | ||||||||
|
Non-derivatives designated as hedges of foreign currency:
|
||||||||||||||
|
Net foreign investment —
|
||||||||||||||
|
8.1% Guaranteed Notes due 2027
|
$ | (24 | ) | $ | — | $ | — | |||||||
|
8.375% Senior Notes due 2015
|
(20 | ) | — | — | ||||||||||
| $ | (44 | ) | $ | — | $ | — | ||||||||
127
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LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
| Effect of Financial Instruments | ||||||||||||||
|
Gain (Loss)
|
Additional
|
|||||||||||||
|
Gain (Loss)
|
Reclassified
|
Gain (Loss)
|
||||||||||||
|
Recognized
|
from AOCI
|
Recognized
|
Income Statement
|
|||||||||||
| in AOCI | to Income | in Income |
Classification
|
|||||||||||
|
Millions of dollars
|
||||||||||||||
|
Predecessor
|
||||||||||||||
|
For the year ended December 31, 2009:
|
||||||||||||||
|
Derivatives designated as cash-flow hedges:
|
||||||||||||||
|
Commodities
|
$ | — | $ | 50 | $ | — | Cost of sales | |||||||
|
Cross-currency interest rate
|
23 | 23 | — |
Other income
(expense), net |
||||||||||
|
Interest rate
|
(5 | ) | (31 | ) | — | Interest expense | ||||||||
| 18 | 42 | — | ||||||||||||
|
Derivatives not designated as hedges:
|
||||||||||||||
|
Commodities
|
— | — | 36 | Cost of sales | ||||||||||
|
Foreign currency
|
— | — | (15 | ) |
Other income
(expense), net |
|||||||||
|
Stock option plans
|
— | — | (3 | ) |
Other income
(expense), net |
|||||||||
| — | — | 18 | ||||||||||||
| $ | 18 | $ | 42 | $ | 18 | |||||||||
|
Non-derivatives designated as hedges of foreign currency:
|
||||||||||||||
|
Net foreign investment —
|
||||||||||||||
|
8.1% Guaranteed Notes due 2027
|
$ | 9 | $ | — | $ | — | ||||||||
|
8.375% Senior Notes due 2015
|
8 | — | — | |||||||||||
| $ | 17 | $ | — | $ | — | |||||||||
128
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
| Effect of Financial Instruments | ||||||||||||||
|
Gain (Loss)
|
Additional
|
|||||||||||||
|
Gain (Loss)
|
Reclassified
|
Gain (Loss)
|
||||||||||||
|
Recognized
|
from AOCI
|
Recognized
|
Income Statement
|
|||||||||||
| in AOCI | to Income | in Income |
Classification
|
|||||||||||
|
Millions of dollars
|
||||||||||||||
|
Predecessor
|
||||||||||||||
|
For the year ended December 31, 2008:
|
||||||||||||||
|
Derivatives designated as cash-flow hedges:
|
||||||||||||||
|
Commodities
|
$ | 112 | $ | 62 | $ | — | Cost of sales | |||||||
|
Cross-currency interest rate
|
22 | (22 | ) | — |
Other income
(expense), net |
|||||||||
|
Interest rate
|
(241 | ) | — | 35 | Interest expense | |||||||||
| (107 | ) | 40 | 35 | |||||||||||
|
Derivatives not designated as hedges:
|
||||||||||||||
|
Commodities
|
— | — | 9 | Cost of sales | ||||||||||
|
Foreign currency
|
— | — | 74 |
Other income
(expense), net |
||||||||||
|
Stock option plans
|
— | — | (5 | ) |
Other income
(expense), net |
|||||||||
| — | — | 78 | ||||||||||||
| $ | (107 | ) | $ | 40 | $ | 113 | ||||||||
|
Non-derivatives designated as hedges of foreign currency:
|
||||||||||||||
|
Net foreign investment —
|
||||||||||||||
|
8.1% Guaranteed Notes due 2027
|
$ | (13 | ) | $ | — | $ | — | |||||||
|
Dutch tranche A term loan
|
(19 | ) | — | — | ||||||||||
|
8.375% Senior Notes due 2015
|
(11 | ) | — | — | ||||||||||
| $ | (43 | ) | $ | — | $ | — | ||||||||
The carrying value and the estimated fair value of the
Company’s non-derivative financial instruments are shown in
the table below:
| Successor | Predecessor | ||||||||||||||||
| December 31, 2010 | December 31, 2009 | ||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||
| Value | Value | Value | Value | ||||||||||||||
|
Millions of
dollars
|
|||||||||||||||||
|
Short and long-term debt, including current maturities and debt
classified as liabilities subject to compromise
|
$ | 6,079 | $ | 6,819 | $ | 25,354 | $ | 13,986 | |||||||||
129
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
The following table summarizes the bases used to measure certain
liabilities at fair value on a recurring basis, which are
recorded at historical cost or amortized cost, in the
consolidated balance sheet:
| Fair Value Measurement | ||||||||||||||||||||
|
Quoted prices
|
||||||||||||||||||||
| Successor |
in active
|
Significant
|
||||||||||||||||||
|
Carrying
|
markets for
|
other
|
Significant
|
|||||||||||||||||
|
Value
|
Fair Value
|
identical
|
observable
|
unobservable
|
||||||||||||||||
|
December 31,
|
December 31,
|
assets
|
inputs
|
inputs
|
||||||||||||||||
| 2010 | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||
|
Short and long-term debt, including current maturities
|
$ | 6,079 | $ | 6,819 | $ | — | $ | 6,774 | $ | 45 | ||||||||||
The following table is a reconciliation of the beginning and
ending balances of Level 1, Level 2 and Level 3
inputs:
|
Fair Value
|
Fair Value
|
|||||||||||
|
Measurement
|
Measurement
|
Fair Value
|
||||||||||
|
Using Quoted
|
Using
|
Measurement
|
||||||||||
|
prices in active
|
Significant
|
Using
|
||||||||||
|
markets for
|
Other
|
Significant
|
||||||||||
|
identical assets
|
Observable
|
Unobservable
|
||||||||||
| (Level 1) | Inputs (Level 2) | Inputs (Level 3) | ||||||||||
|
Millions of dollars
|
||||||||||||
|
Debt and warrants
|
||||||||||||
|
Balance at May 1, 2010
|
$ | — | $ | 6,766 | $ | 558 | ||||||
|
Purchases, sales, issuances, and settlements (net)
|
— | (770 | ) | (414 | ) | |||||||
|
Transfers in and/or out of Level 3
|
84 | — | (84 | ) | ||||||||
|
Total gains or losses (realized/unrealized)
|
131 | 778 | (15 | ) | ||||||||
|
Balance at December 31, 2010
|
$ | 215 | $ | 6,774 | $ | 45 | ||||||
For liabilities classified as Level 1, the fair value is
measured using quoted prices in active markets. The total fair
value is either the price of the most recent trade at the time
of the market close or the official close price, as defined by
the exchange in which the asset is most actively traded on the
last trading day of the period, multiplied by the number of
units held without consideration of transaction costs. For
liabilities classified as Level 2, fair value is based on
the price a market participant would pay for the security,
adjusted for the terms specific to that asset and liability.
Broker quotes were obtained from well established and recognized
vendors of market data for debt valuations. The inputs for
liabilities classified as Level 3 reflect our assessment of
the assumptions that a market participant would use in
determining the price of the asset or liability, including our
liquidity risk at December 31, 2010.
The fair values of Level 3 instruments are determined using
pricing data similar to that used in Level 2 financial
instruments described above, and reflect adjustments for less
liquid markets or longer contractual terms. For these
Level 3 financial instruments, pricing data obtained from
third party pricing sources is adjusted for the liquidity of the
underlying over the contractual terms to develop an estimated
price that market participants would use. Our valuation of these
instruments considers specific contractual terms, present value
concepts and other internal assumptions related to
(i) contract maturities that extend beyond the periods in
which quoted market prices are available; (ii) the
uniqueness of the contract terms; and (iii) our
creditworthiness or that of our counterparties (adjusted for
collateral related to our asset positions). Based on our
calculations, we expect that a significant portion of other
debts will react in a generally proportionate
130
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | Financial Instruments and Derivatives — (Continued) |
manner to changes in the benchmark interest rate. Accordingly,
these financial instruments are fair valued at par and are
classified as Level 3.
| 18. | Pension and Other Postretirement Benefits |
We have defined benefit pension plans which cover employees in
the U.S. and various
non-U.S. countries.
We also sponsor postretirement benefit plans other than pensions
that provide medical benefits to our U.S. and Canadian
employees. In addition, we provide other post employment
benefits such as early retirement and deferred compensation
severance benefits to employees of certain
non-U.S. countries.
We use a measurement date of December 31 for all of our benefit
plans.
Employees in the U.S. are eligible to participate in
defined contribution plans (Employee Savings Plans) by
contributing a portion of their compensation. We match a part of
the employees’ contributions.
Pensions
— Substantially all of our employees
in Germany are covered under several defined benefit pension
plans, which provide for benefits based on years of service and
average rates of pay. Up to a certain salary level, the benefit
obligations regarding the majority of the German employees are
covered by contributions of the Company and the employees to the
Pensionskasse der BASF VVaG. In 2010, our contributions into
this plan were $7 million. In addition, we offer an
unfunded supplementary plan for employees earning in excess of
the local social security limits. For certain employees we offer
an unfunded pension plan.
For 2010 the actual return on plan assets for the U.S. and
non-U.S. was
15.6% and 8.4%, respectively.
Under the Plan of Reorganization, except with respect to the
Supplemental Executive Retirement Plan, all benefit plans and
collective bargaining agreements remained in force subsequent to
the Debtors’ emergence from chapter 11 proceedings.
Accordingly, approximately $854 million of pension and
other post-retirement benefit liabilities were reclassified from
liabilities subject to compromise to current or long-term
liabilities, as appropriate, upon emergence from bankruptcy (see
Note 4).
The U.S. bankruptcy court approved the termination of the
U.S. Supplemental Executive Retirement Plans as of
January 6, 2009. The termination of these plans resulted in
a gain of $4 million. Due to the bankruptcy no benefits
were paid as a result of the plan termination. The beneficiaries
of these plans had outstanding claims of $48 million,
$8 million of which is related to
non-U.S. employees,
filed with the bankruptcy court. The liability balance for these
claims was discharged pursuant to the Plan of Reorganization
(see Note 4).
In 2010, the settlement gain of $15 million in the
U.S. plans reflected payments of lump sum benefits in the
Pension Plans for Eligible Hourly Non-Represented Employees of
Equistar Chemicals, LP and Houston Refining LP Retirement Plan
for Eligible Hourly Non-Represented Employees. In 2009, the
settlement gain of $11 million in the U.S. plans
reflected payments of lump sum benefits in the Pension Plan for
Eligible Hourly Represented Employees of Equistar Chemicals, LP
and the Houston Refining LP Retirement Plan for Represented
Employees.
The accounting for a reduction in expected years of future
service due to the headcount reduction program resulted in a
$5 million curtailment charge in 2009 related to the
U.S. plans: LyondellBasell Retirement Plan, Equistar
Chemicals, LP Retirement Plan, and Basell Retirement Income Plan.
Divestitures
— In December 2010, we sold our
Flavor and Fragrance chemicals business. The plan and related
obligations covering the retired employees of the business were
retained by LyondellBasell N.V. As a result of this divestiture,
the accumulated benefit obligation related to the plan decreased
by approximately $4 million, resulting in a curtailment.
The gain associated with the curtailment was not recognized in
2010 since it does not exceed the unrecognized net loss existing
under the plan.
131
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The following table provides a reconciliation of projected
benefit obligations, plan assets and the funded status of our
U.S. and
non-U.S. defined
benefit pension plans:
| U.S. Plans | |||||||||||||
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For the Year
|
|||||||||||
|
through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Change in benefit obligation:
|
|||||||||||||
|
Benefit obligation, beginning of period
|
$ | 1,730 | $ | 1,747 | $ | 1,595 | |||||||
|
Service cost
|
29 | 14 | 50 | ||||||||||
|
Interest cost
|
62 | 31 | 90 | ||||||||||
|
Actuarial loss (gain)
|
113 | — | 113 | ||||||||||
|
Plan amendments
|
— | — | (10 | ) | |||||||||
|
Benefits paid
|
(86 | ) | (22 | ) | (60 | ) | |||||||
|
Settlement
|
(15 | ) | — | (39 | ) | ||||||||
|
Curtailment
|
1 | — | 8 | ||||||||||
|
Benefit obligation, end of period
|
1,834 | 1,770 | 1,747 | ||||||||||
|
Change in plan assets:
|
|||||||||||||
|
Fair value of plan assets, beginning of period
|
1,194 | 1,152 | 1,036 | ||||||||||
|
Actual return on plan assets
|
95 | 55 | 215 | ||||||||||
|
Company contributions
|
22 | 9 | — | ||||||||||
|
Benefits paid
|
(86 | ) | (22 | ) | (60 | ) | |||||||
|
Settlement
|
(15 | ) | — | (39 | ) | ||||||||
|
Fair value of plan assets, end of period
|
1,210 | 1,194 | 1,152 | ||||||||||
|
Funded status of continuing operations, end of period
|
$ | (624 | ) | $ | (576 | ) | $ | (595 | ) | ||||
132
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
| Non-U.S. Plans | |||||||||||||
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For the Year
|
|||||||||||
|
through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Change in benefit obligation:
|
|||||||||||||
|
Benefit obligation, beginning of period
|
$ | 1,064 | $ | 1,031 | $ | 960 | |||||||
|
Reclassify plans to pension from Other Postretirement benefits
|
30 | — | — | ||||||||||
|
Service cost
|
19 | 9 | 28 | ||||||||||
|
Interest cost
|
34 | 17 | 53 | ||||||||||
|
Actuarial loss (gain)
|
(37 | ) | 94 | 37 | |||||||||
|
Plan amendments
|
10 | — | — | ||||||||||
|
Benefits paid
|
(34 | ) | (19 | ) | (44 | ) | |||||||
|
Participant contributions
|
2 | 1 | 3 | ||||||||||
|
Settlement
|
— | — | (6 | ) | |||||||||
|
Curtailment
|
— | (1 | ) | — | |||||||||
|
Foreign exchange effects
|
11 | (66 | ) | — | |||||||||
|
Net transfer in/(out) (including the effect of any business
combinations/divestitures)
|
— | 6 | — | ||||||||||
|
Benefit obligation, end of period
|
1,099 | 1,072 | 1,031 | ||||||||||
|
Change in plan assets:
|
|||||||||||||
|
Fair value of plan assets, beginning of period
|
512 | 486 | 457 | ||||||||||
|
Acquisition through business combinations
|
— | (1 | ) | — | |||||||||
|
Actual return on plan assets
|
23 | 25 | 31 | ||||||||||
|
Company contributions
|
41 | 27 | 52 | ||||||||||
|
Benefits paid
|
(34 | ) | (19 | ) | (44 | ) | |||||||
|
Participant contributions
|
2 | 1 | 3 | ||||||||||
|
Foreign exchange effects
|
— | (25 | ) | (7 | ) | ||||||||
|
Settlement
|
— | — | (6 | ) | |||||||||
|
Other
|
6 | — | — | ||||||||||
|
Fair value of plan assets, end of period
|
550 | 494 | 486 | ||||||||||
|
Funded status of continuing operations, end of period
|
$ | (549 | ) | $ | (578 | ) | $ | (545 | ) | ||||
133
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
| Successor | Predecessor | ||||||||||||||||
| December 31, 2010 | December 31, 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Amounts recognized in the Consolidated Balance Sheets consist
of:
|
|||||||||||||||||
|
Prepaid benefit cost
|
$ | — | $ | 19 | $ | 17 | $ | 2 | |||||||||
|
Accrued benefit liability, current
|
— | (33 | ) | — | (1 | ) | |||||||||||
|
Accrued benefit liability, long-term
|
(624 | ) | (535 | ) | (612 | ) | (546 | ) | |||||||||
|
Funded status, December 31
|
$ | (624 | ) | $ | (549 | ) | $ | (595 | ) | $ | (545 | ) | |||||
| Successor | Predecessor | ||||||||||||||||
|
December 31,
|
December 31,
|
||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Amounts recognized in Accumulated Other Comprehensive
Income:
|
|||||||||||||||||
|
Actuarial and investment loss (gain)
|
$ | 78 | $ | (40 | ) | $ | 521 | $ | 60 | ||||||||
|
Prior service cost (credit)
|
— | 10 | (124 | ) | — | ||||||||||||
|
Amortization or settlement recognition of net loss
|
(1 | ) | — | — | — | ||||||||||||
|
Balance at December 31
|
$ | 77 | $ | (30 | ) | $ | 397 | $ | 60 | ||||||||
The following additional information is presented for our
U.S. and
non-U.S. pension
plans as of December 31:
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Accumulated benefit obligation for defined benefit plans,
December 31
|
$ | 1,815 | $ | 1,013 | $ | 1,720 | $ | 1,002 | |||||||||
Pension plans with projected benefit obligations in excess of
the fair value of assets are summarized as follows at December
31:
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Projected benefit obligations
|
$ | 1,834 | $ | 832 | $ | 1,731 | $ | 757 | |||||||||
|
Fair value of assets
|
1,210 | 263 | 1,119 | 210 | |||||||||||||
134
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
Pension plans with accumulated benefit obligations in excess of
the fair value of assets are summarized as follows at December
31:
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Accumulated benefit obligations
|
$ | 1,815 | $ | 712 | $ | 1,704 | $ | 734 | |||||||||
|
Fair value of assets
|
1,210 | 173 | 1,119 | 210 | |||||||||||||
The following table provides the components of net periodic
pension costs:
| U.S. Plans | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
||||||||||||||||
|
December 31,
|
April 30,
|
For the Year Ended December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Net Periodic Pension Cost:
|
|||||||||||||||||
|
Service cost
|
$ | 29 | $ | 14 | $ | 50 | $ | 50 | |||||||||
|
Interest cost
|
62 | 31 | 90 | 105 | |||||||||||||
|
Actual return on plan assets
|
(95 | ) | (55 | ) | (215 | ) | 467 | ||||||||||
|
Less — return in excess of (less than) expected return
|
35 | 24 | 125 | (593 | ) | ||||||||||||
|
Expected return on plan assets
|
(60 | ) | (31 | ) | (90 | ) | (126 | ) | |||||||||
|
Settlement and curtailment loss (gain)
|
2 | — | 2 | 1 | |||||||||||||
|
Prior service cost (benefit) amortization
|
— | (4 | ) | (14 | ) | (3 | ) | ||||||||||
|
Actuarial and investment loss amortization
|
— | 8 | 27 | — | |||||||||||||
|
Net periodic benefit cost (benefit)
|
$ | 33 | $ | 18 | $ | 65 | $ | 27 | |||||||||
135
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
| Non-U.S. Plans | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
||||||||||||||||
|
December 31,
|
April 30,
|
For the Year Ended December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Net Periodic Pension Cost:
|
|||||||||||||||||
|
Service cost
|
$ | 19 | $ | 9 | $ | 28 | $ | 30 | |||||||||
|
Interest cost
|
34 | 17 | 53 | 50 | |||||||||||||
|
Actual return on plan assets
|
(23 | ) | (25 | ) | (31 | ) | 61 | ||||||||||
|
Less — return in excess of (less than) expected return
|
3 | 15 | 3 | (96 | ) | ||||||||||||
|
Expected return on plan assets
|
(20 | ) | (10 | ) | (28 | ) | (35 | ) | |||||||||
|
Settlement and curtailment loss (gain)
|
— | (1 | ) | (2 | ) | (1 | ) | ||||||||||
|
Prior service cost (benefit) amortization
|
— | — | 8 | 2 | |||||||||||||
|
Actuarial and investment loss amortization
|
— | 1 | (3 | ) | (1 | ) | |||||||||||
|
Other
|
— | 1 | — | — | |||||||||||||
|
Net periodic benefit cost (benefit)
|
$ | 33 | $ | 17 | $ | 56 | $ | 45 | |||||||||
Our goal is to manage pension investments over the longer term
to achieve optimal returns with an acceptable level of risk and
volatility. The assets are externally managed by professional
investment firms and performance is evaluated continuously
against specific benchmarks.
136
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The actual and target allocation for our plans are as follows:
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| Actual | Target | Actual | Target | ||||||||||||||
|
Canada
|
|||||||||||||||||
|
Equity securities
|
60 | % | 60 | % | 62 | % | 60 | % | |||||||||
|
Fixed income
|
40 | % | 40 | % | 38 | % | 40 | % | |||||||||
|
United Kingdom — Lyondell Chemical Plans
|
|||||||||||||||||
|
Equity securities
|
52 | % | 50 | % | 51 | % | 50 | % | |||||||||
|
Fixed income
|
48 | % | 50 | % | 49 | % | 50 | % | |||||||||
|
United Kingdom — Basell Plans
|
|||||||||||||||||
|
Equity securities
|
59 | % | 60 | % | 97 | % | 60 | % | |||||||||
|
Fixed income
|
41 | % | 40 | % | 3 | % | 40 | % | |||||||||
|
United States
|
|||||||||||||||||
|
Equity securities
|
65 | % | 65 | % | 64 | % | 65 | % | |||||||||
|
Fixed income
|
27 | % | 30 | % | 29 | % | 30 | % | |||||||||
|
Real Estate
|
3 | % | 5 | % | 3 | % | 5 | % | |||||||||
|
Other
|
5 | % | — | % | 4 | % | — | % | |||||||||
|
Netherlands — Lyondell Chemical Plans
|
|||||||||||||||||
|
Equity securities
|
16 | % | 50 | % | 15 | % | 50 | % | |||||||||
|
Fixed income
|
84 | % | 50 | % | 85 | % | 50 | % | |||||||||
|
Netherlands — Basell Plans
|
|||||||||||||||||
|
Equity securities
|
19 | % | 18 | % | 19 | % | 18 | % | |||||||||
|
Fixed income
|
81 | % | 82 | % | 81 | % | 82 | % | |||||||||
We estimate the following contributions to our pension plans in
2011:
| U.S. | Non-U.S. | |||||||
|
Millions of dollars
|
||||||||
|
Defined benefit plans
|
$ | 221 | $ | 59 | ||||
|
Multi-employer plans
|
— | 7 | ||||||
|
Total
|
$ | 221 | $ | 66 | ||||
As of December 31, 2010, future expected benefit payments
by our pension plans which reflect expected future service, as
appropriate, were as follows:
| U.S. | Non-U.S. | |||||||
|
Millions of dollars
|
||||||||
|
2011
|
$ | 112 | $ | 49 | ||||
|
2012
|
121 | 45 | ||||||
|
2013
|
117 | 119 | ||||||
|
2014
|
125 | 61 | ||||||
|
2015
|
135 | 70 | ||||||
|
2016 through 2020
|
733 | 322 | ||||||
137
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The following table sets forth the principal assumptions on
discount rates, projected rates of compensation increase and
expected rates of return on plan assets, where applicable. These
assumptions vary for the different plans, as they are determined
in consideration of the local conditions.
The assumptions used in determining the net benefit liabilities
for our pension plans were as follows at December 31:
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Weighted-average assumptions:
|
|||||||||||||||||
|
Discount rate
|
5.18 | % | 4.97 | % | 5.75 | % | 5.51 | % | |||||||||
|
Rate of compensation increase
|
4.00 | % | 3.27 | % | 4.00 | % | 3.12 | % | |||||||||
The assumptions used in determining net benefit costs for our
pension plans were as follows:
| Successor | Predecessor | ||||||||||||||||||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||||||||||||||||||
|
through
|
through
|
||||||||||||||||||||||||||||||||
|
December 31,
|
April 30,
|
For the Year Ended December 31, | |||||||||||||||||||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||
|
Weighted-average assumptions for the year:
|
|||||||||||||||||||||||||||||||||
|
Discount rate
|
5.68 | % | 4.82 | % | 5.75 | % | 5.50 | % | 6.00 | % | 5.73 | % | 6.30 | % | 5.30 | % | |||||||||||||||||
|
Expected return on plan assets
|
8.00 | % | 6.24 | % | 8.00 | % | 6.52 | % | 8.00 | % | 5.78 | % | 8.25 | % | 6.35 | % | |||||||||||||||||
|
Rate of compensation increase
|
4.00 | % | 3.26 | % | 4.00 | % | 3.08 | % | 4.45 | % | 3.25 | % | 4.50 | % | 3.11 | % | |||||||||||||||||
The discount rate assumptions reflect the rates at which the
benefit obligations could be effectively settled, based on
published long-term bond indices where the term closely matches
the term of the benefit obligations. The expected rate of return
on assets was estimated based on the plans’ asset
allocation, a review of historical capital market performance,
historical plan performance and a forecast of expected future
asset returns. We review these long-term assumptions on a
periodic basis.
Our pension plans have not invested in securities of
LyondellBasell N.V., and there have been no significant
transactions between any of the pension plans and the Company or
related parties thereof.
138
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The pension investments that are measured at fair value as of
December 31, 2010 are summarized below:
|
U.S. Pension
|
||||||||||||||||
| Basis of Fair Value Measurement | ||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Other
|
Significant
|
||||||||||||||
|
Balance at
|
Identical
|
Observable
|
Unobservable
|
|||||||||||||
|
December 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
| 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
U.S.
|
||||||||||||||||
|
Common stocks
|
$ | 806 | $ | 806 | $ | — | $ | — | ||||||||
|
Fixed income securities
|
234 | — | 234 | — | ||||||||||||
|
Real estate
|
42 | — | — | 42 | ||||||||||||
|
Convertible investments
|
1 | — | 1 | — | ||||||||||||
|
U. S. government securities
|
103 | 41 | 62 | — | ||||||||||||
|
Cash and Cash equivalents
|
33 | 31 | 2 | — | ||||||||||||
|
John Hancock GACs
|
5 | — | — | 5 | ||||||||||||
|
Metropolitan Life Insurance GIC
|
18 | — | — | 18 | ||||||||||||
|
Total U.S. Pension Assets
|
$ | 1,242 | $ | 878 | $ | 299 | $ | 65 | ||||||||
|
Non-U.S. Pension
|
||||||||||||||||
| Basis of Fair Value Measurement | ||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Other
|
Significant
|
||||||||||||||
|
Balance at
|
Identical
|
Observable
|
Unobservable
|
|||||||||||||
|
December 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
| 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
Non-U.S.
|
||||||||||||||||
|
Common stocks
|
$ | 187 | $ | 187 | $ | — | $ | — | ||||||||
|
Fixed income securities
|
340 | — | 340 | — | ||||||||||||
|
Other
|
— | — | — | — | ||||||||||||
|
Total
Non-U.S.
Pension Assets
|
$ | 527 | $ | 187 | $ | 340 | $ | — | ||||||||
139
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The pension investments that are measured at fair value as of
December 31, 2009 are summarized below:
|
U.S. Pension
|
||||||||||||||||
| Basis of Fair Value Measurement | ||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Other
|
Significant
|
||||||||||||||
|
Balance at
|
Identical
|
Observable
|
Unobservable
|
|||||||||||||
|
December 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
| 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
U.S.
|
||||||||||||||||
|
Common stocks
|
$ | 737 | $ | 737 | $ | — | $ | — | ||||||||
|
Fixed income securities
|
249 | — | 249 | — | ||||||||||||
|
U.S. Government securities
|
89 | 41 | 48 | — | ||||||||||||
|
Cash and cash equivalents
|
19 | 18 | 1 | — | ||||||||||||
|
Real estate
|
36 | — | — | 36 | ||||||||||||
|
Convertible investments
|
2 | — | 2 | — | ||||||||||||
|
John Hancock GACs
|
5 | — | — | 5 | ||||||||||||
|
Metropolitan Life Insurance GIC
|
15 | — | — | 15 | ||||||||||||
|
Total U.S. Pension Assets
|
$ | 1,152 | $ | 796 | $ | 300 | $ | 56 | ||||||||
|
Non-U.S. Pension
|
||||||||||||||||
| Basis of Fair Value Measurement | ||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Other
|
Significant
|
||||||||||||||
|
Balance at
|
Identical
|
Observable
|
Unobservable
|
|||||||||||||
|
December 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
| 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
Non-U.S.
|
||||||||||||||||
|
Common stocks
|
$ | 195 | $ | 195 | $ | — | $ | — | ||||||||
|
Fixed income securities
|
291 | — | 291 | — | ||||||||||||
|
Total
Non-U.S.
Pension Assets
|
$ | 486 | $ | 195 | $ | 291 | $ | — | ||||||||
140
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The following table sets forth a summary of changes in the fair
value of the level 3 plan assets for the year ended
December 31, 2009 and 2010:
|
U.S. Pension
|
||||||||||||||||
| Level 3 Assets | ||||||||||||||||
|
John
|
||||||||||||||||
|
Metropolitan
|
Hancock
|
|||||||||||||||
| Real estate | Life GAC | GACs | Total | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
Predecessor
|
||||||||||||||||
|
Balance, January 1, 2009
|
$ | 54 | $ | 18 | $ | 4 | $ | 76 | ||||||||
|
Realized gain
|
2 | 2 | — | 4 | ||||||||||||
|
Unrealized gain (loss) relating to instruments still held at the
reporting date
|
(26 | ) | (5 | ) | 1 | (30 | ) | |||||||||
|
Purchases, sales, issuances, and settlements (net)
|
6 | — | — | 6 | ||||||||||||
|
Balance, December 31, 2009
|
36 | 15 | 5 | 56 | ||||||||||||
|
Realized gain
|
1 | 1 | — | 2 | ||||||||||||
|
Unrealized loss relating to instruments still held at the
reporting date
|
(2 | ) | — | — | (2 | ) | ||||||||||
|
Purchases, sales, issuances, and settlements (net)
|
1 | — | — | 1 | ||||||||||||
|
Balance, April 30, 2010
|
$ | 36 | $ | 16 | $ | 5 | $ | 57 | ||||||||
|
Successor
|
||||||||||||||||
|
May 1, 2010
|
$ | 36 | $ | 16 | $ | 5 | $ | 57 | ||||||||
|
Realized gain
|
1 | 1 | — | 2 | ||||||||||||
|
Unrealized gain relating to instruments still held at the
reporting date
|
4 | 1 | — | 5 | ||||||||||||
|
Purchases, sales, issuances, and settlements (net)
|
1 | — | — | 1 | ||||||||||||
|
Balance, December 31, 2010
|
$ | 42 | $ | 18 | $ | 5 | $ | 65 | ||||||||
Other Postretirement Benefits
— We sponsor
unfunded defined benefit health care and life insurance plans
covering certain eligible retired employees and their spouses.
Generally, the medical plans pay a stated percentage of medical
expenses reduced by deductibles and other coverage. Life
insurance benefits are generally provided by insurance
contracts. We retain the right, subject to existing agreements,
to modify or eliminate these benefits.
141
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
The following table provides a reconciliation of benefit
obligations of our unfunded other postretirement benefit plans:
| U.S. Plans | |||||||||||||
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For The Year
|
|||||||||||
|
through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Change in benefit obligation:
|
|||||||||||||
|
Benefit obligation, beginning of period
|
$ | 292 | $ | 308 | $ | 328 | |||||||
|
Service cost
|
4 | 2 | 5 | ||||||||||
|
Interest cost
|
11 | 5 | 18 | ||||||||||
|
Plan amendments
|
— | — | (23 | ) | |||||||||
|
Actuarial loss (gain)
|
22 | (15 | ) | — | |||||||||
|
Benefits paid
|
(21 | ) | (11 | ) | (27 | ) | |||||||
|
Participant contributions
|
6 | 3 | 7 | ||||||||||
|
Net transfer out including the effect of any business
combinations/divestitures
|
(4 | ) | — | — | |||||||||
|
Benefit obligation, end of period
|
310 | 292 | 308 | ||||||||||
|
Change in plan assets:
|
|||||||||||||
|
Fair value of plan assets, beginning of period
|
— | — | — | ||||||||||
|
Employer contributions
|
15 | 8 | 20 | ||||||||||
|
Participant contributions
|
6 | 3 | 7 | ||||||||||
|
Benefits paid
|
(21 | ) | (11 | ) | (27 | ) | |||||||
|
Fair value of plan assets, end of period
|
— | — | — | ||||||||||
|
Funded status, end of period
|
$ | (310 | ) | $ | (292 | ) | $ | (308 | ) | ||||
142
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
| Non-U.S. Plans | |||||||||||||
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For the Year
|
|||||||||||
|
through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Change in benefit obligation:
|
|||||||||||||
|
Benefit obligation, beginning of period
|
$ | 53 | $ | 45 | $ | 44 | |||||||
|
Transfer to pension from Other Postretirement benefits
|
(30 | ) | — | — | |||||||||
|
Service cost
|
— | — | — | ||||||||||
|
Interest cost
|
1 | 1 | 2 | ||||||||||
|
Plan amendments
|
— | — | — | ||||||||||
|
Actuarial loss (gain)
|
(2 | ) | 10 | 4 | |||||||||
|
Benefits paid
|
— | (1 | ) | (4 | ) | ||||||||
|
Participant contributions
|
— | — | — | ||||||||||
|
Foreign exchange effects
|
— | (2 | ) | (1 | ) | ||||||||
|
Benefit obligation, end of period
|
22 | 53 | 45 | ||||||||||
|
Change in plan assets:
|
|||||||||||||
|
Fair value of plan assets, beginning of period
|
— | — | — | ||||||||||
|
Employer contributions
|
— | 1 | 4 | ||||||||||
|
Participant contributions
|
— | — | — | ||||||||||
|
Benefits paid
|
— | (1 | ) | (4 | ) | ||||||||
|
Fair value of plan assets, end of period
|
— | — | — | ||||||||||
|
Funded status, end of period
|
$ | (22 | ) | $ | (53 | ) | $ | (45 | ) | ||||
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Amounts recognized in the Consolidated Balance Sheets consist
of:
|
|||||||||||||||||
|
Accrued benefit liability, current
|
$ | (21 | ) | $ | (1 | ) | $ | (21 | ) | $ | (2 | ) | |||||
|
Accrued benefit liability, long-term
|
(289 | ) | (21 | ) | (287 | ) | (43 | ) | |||||||||
|
Funded status, December 31
|
$ | (310 | ) | $ | (22 | ) | $ | (308 | ) | $ | (45 | ) | |||||
143
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Amounts recognized in Accumulated Other Comprehensive
Income:
|
|||||||||||||||||
|
Actuarial and investment loss (gain)
|
$ | 18 | $ | (2 | ) | $ | 4 | $ | (1 | ) | |||||||
|
Prior service cost
|
— | — | (76 | ) | — | ||||||||||||
|
Balance at December 31
|
$ | 18 | $ | (2 | ) | $ | (72 | ) | $ | (1 | ) | ||||||
The following table provides the components of net periodic
other postretirement benefit costs:
| U.S. Plans | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Net Periodic Other Postretirement Benefit Costs:
|
|||||||||||||||||
|
Service cost
|
$ | 3 | $ | 2 | $ | 5 | $ | 6 | |||||||||
|
Interest cost
|
11 | 5 | 18 | 19 | |||||||||||||
|
Prior service cost (benefit) amortization
|
— | (3 | ) | (7 | ) | (5 | ) | ||||||||||
|
Actuarial amortization gain
|
— | — | (1 | ) | (2 | ) | |||||||||||
|
Net periodic benefit cost
|
$ | 14 | $ | 4 | $ | 15 | $ | 18 | |||||||||
| Non-U.S. Plans | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
||||||||||||||||
|
December 31,
|
April 30,
|
For the Year Ended December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Net Periodic Other Postretirement Benefit Costs:
|
|||||||||||||||||
|
Service cost
|
$ | — | $ | — | $ | — | $ | — | |||||||||
|
Interest cost
|
1 | 1 | 2 | 2 | |||||||||||||
|
Prior service cost (benefit) amortization
|
— | — | — | (1 | ) | ||||||||||||
|
Actuarial amortization gain
|
— | — | — | — | |||||||||||||
|
Curtailment gain
|
— | — | — | — | |||||||||||||
|
Net periodic benefit cost
|
$ | 1 | $ | 1 | $ | 2 | $ | 1 | |||||||||
For the U.S. plans, the assumed annual rate of increase in
the per capita cost of covered health care benefits as of
December 31, 2010 was 9.1% for 2011 decreasing 0.5% per
year to 5.0% in 2026 and thereafter. At December 31, 2010,
the assumed annual rate of increase was 9.5%. At
December 31, 2009, the assumed rate of increase was 9.5%
for 2010 decreasing 0.5% per year to 5% in 2026 and thereafter.
At December 31, 2009, the assumed annual rate of increase
was 9.5%. For the Canadian plans, the assumed annual rate of
increase in the per capita cost of covered health care benefits
as of December 31, 2010 was 8.5% for 2011
144
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
decreasing 0.5% per year to 5% in 2018 and thereafter. At
December 31, 2010, the assumed annual rate of increase was
8.5%. As of December 31, 2009, the assumed annual rate of
increase in the per capita cost of covered health care benefits
for the Canadian plans was 8.5% for 2010 decreasing 0.5% per
year to 5% in 2017 and thereafter. At December 31, 2009,
the assumed annual rate of increase was 9.0%. For the French
plans, the assumed annual rate of increase in the per capita
cost of covered health care benefits as of December 31,
2010 was 3.5% for 2011 and at December 31, 2009 was 2.0%
for 2010 with no available trending.
The health care cost trend rate assumption does not have a
significant effect on the amounts reported due to limits on
maximum contribution levels to the medical plans. To illustrate,
increasing or decreasing the assumed health care cost trend
rates by one percentage point in each year would change the
accumulated other postretirement benefit liability as of
December 31, 2010 by less than $1 million for
U.S. and $3 million for
non-U.S. plans
and would not have a material effect on the aggregate service
and interest cost components of the net periodic other
postretirement benefit cost for the year then ended.
The assumptions used in determining the net benefit liabilities
for our other postretirement benefit plans were as follows at
December 31:
| Successor | Predecessor | ||||||||||||||||
| 2010 | 2009 | ||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||
|
Weighted-average assumptions:
|
|||||||||||||||||
|
Discount rate
|
5.00 | % | 5.36 | % | 5.75 | % | 5.46 | % | |||||||||
|
Rate of compensation increase
|
4.00 | % | 3.52 | % | 4.00 | % | 3.58 | % | |||||||||
The assumptions used in determining the net benefit costs for
our other postretirement benefit plans were as follows:
| Successor | Predecessor | ||||||||||||||||||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||||||||||||||||||
|
through
|
through
|
||||||||||||||||||||||||||||||||
|
December 31,
|
April 30,
|
For the Year Ended December 31, | |||||||||||||||||||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||
|
Weighted-average assumptions for the year:
|
|||||||||||||||||||||||||||||||||
|
Discount rate
|
5.73 | % | 5.22 | % | 5.75 | % | 5.46 | % | 6.00 | % | 5.73 | % | 6.30 | % | 5.30 | % | |||||||||||||||||
|
Rate of compensation increase
|
4.00 | % | 3.46 | % | 4.00 | % | 3.58 | % | 4.45 | % | 3.25 | % | 4.50 | % | 3.11 | % | |||||||||||||||||
As of December 31, 2010, future expected benefit payments
by our other postretirement benefit plan, which reflect expected
future service, as appropriate, were as follows:
| U.S. | Non-U.S. | |||||||
|
Millions of dollars
|
||||||||
|
2011
|
$ | 21 | $ | 1 | ||||
|
2012
|
21 | 1 | ||||||
|
2013
|
22 | 1 | ||||||
|
2014
|
22 | 1 | ||||||
|
2015
|
23 | 1 | ||||||
|
2016 through 2020
|
121 | 6 | ||||||
145
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
Accumulated Other Comprehensive Income
— The
following pre-tax amounts were recognized in accumulated other
comprehensive income as of and for the year ended
December 31, 2010:
| Pension Benefits | Other Benefits | |||||||||||||||
|
Actuarial
|
Prior Service
|
Actuarial
|
Prior Service
|
|||||||||||||
| (Gain) Loss | Cost (Credit) | (Gain) Loss | Cost (Credit) | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
Predecessor
|
||||||||||||||||
|
January 1, 2009
|
$ | 612 | $ | (140 | ) | $ | (4 | ) | $ | (60 | ) | |||||
|
Arising during the period
|
6 | (3 | ) | 7 | (1 | ) | ||||||||||
|
Amortization included in net periodic benefit cost
|
(7 | ) | (7 | ) | 2 | 8 | ||||||||||
|
(Gain) loss due to settlements and curtailments
|
(30 | ) | 26 | (2 | ) | — | ||||||||||
|
Gain due to plan amendments
|
— | — | — | (23 | ) | |||||||||||
|
December 31, 2009
|
581 | (124 | ) | 3 | (76 | ) | ||||||||||
|
Arising during the period
|
64 | — | (5 | ) | — | |||||||||||
|
(Gain) loss due to settlements and curtailments
|
(10 | ) | 5 | — | 3 | |||||||||||
|
April 30, 2010
|
$ | 635 | $ | (119 | ) | $ | (2 | ) | $ | (73 | ) | |||||
|
Successor
|
||||||||||||||||
|
May 1, 2010
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Arising during the period
|
38 | 10 | 16 | — | ||||||||||||
|
Amortization included in net periodic benefit cost
|
— | — | — | — | ||||||||||||
|
(Gain) loss due to settlements and curtailments
|
(1 | ) | — | — | — | |||||||||||
|
December 31, 2010
|
$ | 37 | $ | 10 | $ | 16 | $ | — | ||||||||
Deferred income taxes related to amounts in Accumulated other
comprehensive income include provisions of $30 million and
$118 million as of December 31, 2010 and 2009,
respectively. At April 30, 2010 all gains and losses in OCI
and the related deferred income were written off.
At December 31, 2010, AOCI included $2 million of
prior service credit related to
non-U.S. pension
plans that is expected to be recognized as a component of net
periodic benefit cost in 2011. There are no such amounts in AOCI
at December 31, 2010 for U.S. pension plans and
U.S. and
non-U.S. other
postretirement benefits expected to be recognized in net
periodic benefit cost in 2011.
Pension Claim
— Two legacy Basell subsidiaries,
Basell UK Ltd and Basell Polyolefins UK Ltd were subject to a
claim totaling £40.8 million ($70.4 million)
related to exit fees charged by two UK pension funds of a former
shareholder. The claims were made following the termination of
the membership of these two subsidiaries in these funds in
connection with the 2005 acquisition of Basell by Access. These
claims were net settled with the two pension funds for
£17 million ($32.1 million) on August 20,
2008. LyondellBasell AF subsequently initiated arbitration
proceedings against its former shareholder for indemnification
of the net
146
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Pension and Other Postretirement Benefits — (Continued) |
settlement amount. These proceedings were settled in October
2009 for £9.5 million ($15.7 million), which
amount was recognized in the 2009 Consolidated Statement of
Income.
Defined Contribution Plans
— Employees in the
U.S. are eligible to participate in defined contribution
plans (“Employee Savings Plans”) by contributing a
portion of their compensation. We match a part of the
employees’ contribution. The Predecessor had temporarily
suspended contributions beginning in March 2009 as a result of
filing voluntary petitions for reorganization under
chapter 11 of the U.S. Bankruptcy Code. In May 2010,
we resumed matching contributions under the Employee Savings
Plans. Contributions to these plans were $17 million in
2010, $8 million in 2009 and $31 million in 2008.
| 19. | Incentive and Share-Based Compensation |
Medium-Term Incentive Plan
— Upon the
Debtors’ emergence from chapter 11 proceedings, we
replaced the Predecessor Company’s Management Incentive
Plan with the 2010 Medium-Term Incentive Plan (“MTI”).
The MTI is designed to link the interests of senior management
with the interests of shareholders by tying incentives to
measurable corporate performance. The MTI provides for payouts
based on our return on assets and cost improvements over the
calendar years 2010 through 2012. Benefits under the MTI will
vest on the date, following December 31, 2012, on which the
Compensation Committee of the Supervisory Board certifies the
performance results and will be paid on March 31 following the
end of the performance cycle. The MTI provides for an
accelerated pro-rata payout in the event of a change in control
of the Successor Company. The MTI, which is accounted for as a
liability award, is classified in Other liabilities on the
Consolidated Balance Sheets. We recorded $4 million of
compensation expense for the eight months ended
December 31, 2010 based on the expected achievement of
performance results.
Long-Term Incentive Plan
— Upon the
Debtors’ emergence from chapter 11 proceedings, we
created the 2010 Long-Term Incentive Plan (“LTI”).
Under the LTI, the Compensation Committee is authorized to grant
restricted stock, restricted stock units, stock options, stock
appreciation rights and other types of equity-based awards. The
Compensation Committee determines the recipients of the equity
awards, the type of award made, the required performance
measures, and the timing and duration of each grant. The maximum
number of shares of LyondellBasell N.V. stock reserved for
issuance under the LTI is 22,000,000. In connection with the
Debtors’ emergence from bankruptcy, awards were granted to
our senior management and we have since granted awards for new
hires and promotions. As of December 31, 2010, there were
9,860,818 shares remaining available for issuance.
The LTI awards resulted in compensation expense of
$22 million for the eight months ended December 31,
2010, and $24 million for the four months ended
April 30, 2010. The tax benefits were $8 million for
the eight months ended December 31, 2010, and
$8 million for the four months ended April 30, 2010.
Restricted Stock Units
— Restricted stock units
entitle the recipient to be paid out an equal number of
class A ordinary shares on the fifth anniversary of the
grant date, subject to forfeiture in the event of certain
termination events. Restricted stock units are accounted for as
an equity award with compensation cost recognized ratably over
the vesting period. The holders of the restricted stock units
are entitled to dividend equivalents to be settled no later than
March 15th following the year in which dividends are paid, as
long as the participant is in full employment at the time of
payment.
147
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 19. | Incentive and Share-Based Compensation — (Continued) |
The following table summarizes restricted stock unit activity
for the eight months ended December 31, 2010 in thousands
of units:
|
Number of
|
Weighted-
|
|||||||
| Units | Average Price | |||||||
|
Outstanding at May 1, 2010
|
— | $ | — | |||||
|
Granted
|
2,037 | 17.65 | ||||||
|
Paid
|
(4 | ) | 17.61 | |||||
|
Forfeited
|
(159 | ) | 17.61 | |||||
|
Outstanding at December 31, 2010
|
1,874 | $ | 17.65 | |||||
For the eight months ended December 31, 2010, the
compensation expense related to the outstanding restricted stock
units was $5 million and the related tax benefit was
$1 million. As of December 31, 2010, the unrecognized
compensation cost related to restricted stock units was
$29 million, which is expected to be recognized over a
weighted-average period of 4 years.
Stock Options
— Stock options are granted with
an exercise price equal to the market price of class A
ordinary shares at the date of grant. The stock options are
accounted for as an equity award with compensation cost
recognized using the graded vesting method. We issued certain
Stock options to purchase 1% of the number of common stock
shares outstanding at the Debtors’ emergence from
bankruptcy. These options vest in five equal, annual
installments beginning on May 14, 2009 and may be exercised
for a period of seven years following the grant date at a price
of $17.61 per share, the fair value of the Company’s common
stock based on its reorganized value at the date of emergence.
All other stock options vest in equal increments on the second,
third and fourth anniversary of the grant date and have a
contractual term of ten years, with accelerated vesting upon
death, disability, or change in control and exercise prices
ranging from $16.45 to $26.75.
The fair value of each stock option award is estimated, based on
several assumptions, on the date of grant using the
Black-Scholes option valuation model. Upon adoption of
ASC 718
Stock Compensation
, we modified our methods
used to determine these assumptions based on the Securities and
Exchange Commission’s Staff Accounting
Bulletin No. 107. We estimated volatility based on the
historic average of the common stock of our peer companies and
the historic stock price volatility over the expected term. The
fair value and the assumptions used for the 2010 grants are
shown in the table below.
|
Weighted-average Fair Value per share of options granted
|
$ | 7.82 | ||
|
Fair value assumptions:
|
||||
|
Dividend yield
|
0.00 | % | ||
|
Expected volatility
|
47.0 | % | ||
|
Risk-free interest rate
|
1.63-2.94 | % | ||
|
Weighted-average expected term, in years
|
5.2 |
148
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 19. | Incentive and Share-Based Compensation — (Continued) |
The following table summarizes stock option activity for the
four months ended April 30, 2010 and the eight months ended
December 31, 2010 in thousands of shares for the
non-qualified stock options:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
Aggregate
|
||||||||||||||
|
Average
|
Remaining
|
Intrinsic
|
||||||||||||||
|
Predecessor
|
Shares | Price | Term | Value | ||||||||||||
|
Outstanding at January 1, 2010
|
— | $ | — | |||||||||||||
|
Granted
|
5,639 | 17.61 | 7.0 years | |||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Outstanding at April 30, 2010
|
5,639 | $ | 17.61 | 7.0 years | $ | — | ||||||||||
|
Exercisable at April 30, 2010
|
— | $ | — | $ | — | |||||||||||
|
Successor
|
||||||||||||||||
|
Outstanding at May 1, 2010
|
5,639 | $ | 17.61 | 7.0 years | ||||||||||||
|
Granted
|
3,088 | 17.65 | 9.4 years | |||||||||||||
|
Forfeited
|
(237 | ) | 17.61 | — | ||||||||||||
|
Exercised
|
— | |||||||||||||||
|
Outstanding at December 31, 2010
|
8,490 | $ | 17.63 | 7.5 years | $ | 121 | ||||||||||
|
Exercisable at December 31, 2010
|
1,135 | $ | 17.61 | 6.3 years | $ | 19 | ||||||||||
Total stock option expense was $12 million for the eight
months ended December 31, 2010, and $19 million for
the four months ended April 30, 2010. The related tax
benefits were $5 million and $6 million for the eight
months ended December 31, 2010, and four months ended
April 30, 2010, respectively. As of December 31, 2010,
the unrecognized compensation cost related to non-qualified
stock options was $35 million, which is expected to be
recognized over a weighted-average period of 3 years.
Restricted Stock Shares
— On April 30,
2010, we issued restricted class A ordinary shares. The
shares may not be sold or transferred until the restrictions
lapse on May 14, 2014. The participants are entitled to
receive dividends and have full voting rights during the
restriction period.
149
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 19. | Incentive and Share-Based Compensation — (Continued) |
The following table summarizes restricted stock shares activity
for the four months ended April 30, 2010 and the eight
months ended December 31, 2010 in thousands of shares:
|
Weighted-Average
|
||||||||
|
Number of
|
Grant Date Fair
|
|||||||
|
Predecessor
|
Shares | Value | ||||||
|
Outstanding at January 1, 2010
|
— | $ | — | |||||
|
Granted
|
1,772 | 17.61 | ||||||
|
Paid
|
— | — | ||||||
|
Forfeited
|
— | — | ||||||
|
Outstanding at April 30, 2010
|
1,772 | $ | 17.61 | |||||
|
Successor
|
||||||||
|
Outstanding at May 1, 2010
|
1,772 | $ | 17.61 | |||||
|
Granted
|
— | — | ||||||
|
Paid
|
— | — | ||||||
|
Forfeited
|
— | — | ||||||
|
Outstanding at December 31, 2010
|
1,772 | $ | 17.61 | |||||
The total restricted stock shares expense was $5 million
for both the eight months ended December 31, 2010, and four
months ended April 30, 2010. The related tax benefit was
$2 million for both periods. As of December 31, 2010,
the unrecognized compensation cost related to restricted stock
shares was $21 million, which is expected to be recognized
over a weighted-average period of 3 years.
Stock Appreciation Rights
— Certain employees
in Europe were granted stock appreciation rights
(“SARs”) under the LTI. SARs gives those employees the
right to receive an amount of cash equal to the appreciation in
the market value of the Company’s class A ordinary
shares from the award’s grant date to the exercise date.
Because the SAR’s are settled in cash, they are accounted
for as a liability award. The SARs vest over three years
beginning with the second anniversary of the grant date. We
recognized less than $1 million of compensation expense
related to SARs for the eight months ended December 31,
2010.
150
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Income Taxes |
The significant components of the provision for income taxes are
as follows:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Current:
|
|||||||||||||||||
|
U.S. federal
|
$ | 32 | $ | 11 | $ | (142 | ) | $ | (79 | ) | |||||||
|
Non-U.S.
|
106 | (16 | ) | 114 | 17 | ||||||||||||
|
State
|
12 | 11 | 16 | 16 | |||||||||||||
|
Total current
|
150 | 6 | (12 | ) | (46 | ) | |||||||||||
|
Deferred:
|
|||||||||||||||||
|
U.S. federal
|
228 | (1,204 | ) | (1,310 | ) | (948 | ) | ||||||||||
|
Non-U.S.
|
(198 | ) | 106 | (66 | ) | 178 | |||||||||||
|
State
|
(10 | ) | (31 | ) | (23 | ) | (32 | ) | |||||||||
|
Total deferred
|
20 | (1,129 | ) | (1,399 | ) | (802 | ) | ||||||||||
|
Provision for income taxes before tax effects of other
comprehensive income
|
170 | (1,123 | ) | (1,411 | ) | (848 | ) | ||||||||||
|
Tax effects of elements of other comprehensive income:
|
|||||||||||||||||
|
Pension and postretirement liabilities
|
(30 | ) | 3 | (15 | ) | (127 | ) | ||||||||||
|
Financial derivatives
|
— | 51 | (27 | ) | (68 | ) | |||||||||||
|
Foreign currency translation
|
4 | (9 | ) | (6 | ) | (12 | ) | ||||||||||
|
Total income tax expense in comprehensive income
|
$ | 144 | $ | (1,078 | ) | $ | (1,459 | ) | $ | (1,055 | ) | ||||||
Under the Plan of Reorganization, a substantial portion of the
Company’s pre-petition debt securities, revolving credit
facility and other obligations was 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 taxable 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 equity upon emergence from
chapter 11 bankruptcy proceedings, the estimated amount of
U.S. CODI exceeded the estimated amount of the
Company’s U.S. tax attributes by approximately
$7,433 million. The actual reduction in tax attributes does
not occur until the first day of our tax year subsequent to the
date of emergence, or January 1, 2011.
As a result of 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 most, if not all, of our tax bases in depreciable
assets in the U.S. will be eliminated. Accordingly, we
expect that the liability for U.S. income taxes in future
periods will reflect these adjustments and the estimated
U.S. cash tax liabilities for
151
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Income Taxes — (Continued) |
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 allow current year expensing for
certain qualified asset acquisitions.
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 was 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. Our emergence from Chapter 11 bankruptcy
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 any
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 in Germany
in the amount of $20 million 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 income tax rate
of 10.1% in the Successor period will not be indicative of
future effective tax rates.
152
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Income Taxes — (Continued) |
The deferred tax effects of tax losses carried forward and the
tax effects of temporary differences between the tax bases of
assets and liabilities and their reported amounts in the
consolidated financial statements, reduced by a valuation
allowance where appropriate, are presented below:
| Successor | Predecessor | ||||||||
|
December 31,
|
December 31,
|
||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
Deferred tax liabilities:
|
|||||||||
|
Accelerated tax depreciation
|
$ | 1,653 | $ | 3,251 | |||||
|
Investments in joint venture partnerships
|
139 | 482 | |||||||
|
Accrued interest
|
— | 341 | |||||||
|
Other intangible assets
|
357 | 430 | |||||||
|
Inventory
|
600 | 238 | |||||||
|
Other
|
— | 17 | |||||||
|
Total deferred tax liabilities
|
2,749 | 4,759 | |||||||
|
Deferred tax assets:
|
|||||||||
|
Net operating loss carryforwards
|
645 | 1,031 | |||||||
|
Employee benefit plans
|
487 | 543 | |||||||
|
Deferred interest carryforwards
|
896 | 638 | |||||||
|
AMT credits
|
— | 214 | |||||||
|
Goodwill
|
— | 44 | |||||||
|
State and foreign income taxes, net of federal tax benefit
|
42 | 107 | |||||||
|
Environmental reserves
|
35 | 549 | |||||||
|
Other
|
142 | 167 | |||||||
|
Total deferred tax assets
|
2,247 | 3,293 | |||||||
|
Deferred tax asset valuation allowances
|
(558 | ) | (666 | ) | |||||
|
Net deferred tax assets
|
1,689 | 2,627 | |||||||
|
Net deferred tax liabilities
|
$ | 1,060 | $ | 2,132 | |||||
|
Balance sheet classifications:
|
|||||||||
|
Deferred tax assets — current
|
$ | 66 | $ | 4 | |||||
|
Deferred tax assets — long-term
|
41 | 115 | |||||||
|
Deferred tax liability — current
|
244 | 170 | |||||||
|
Deferred tax liability — long term
|
923 | 2,081 | |||||||
|
Net deferred tax liabilities
|
$ | 1,060 | $ | 2,132 | |||||
The application of fresh-start accounting on May 1, 2010
resulted in the re-measurement of deferred income tax
liabilities associated with the revaluation of the
Company’s assets and liabilities pursuant to ASC 852
(see Note 4). As a result, deferred income taxes were
recorded at amounts determined in accordance with ASC 740
of $1,049 million. Further, we recorded valuation
allowances against certain of our deferred tax assets resulting
from this re-measurement.
153
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Income Taxes — (Continued) |
At December 31, 2010 and 2009, the Company had total tax
losses carried forward in the amount of $2,107 million and
$3,262 million, respectively, for which a deferred tax
asset was recognized at December 31, 2010 and 2009 of
$645 million and $1,031 million, respectively.
Tax benefits totaling $81 million and $68 million
relating to uncertain tax positions were unrecognized as of
December 31, 2010 and 2009, respectively. The following
table presents a reconciliation of the beginning and ending
amounts of unrecognized tax benefits:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Balance, beginning of period
|
$ | 91 | $ | 68 | $ | 49 | $ | 34 | |||||||||
|
Additions for tax positions of current year
|
1 | 13 | 1 | — | |||||||||||||
|
Additions for tax positions of prior years
|
16 | 41 | 30 | 42 | |||||||||||||
|
Reductions for tax positions of prior years
|
(4 | ) | (11 | ) | (7 | ) | (25 | ) | |||||||||
|
Cash Settlements
|
(23 | ) | — | (5 | ) | (3 | ) | ||||||||||
|
Effects of currency exchange rates
|
— | (3 | ) | — | 1 | ||||||||||||
|
Discharge upon emergence from bankruptcy
|
— | (17 | ) | — | — | ||||||||||||
|
Balance, end of period
|
$ | 81 | $ | 91 | $ | 68 | $ | 49 | |||||||||
The 2010, 2009 and 2008 balances, if recognized subsequent to
2010, will affect the effective tax rate. The Company operates
in multiple jurisdictions throughout the world, and its tax
returns are periodically audited or subject to review by both
domestic and foreign tax authorities. We are no longer subject
to any significant income tax examination by tax authorities for
years prior to 2007 in The Netherlands, Germany and Italy, and
2008 in the U.S., our principal tax jurisdictions. We settled a
significant percentage of the total amount of unrecognized tax
benefits during the fourth quarter of 2010 due to the resolution
of a German income tax audit of certain matters that includes
years up to and including 2008. In addition, the Company
recognized $17 million of unrecognized tax benefits that
were discharged by the bankruptcy court in the predecessor
period ended April 30, 2010. The recognition of these items
was recorded as reorganization expense and is not included in
the income tax accrual. We do not expect any significant changes
in the amounts of unrecognized tax benefits during the next
12 months.
We recognize interest expense and penalties related to uncertain
income tax positions in operating expenses. As of
December 31, 2009, the Company’s accrued liability for
interest expense was $9 million. There was no accrued
liability for interest as of December 31, 2010, as the
future settlement of the uncertain tax positions would not
result in any payment of interest at this time. No interest was
accrued during the Predecessor and Successor periods of 2010.
The Company accrued interest expense of $2 million in 2009
and in 2008 reversed accruals of $4 million related to
prior years as a reduction in goodwill. During the four months
ended April 30, 2010, $2 million of interest was
discharged upon emergence from bankruptcy. Interest payments of
$3 million, $3 million and $7 million were made
in the Successor period and in 2009 and 2008, respectively, in
connection with various settlements.
154
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Income Taxes — (Continued) |
The expiration of the tax losses carried forward and the related
deferred tax asset, before valuation allowance, as of
December 31, 2010 was as follows:
|
Gross
|
||||||||
|
Deferred Tax
|
||||||||
|
Tax Loss Carry
|
on Loss Carry
|
|||||||
| Forwards | Forwards | |||||||
|
Millions of dollars
|
||||||||
|
Year
|
||||||||
|
2011
|
$ | — | $ | — | ||||
|
2012
|
— | — | ||||||
|
2013
|
3 | 1 | ||||||
|
2014
|
3 | — | ||||||
|
2015
|
105 | 26 | ||||||
|
Thereafter
|
1,096 | 308 | ||||||
|
Indefinite
|
900 | 310 | ||||||
| $ | 2,107 | $ | 645 | |||||
Valuation allowances are provided against certain net deferred
tax assets for tax losses carried forward in Canada, France,
Japan, Spain, Thailand, Mexico, Taiwan and the United Kingdom.
In assessing the recoverability of the deferred tax assets, we
consider whether it is more likely than not that the deferred
tax assets will be realized. The ultimate realization of the
deferred tax assets is dependent upon the scheduled reversal of
deferred tax liabilities, projected future taxable income and
tax planning strategies. In order to fully realize the deferred
tax assets related to the net operating losses, we will need to
generate sufficient future taxable income in the countries where
these net operating losses exist during the periods in which the
net operating losses can be utilized. Based upon projections of
future taxable income over the periods in which the net
operating losses can be utilized
and/or
the
temporary differences can be reversed, management believes it is
more likely than not that the deferred tax assets in excess of
the valuation allowance of $558 million at
December 31, 2010 will be realized.
If, in the future, taxable income is generated on a sustained
basis in jurisdictions where a full valuation allowance has been
recorded, the conclusion regarding the need for full valuation
allowances in these tax jurisdictions could change, resulting in
the reversal of some or all of the valuation allowances. If
operations generate taxable income prior to reaching
profitability on a sustained basis, a portion of the valuation
allowance related to the corresponding realized tax benefit for
that period will be reversed, without changing the conclusion on
the need for a full valuation allowance against the remaining
net deferred tax assets. As a result, our current and future
provision for income taxes is significantly impacted by the
initial recognition of, and changes in, valuation allowances in
certain countries and the Successor period effective tax rate of
10.1% will not be indicative of our future effective tax rate.
During the Predecessor period, we recorded a valuation allowance
of $176 million against deferred tax assets, primarily
related to our French operations and various deferred tax assets
resulting from the implementation of fresh-start accounting. We
also reversed $11 million of valuation allowances during
the Predecessor period related to the Luxembourg entities that
are no longer a part of the LyondellBasell group following the
Company’s emergence from bankruptcy. In the Successor
period, we reversed valuation allowances attributable to our
Dutch net operating loss carryforwards as improved business
results combined with a restructuring of debt caused us to
conclude that it is now more likely than not that the deferred
tax assets will be realized. We also reversed valuation
allowances during the Successor period related to a portion of
our French deferred tax assets
155
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Income Taxes — (Continued) |
due to a restructuring of our French operations. These reversals
resulted in a net decrease in income tax expense of
$250 million in the Successor period. There were also
changes in the valuation allowances for 2010 related to
translation adjustments. At the end of 2009, the balance of
cumulative valuation allowances was $666 million. The only
changes in the valuation allowance in 2009 were related to
translation adjustments.
In most cases, deferred taxes have not been provided for
possible future distributions of earnings of subsidiaries as
such dividends are not expected to be subject to further
taxation upon their distribution. Deferred taxes on the
unremitted earnings of certain equity joint ventures of
$23 million, and $20 million at December 31, 2010
and 2009, respectively, have been provided to the extent that
such earnings are subject to taxation on their future remittance.
LyondellBasell N.V. is incorporated and is resident in The
Netherlands. However, since the Company’s proportion of
U.S. revenues, assets, operating income and associated tax
provisions is significantly greater than any other single taxing
jurisdiction within the worldwide group, the reconciliation of
the differences between the provision for income taxes and the
statutory rate is presented on the basis of the
U.S. statutory federal income tax rate of 35% as opposed to
the Dutch statutory rate of 25.5% to provide a more meaningful
insight into those differences. This summary is shown below:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Income (loss) before income taxes:
|
|||||||||||||||||
|
U.S.
|
$ | 1,141 | $ | 8,684 | $ | (4,358 | ) | $ | (8,308 | ) | |||||||
|
Non-U.S.
|
545 | (1,301 | ) | 75 | 117 | ||||||||||||
|
Total
|
$ | 1,686 | $ | 7,383 | $ | (4,283 | ) | $ | (8,191 | ) | |||||||
|
Theoretical income tax at U.S. statutory rate
|
$ | 590 | $ | 2,584 | $ | (1,499 | ) | $ | (2,867 | ) | |||||||
|
Increase (reduction) resulting from:
|
|||||||||||||||||
|
Impairment of goodwill
|
— | — | — | 1,746 | |||||||||||||
|
Discharge of debt and other reorganization related items
|
(221 | ) | (3,886 | ) | — | — | |||||||||||
|
Non-U.S.
income taxed at lower statutory rates
|
(14 | ) | (3 | ) | (1 | ) | (59 | ) | |||||||||
|
State income taxes, net of federal benefit
|
36 | (47 | ) | — | — | ||||||||||||
|
Changes in valuation allowances
|
(250 | ) | 176 | — | 200 | ||||||||||||
|
Non-taxable (income) and non-deductible expenses
|
(102 | ) | — | 124 | 44 | ||||||||||||
|
Notional royalties
|
(12 | ) | (11 | ) | (47 | ) | — | ||||||||||
|
Other income taxes, net of federal benefit
|
33 | 30 | 24 | 34 | |||||||||||||
|
Uncertain tax positions
|
13 | 42 | 24 | 33 | |||||||||||||
|
Warrants & Stock Compensation
|
24 | 5 | — | — | |||||||||||||
|
Transfer of subsidiary
|
88 | — | — | — | |||||||||||||
|
Other, net
|
(15 | ) | (13 | ) | (36 | ) | 21 | ||||||||||
|
Income tax provision (benefit)
|
$ | 170 | $ | (1,123 | ) | $ | (1,411 | ) | $ | (848 | ) | ||||||
156
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 21. | Commitments and Contingencies |
Commitments
— We have various purchase
commitments for materials, supplies and services incident to the
ordinary conduct of business, generally for quantities required
for its businesses and at prevailing market prices. These
commitments are designed to assure sources of supply and are not
expected to be in excess of normal requirements. At
December 31, 2010, we had commitments of approximately
$5 million related to rebuilding an expanded world-scale
high-density polyethylene plant at its Münchsmünster,
Germany site. Our other capital expenditure commitments at
December 31, 2010 were in the normal course of business.
Financial Assurance Instruments
— We have
obtained letters of credit, performance and surety bonds and
have issued financial and performance guarantees to support
trade payables, potential liabilities and other obligations.
Considering the frequency of claims made against the financial
instruments we use to support our obligations, and the magnitude
of those financial instruments in light of our current financial
position, management does not expect that any claims against or
draws on these instruments would have a material adverse effect
on our consolidated financial statements. We have not
experienced any unmanageable difficulty in obtaining the
required financial assurance instruments for our current
operations.
Environmental Remediation
— Our accrued
liability for future environmental remediation costs at current
and former plant sites and other remediation sites totaled
$107 million as of December 31, 2010. The accrued
liabilities for individual sites range from less than
$1 million to $37 million. The remediation
expenditures are expected to occur over a number of years, and
not to be concentrated in any single year. In our opinion, it is
reasonably possible that losses in excess of the liabilities
recorded may have been incurred. However, we cannot estimate any
amount or range of such possible additional losses. New
information about sites, new technology or future developments
such as involvement in investigations by regulatory agencies,
could require us to reassess our potential exposure related to
environmental matters.
The following table summarizes the activity in the
Company’s accrued environmental liability included in
“Accrued liabilities” and “Other
liabilities”:
| Successor | Predecessor | ||||||||||||
|
May 1
|
January 1
|
For the Year
|
|||||||||||
|
through
|
through
|
Ended
|
|||||||||||
|
December 31,
|
April 30,
|
December 31,
|
|||||||||||
| 2010 | 2010 | 2009 | |||||||||||
|
Millions of dollars
|
|||||||||||||
|
Balance at beginning of period
|
$ | 93 | $ | 89 | $ | 256 | |||||||
|
Additional provisions
|
17 | 11 | 8 | ||||||||||
|
Amounts paid
|
(3 | ) | (2 | ) | (7 | ) | |||||||
|
Reclassification to Liabilities subject to compromise
|
— | — | (169 | ) | |||||||||
|
Foreign exchange effects
|
— | (5 | ) | 1 | |||||||||
|
Balance at end of period
|
$ | 107 | $ | 93 | $ | 89 | |||||||
The Debtors resolved substantially all of their liability
related to third-party sites (including sites where the Debtors
were subject to a Comprehensive Environmental Response,
Compensation and Liability Act or similar state order to fund or
perform such cleanup, such as the river and the other portions
of the Kalamazoo River Superfund Site that the Debtors do not
own) through creation of the Environmental Custodial Trust and
agreement on allowed claim values as set forth in the
Debtors’ Third Amended Plan of Reorganization and
Settlement Agreement Among the Debtors, the Environmental
Custodial Trust Trustee, The United States, and certain
environmental Agencies filed with the U.S. Bankruptcy Court
on March 30, 2010 and approved by the court on
April 23, 2010. Upon the Debtors’ emergence from
bankruptcy, certain real properties owned by the Debtors,
including the Schedule III Debtors (as defined in the Plan
of Reorganization), were transferred to the
157
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 21. | Commitments and Contingencies — (Continued) |
Environmental Custodial Trust, which now owns and is responsible
for these properties. Consistent with the Debtors’
settlement with the governmental agencies and its Plan of
Reorganization, approximately $170 million of cash was also
used to fund the Environmental Custodial Trust and to make
certain direct payments to the Environmental Protection Agency
and certain state environmental agencies.
Litigation and Other Matters
— On
April 12, 2005, BASF Corporation (“BASF”) filed a
lawsuit in New Jersey against Lyondell Chemical asserting
various claims relating to alleged breaches of a product sales
contract and seeking damages in excess of $100 million.
Lyondell Chemical denied it breached the contracts. Lyondell
Chemical believed the maximum refund due to BASF was
$22.5 million on such product sales and has paid such
amount to BASF. On August 13, 2007, the jury returned a
verdict in favor of BASF in the amount of approximately
$170 million (which includes the above $22.5 million).
On October 3, 2007, the judge determined that prejudgment
interest on the verdict was $36 million and issued a final
judgment. Lyondell Chemical appealed this verdict and has posted
a bond, which is collateralized by a $200 million letter of
credit.
On April 21, 2010, oral arguments related to the appeal
were held and on December 28, 2010, the judgment was
reversed and the case was remanded. The parties have filed
motions with the Bankruptcy Court for a determination as to
whether the case will proceed in the Bankruptcy Court or New
Jersey state court. We do not expect the ultimate resolution of
this matter to have a material adverse effect on our
consolidated financial position, liquidity, or results of
operations, although it is possible that any such resolution
could have a material adverse effect on our results of operation
for any period in which a resolution occurs.
On December 20, 2010, one of our subsidiaries received
demand letters from affiliates of Access Industries, a
shareholder of the Company. The Access affiliates have demanded
that our subsidiary, LyondellBasell Industries Holdings B.V.
(“LBIH”) indemnify them and their shareholders,
members, affiliates, officers, directors, employees and other
related parties for all losses, including attorney’s fees
and expenses, arising out of a pending lawsuit and pay
$50 million in management fees for 2009 and 2010 in
addition to other unspecified amounts related to advice
purportedly given in connection with financing and other
strategic transactions. We conducted an initial investigation of
the facts underlying the demand letters and engaged in
discussions with Access. We requested that Access withdraw its
demands, and on January 17, 2011, Access declined to
withdraw its demands.
In the pending lawsuit, the plaintiffs are seeking damages from
numerous parties, including Access and its affiliates. The
damages sought from Access and its affiliates include, among
other things, the return of all amounts earned by them related
to their acquisition of shares of Lyondell Chemical prior to its
acquisition by Basell AF S.C.A. in December 2007, distributions
by Basell AF S.C.A. to its shareholders before it acquired
Lyondell Chemical, and management and transaction fees and
expenses. We cannot at this time determine the amount of
liability, if any, that may be sought from LBIH by way of
indemnity if a judgment is rendered or a settlement is paid in
the lawsuit.
The Access affiliates assert that LBIH’s responsibility for
indemnity and the claimed fees and expenses arises out of a
management agreement entered into on December 11, 2007,
between Nell and Basell AF S.C.A. They assert that LBIH, as a
former subsidiary of Basell AF S.C.A., is jointly and severally
liable for Basell AF S.C.A.’s obligations under the
agreement, notwithstanding that LBIH was not a signatory to the
agreement and the liabilities of Basell AF S.C.A., which was a
signatory, were discharged in the LyondellBasell bankruptcy
proceedings.
We do not believe that the management agreement is in effect or
that the Company, LBIH, or any other Company-affiliated entity
owes any obligations under the management agreement. We intend
to defend vigorously any proceedings, claims or demands that may
be asserted.
158
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 21. | Commitments and Contingencies — (Continued) |
Indemnification
— We are parties to various
indemnification arrangements, including arrangements entered
into in connection with acquisitions, divestitures and the
formation of joint ventures. Pursuant to these arrangements, we
provide indemnification to
and/or
receive indemnification from other parties in connection with
liabilities that may arise in connection with the transactions
and in connection with activities prior to completion of the
transactions. These indemnification arrangements typically
include provisions pertaining to third party claims relating to
environmental and tax matters and various types of litigation.
As of December 31, 2010, we had not accrued any significant
amounts for our indemnification obligations, and we are not
aware of other circumstances that would likely lead to
significant future indemnification obligations. We cannot
determine with certainty the potential amount of future payments
under the indemnification arrangements until events arise that
would trigger a liability under the arrangements.
In addition, certain third parties entered into agreements with
the Predecessor, LyondellBasell AF, to indemnify LyondellBasell
AF for a significant portion of the potential obligations that
could arise with respect to costs relating to contamination at
the Berre site in France and the Ferrara and Brindisi sites in
Italy. These indemnity obligations are currently in dispute. We
recognized a pretax charge of $64 million as a change in
estimate in the third quarter 2010 related to the dispute, which
arose during that period.
As part of our technology licensing contracts, we give
indemnifications to our licensees for liabilities arising from
possible patent infringement claims with respect to proprietary
licensed technology. Such indemnifications have a stated maximum
amount and generally cover a period of five to ten years.
Other
— We have identified an agreement related
to a former project in Kazakhstan under which a payment was made
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 the Audit Committee of 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 and are cooperating fully
with that agency. We cannot predict the ultimate outcome of
these matters at this time since our investigations are ongoing.
In this respect, we may not have conducted business in
compliance with the FCPA and may not have had policies and
procedures in place adequate to ensure compliance. Therefore, we
cannot reasonably estimate a range of liability for any
potential penalty resulting from these matters. Violations of
these laws could result in criminal and civil liabilities and
other forms of relief that could be material to us.
Certain of our
non-U.S. subsidiaries
conduct business in countries subject to U.S. economic
sanctions, including Iran. U.S. and European laws and
regulations prohibit certain persons from engaging in business
activities, in whole or in part, with sanctioned countries,
organizations and individuals. We have made voluntary disclosure
of these matters to the U.S. Treasury Department and intend
to cooperate fully with that agency. The ultimate outcome of
this matter cannot be predicted at this time because our
investigations are ongoing. Therefore, we cannot reasonably
estimate a range of liability for any potential penalty
resulting from these matters. In addition, we have made the
decision to cease all business 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 the Company to civil and criminal penalties as
well as private legal proceedings that could be material to us.
We cannot predict the ultimate outcome of this matter at this
time because our investigations and withdrawal activities are
ongoing.
We and our joint ventures are, from time to time, defendants in
lawsuits and other commercial disputes, some of which are not
covered by insurance. Many of these suits make no specific claim
for relief. Although final determination of any liability and
resulting financial impact with respect to any such matters
cannot be ascertained with any degree of certainty, we do not
believe that any ultimate uninsured liability resulting from
159
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 21. | Commitments and Contingencies — (Continued) |
these matters will, individually or in the aggregate, have a
material adverse effect on the financial position, liquidity or
results of operations of LyondellBasell N.V.
General
— In our opinion, the matters discussed
in this note are not expected to have a material adverse effect
on the financial position or liquidity of LyondellBasell N.V.
However, the adverse resolution in any reporting period of one
or more of these matters could have a material impact on our
results of operations for that period, which may be mitigated by
contribution or indemnification obligations of others, or by any
insurance coverage that may be available.
| 22. | Stockholders’ Equity (Deficit) and Non-Controlling Interests |
Common Stock
— On April 30, 2010,
approximately 563.9 million shares of LyondellBasell N.V.
common stock, including 300 million shares of class A
new ordinary shares were issued in exchange for allowed claims
under the Plan of Reorganization. In addition, approximately
263.9 million shares of LyondellBasell N.V. class B
ordinary shares were issued in connection with a rights offering
for gross proceeds of $2.8 billion. On December 6,
2010, 263.9 million class B ordinary shares converted
into class A ordinary shares on a one-for-one basis in
accordance with their terms.
Dividend distribution
— Our credit arrangements
include restrictive covenants that limit our ability to pay
dividends up to $50 million per year through
December 31, 2011 and to the greater of
(i) $50 million per year and (ii) the aggregate
dividends paid since April 30, 2010 not to exceed fifty
percent of net income since January 1, 2012 and thereafter.
Conversion of Class B Ordinary Shares
—
Our Articles of Association provided that at the earlier of
(i) the request of the relevant holder of class B
ordinary shares with respect to the number of class B
ordinary shares specified by such holder; (ii) acquisition
by us of one or more class B ordinary shares; or
(iii) the first date upon which the closing price per share
of the class B ordinary shares has exceeded 200% of $10.61
for at least forty-five trading days within a period of sixty
consecutive trading days (provided that the closing price per
share of the class B ordinary shares exceeded such
threshold on both the first and last day of the sixty day
period), each such class B ordinary share would be
converted into one class A ordinary share. At the close of
business on December 6, 2010, the provision in
(iii) was met, and the 263.9 million class B
ordinary shares outstanding as of that date had not previously
been converted in accordance with (i), above, converted into an
equal number of Class A ordinary shares.
Treasury shares
— In connection with our
formation, we issued one million one hundred twenty-five
thousand (1,125,000), four Eurocent (€0.04) each,
class A ordinary shares for €45 thousand to Stichting
TopCo, a foundation formed under the laws of The Netherlands
(the “Foundation”). On April 30, 2010, the
Foundation transferred the shares from the Foundation for nil
consideration. These shares are classified as Treasury Stock on
our Consolidated Balance Sheet.
160
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 22. | Stockholders’ Equity (Deficit) and Non-Controlling Interests — (Continued) |
The changes in the outstanding amounts of class A and
class B ordinary shares and treasury shares for the period
May 1 through December 31, 2010, were as follows:
|
Successor
|
||||
|
Class A ordinary shares:
|
||||
|
Issued April 30, 2010
|
300,000,000 | |||
|
Share-based compensation
|
1,774,196 | |||
|
Conversion of class B ordinary shares
|
263,901,979 | |||
|
Warrants exercised
|
47 | |||
|
Balance December 31, 2010
|
565,676,222 | |||
|
Class B ordinary shares:
|
||||
|
Issued April 30, 2010
|
263,901,979 | |||
|
Conversion to class A ordinary shares
|
(263,901,979 | ) | ||
|
Balance December 31, 2010
|
— | |||
|
Class A ordinary shares held as treasury shares:
|
||||
|
Shares acquired April 30, 2010
|
1,125,000 | |||
|
Shares tendered to exercise warrants
|
53 | |||
|
Share-based compensation
|
(2,402 | ) | ||
|
Balance December 31, 2010
|
1,122,651 | |||
Accumulated Other Comprehensive Income (Loss)
—
The components of accumulated other comprehensive income (loss)
were as follows:
|
Millions of dollars
|
||||
|
Successor
|
||||
|
December 31, 2010
|
||||
|
Pension and postretirement liabilities
|
$ | (33 | ) | |
|
Foreign currency translation
|
113 | |||
|
Unrealized gains on
available-for-sale
securities
|
1 | |||
|
Total
|
$ | 81 | ||
|
Predecessor
|
||||
|
December 31, 2009
|
||||
|
Pension and postretirement liabilities
|
$ | (273 | ) | |
|
Financial derivatives
|
(60 | ) | ||
|
Foreign currency translation
|
35 | |||
|
Unrealized gains on
available-for-sale
securities
|
12 | |||
|
Total
|
$ | (286 | ) | |
Transactions recorded in “Accumulated other comprehensive
income” are recognized net of tax.
The unrealized gain on
available-for-sale
securities represents the Company’s share of such gain
recorded by equity investees.
161
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 22. | Stockholders’ Equity (Deficit) and Non-Controlling Interests — (Continued) |
Non-controlling Interests
— Losses attributable
to non-controlling interests consisted of the following
components:
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Comprehensive income (loss):
|
|||||||||||||||||
|
Non-controlling interests share of income (loss)
|
$ | 7 | $ | (53 | ) | $ | 15 | $ | 18 | ||||||||
|
Fixed operating fees paid to Lyondell Chemical by the PO/SM II
partnership
|
(14 | ) | (7 | ) | (21 | ) | (25 | ) | |||||||||
|
Net loss attributable to non-controlling interests
|
$ | (7 | ) | $ | (60 | ) | $ | (6 | ) | $ | (7 | ) | |||||
| 23. | Per Share Data |
Basic earnings per share for the periods subsequent to
April 30, 2010 are based upon the weighted average number
of shares of common stock outstanding during the periods.
Diluted earnings per share includes the effect of certain stock
options. The Company has unvested restricted stock and
restricted stock units that are considered participating
securities for earnings per share. Certain outstanding stock
options, participating securities and all of the outstanding
warrants were anti-dilutive.
Earnings per share data and dividends declared per share of
common stock were as follows for the period May 1 through
December 21, 2010:
|
Continuing
|
Discontinued
|
|||||||
| Operations | Operations | |||||||
|
Millions of dollars
|
||||||||
|
Net Income
|
$ | 1,516 | $ | 64 | ||||
|
Less: net loss attributable to non-controlling interests
|
7 | — | ||||||
|
Net income attributable to LyondellBasell N.V.
|
1,523 | 64 | ||||||
|
Net income attributable to participating securities
|
(3 | ) | — | |||||
|
Net income attributable to common stockholders
|
$ | 1,520 | $ | 64 | ||||
|
Millions of shares
|
||||||||
|
Basic weighted average common stock outstanding
|
564 | 564 | ||||||
|
Effect of dilutive securities:
|
||||||||
|
Stock options
|
2 | 2 | ||||||
|
Dilutive potential shares
|
566 | 566 | ||||||
|
Earnings per share:
|
||||||||
|
Basic
|
$ | 2.68 | $ | 0.11 | ||||
|
Diluted
|
$ | 2.67 | $ | 0.11 | ||||
|
Anti-dilutive stock options and warrants in millions
|
17.9 | 17.9 | ||||||
|
Dividends declared per share of common stock
|
$ | — | $ | — | ||||
162
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | Segment and Related Information |
We operate in five segments:
| • | Olefins and Polyolefins — Americas, primarily manufacturing and marketing of olefins, including ethylene and its co-products, primarily propylene, butadiene, and aromatics, which include benzene and toluene, as well as ethanol; and polyolefins, including polyethylene, comprising HDPE, LDPE and linear low density polyethylene (“LLDPE”), and polypropylene; and Catalloy process resins; | |
| • | Olefins and Polyolefins — Europe, Asia, International, primarily manufacturing and marketing of olefins, including ethylene and its co-products, primarily propylene and butadiene; polyolefins, including polyethylene, comprising HDPE, LDPE and polypropylene; polypropylene-based compounds, materials and alloys (“PP Compounds”), Catalloy process resins and polybutene-1 polymers; | |
| • | Intermediates and Derivatives (“I&D”), primarily manufacturing and marketing of PO; PO co-products, including styrene and the TBA intermediates tertiary butyl alcohol (“TBA”), isobutylene and tertiary butyl hydroperoxide; PO derivatives, including propylene glycol, propylene glycol ethers and butanediol; ethylene derivatives, including ethylene glycol, ethylene oxide (“EO”), and other EO derivatives; acetyls, including vinyl acetate monomer, acetic acid and methanol and fragrance and flavor chemicals; | |
| • | Refining and Oxyfuels, primarily manufacturing and marketing of refined petroleum products, including gasoline, ultra-low sulfur diesel, jet fuel, lubricants (“lube oils”), alkylate, and oxygenated fuels, or oxyfuels, such as methyl tertiary butyl ether (“MTBE”), ethyl tertiary butyl ether (“ETBE”); and | |
| • | Technology, primarily licensing of polyolefin process technologies and supply of polyolefin catalysts and advanced catalysts. |
The accounting policies of the segments are the same as those
described in “Summary of Significant Accounting
Policies” (see Note 2), except that the
Predecessor’s segment operating results reported to
management reflected costs of sales determined using current
costs, which approximated results using the LIFO method of
accounting for inventory. These current cost-basis operating
results are reconciled to consolidated operating income in the
Predecessor tables below. Sales between segments are made
primarily at prices approximating prevailing market prices.
No customer accounted for 10% or more of the Company’s
consolidated sales during any year in the three-year period
ended December 31, 2010.
On December 22, 2010, we completed the sale of our Flavor
and Fragrance chemicals business, including production assets in
Jacksonville, Florida and Colonels Island, Georgia, related
inventories, receivables, contracts, customer lists,
intellectual property and certain liabilities, receiving
proceeds of $154 million. As a result, the Flavor and
Fragrance chemicals business, which was part of our I&D
segment, is presented as discontinued operations and therefore
excluded from the operations of the I&D segment below in
the Successor period.
On September 1, 2008, LyondellBasell AF completed the sale
of its TDI business, including production assets in
Pont-du-Claix, France, related inventories, contracts, customer
lists and intellectual property, receiving net proceeds of
€77 million ($113 million). As a result,
LyondellBasell AF’s TDI business, which was part of
LyondellBasell AF’s I&D segment, is presented as
discontinued operations and therefore is excluded from the
operations of the I&D segment below in the Predecessor
periods.
163
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | Segment and Related Information — (Continued) |
Summarized financial information concerning reportable segments
is shown in the following table for the periods presented.
| Successor | ||||||||||||||||||||||||||||
|
Olefins and
|
||||||||||||||||||||||||||||
|
Polyolefins —
|
||||||||||||||||||||||||||||
|
Olefins and
|
Europe,
|
Refining
|
||||||||||||||||||||||||||
|
Polyolefins —
|
Asia &
|
Intermediates &
|
and
|
|||||||||||||||||||||||||
| Americas | International | Derivatives | Oxyfuels | Technology | Other | Total | ||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||
|
May 1 through December 31, 2010:
|
||||||||||||||||||||||||||||
|
Sales and other operating revenues:
|
||||||||||||||||||||||||||||
|
Customers
|
$ | 5,993 | $ | 8,522 | $ | 3,714 | $ | 9,180 | $ | 291 | $ | (16 | ) | $ | 27,684 | |||||||||||||
|
Intersegment
|
2,413 | 207 | 40 | 1,141 | 74 | (3,875 | ) | — | ||||||||||||||||||||
| 8,406 | 8,729 | 3,754 | 10,321 | 365 | (3,891 | ) | 27,684 | |||||||||||||||||||||
|
Operating income (loss)
|
1,043 | 411 | 512 | 241 | 69 | (22 | ) | 2,254 | ||||||||||||||||||||
|
Income from equity investments
|
16 | 68 | 2 | — | — | — | 86 | |||||||||||||||||||||
|
Capital expenditures
|
146 | 105 | 76 | 108 | 19 | 12 | 466 | |||||||||||||||||||||
|
Depreciation and amortization expense
|
151 | 146 | 81 | 107 | 78 | (5 | ) | 558 | ||||||||||||||||||||
| Predecessor | |||||||||||||||||||||||||||||
|
Olefins and
|
|||||||||||||||||||||||||||||
|
Polyolefins —
|
|||||||||||||||||||||||||||||
|
Olefins and
|
Europe,
|
Refining
|
|||||||||||||||||||||||||||
|
Polyolefins —
|
Asia &
|
Intermediates &
|
and
|
||||||||||||||||||||||||||
| Americas | International | Derivatives | Oxyfuels | Technology | Other | Total | |||||||||||||||||||||||
|
Millions of dollars
|
|||||||||||||||||||||||||||||
|
January 1 through April 30, 2010:
|
|||||||||||||||||||||||||||||
|
Sales and other operating revenues:
|
|||||||||||||||||||||||||||||
|
Customers
|
$ | 3,220 | $ | 4,018 | $ | 1,820 | $ | 4,293 | $ | 104 | $ | 12 | $ | 13,467 | |||||||||||||||
|
Intersegment
|
963 | 87 | — | 455 | 41 | (1,546 | ) | — | |||||||||||||||||||||
| 4,183 | 4,105 | 1,820 | 4,748 | 145 | (1,534 | ) | 13,467 | ||||||||||||||||||||||
|
Segment operating income (loss)
|
320 | 115 | 157 | (99 | ) | 39 | (41 | ) | 491 | ||||||||||||||||||||
|
Current cost adjustment
|
199 | ||||||||||||||||||||||||||||
|
Operating income
|
690 | ||||||||||||||||||||||||||||
|
Income (loss) from equity investments
|
5 | 80 | (1 | ) | — | — | — | 84 | |||||||||||||||||||||
|
Capital expenditures
|
52 | 102 | 8 | 49 | 12 | 3 | 226 | ||||||||||||||||||||||
|
Depreciation and amortization expense
|
160 | 108 | 91 | 180 | 23 | 3 | 565 | ||||||||||||||||||||||
164
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | Segment and Related Information — (Continued) |
|
Olefins and
|
||||||||||||||||||||||||||||
|
Polyolefins —
|
||||||||||||||||||||||||||||
|
Olefins and
|
Europe,
|
Refining
|
||||||||||||||||||||||||||
|
Polyolefins —
|
Asia &
|
Intermediates &
|
and
|
|||||||||||||||||||||||||
| Americas | International | Derivatives | Oxyfuels | Technology | Other | Total | ||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
Sales and other operating revenues:
|
||||||||||||||||||||||||||||
|
Customers
|
$ | 6,728 | $ | 9,047 | $ | 3,777 | $ | 10,831 | $ | 436 | $ | 9 | $ | 30,828 | ||||||||||||||
|
Intersegment
|
1,886 | 354 | 1 | 1,247 | 107 | (3,595 | ) | — | ||||||||||||||||||||
| 8,614 | 9,401 | 3,778 | 12,078 | 543 | (3,586 | ) | 30,828 | |||||||||||||||||||||
|
Impairments
|
(47 | ) | (16 | ) | — | (9 | ) | (1 | ) | 56 | (17 | ) | ||||||||||||||||
|
Segment operating income (loss)
|
169 | (2 | ) | 250 | (357 | ) | 210 | 18 | 288 | |||||||||||||||||||
|
Current cost adjustment
|
29 | |||||||||||||||||||||||||||
|
Operating income
|
317 | |||||||||||||||||||||||||||
|
Income (loss) from equity investments
|
7 | (172 | ) | (16 | ) | — | — | — | (181 | ) | ||||||||||||||||||
|
Capital expenditures
|
142 | 411 | 21 | 167 | 32 | 6 | 779 | |||||||||||||||||||||
|
Depreciation and amortization expense
|
515 | 316 | 276 | 556 | 100 | 11 | 1,774 | |||||||||||||||||||||
|
Olefins and
|
||||||||||||||||||||||||||||
|
Polyolefins —
|
||||||||||||||||||||||||||||
|
Olefins and
|
Europe,
|
Refining
|
||||||||||||||||||||||||||
|
Polyolefins —
|
Asia &
|
Intermediates &
|
and
|
|||||||||||||||||||||||||
| Americas | International | Derivatives | Oxyfuels | Technology | Other | Total | ||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||
|
Sales and other operating revenues:
|
||||||||||||||||||||||||||||
|
Customers
|
$ | 13,193 | $ | 13,489 | $ | 6,218 | $ | 17,370 | $ | 434 | $ | 2 | $ | 50,706 | ||||||||||||||
|
Intersegment
|
3,219 | — | — | 992 | 149 | (4,360 | ) | — | ||||||||||||||||||||
| 16,412 | 13,489 | 6,218 | 18,362 | 583 | (4,358 | ) | 50,706 | |||||||||||||||||||||
|
Impairments:
|
||||||||||||||||||||||||||||
|
Goodwill
|
(624 | ) | (61 | ) | (1,992 | ) | (2,305 | ) | — | — | (4,982 | ) | ||||||||||||||||
|
Other
|
(7 | ) | — | — | (218 | ) | — | — | (225 | ) | ||||||||||||||||||
|
Segment operating income (loss)
|
(1,355 | ) | 220 | (1,915 | ) | (2,378 | ) | 202 | (134 | ) | (5,360 | ) | ||||||||||||||||
|
Current cost adjustment
|
(568 | ) | ||||||||||||||||||||||||||
|
Operating loss
|
(5,928 | ) | ||||||||||||||||||||||||||
|
Income (loss) from equity investments
|
6 | 34 | (2 | ) | — | — | — | 38 | ||||||||||||||||||||
|
Capital expenditures
|
201 | 509 | 37 | 196 | 33 | 24 | 1,000 | |||||||||||||||||||||
|
Depreciation and amortization expense
|
558 | 295 | 360 | 566 | 97 | 35 | 1,911 | |||||||||||||||||||||
165
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | Segment and Related Information — (Continued) |
Sales and other operating revenues and operating income (loss)
in the “Other” column above include elimination of
intersegment transactions and businesses that are not reportable
segments in the periods presented.
In the Successor period, we recognized a $64 million charge
related to a change in estimate associated with a dispute over
environmental liability, including $35 million,
$21 million, and $8 million related to the
O&P — EAI, Refining and Oxyfuels, and Technology
business segments, respectively. The Successor period also
includes a $28 million charge associated with the Refining
and Oxyfuels business segment, primarily related to impairment
of capital additions for the Berre refinery. These charges are
reflected in Cost of sales and Impairments, respectively, on the
Consolidated Statements of Income.
In 2009, LyondellBasell AF recognized charges of
$696 million to write off the carrying value of assets,
$679 million of which are reflected in “Reorganization
items,” on the Consolidated Statements of Income. These
charges included $624 million related to the
O&P — Americas business segment, all of which was
associated with a lease rejection at an olefin plant at
Chocolate Bayou, Texas and $55 million related to the
I&D business segment associated with an interest in an
ethylene glycol facility in Beaumont, Texas.
Also in 2009, operating results for the O&P —
Americas and Refining and Oxyfuels business segments included
charges of $47 million and $9 million, respectively,
primarily for impairment of the carrying value of surplus
emission allowances related to HRVOCs and
non-U.S. emission
rights (see Note 11).
The remaining $17 million, which is included in
“Impairments” on the Consolidated Statements of Income
related to the O&P — EAI business segment,
including $6 million was related to an LDPE plant at
Fos-sur-Mer, France, $6 million related to the closure of a
polypropylene line at Wesseling, Germany, $3 million
related to an LDPE plant at Carrington, U.K. and $1 million
related to an advanced polyolefins compounding facility in
Mansfield, Texas.
In 2009 LyondellBasell AF determined that there had been a
diminution in the value of its investments in certain joint
ventures and such loss was other than temporary. This
determination resulted in pretax impairment charges of
$228 million that was included in “Income (loss) from
equity investments” for 2009 in the O&P —
EAI business segment.
166
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | Segment and Related Information — (Continued) |
Long-lived assets of continuing operations, including goodwill,
are summarized and reconciled to consolidated totals in the
following table:
|
Olefins and
|
||||||||||||||||||||||||||||
|
Polyolefins —
|
||||||||||||||||||||||||||||
|
Olefins and
|
Europe,
|
Refining
|
||||||||||||||||||||||||||
|
Polyolefins —
|
Asia &
|
Intermediates &
|
and
|
|||||||||||||||||||||||||
| Americas | International | Derivatives | Oxyfuels | Technology | Other | Total | ||||||||||||||||||||||
|
Millions of dollars
|
||||||||||||||||||||||||||||
|
Successor
|
||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||
|
Property, plant and equipment, net
|
$ | 1,696 | $ | 2,458 | $ | 1,700 | $ | 937 | $ | 351 | $ | 48 | $ | 7,190 | ||||||||||||||
|
Investment in PO Joint Ventures
|
— | — | 437 | — | — | — | 437 | |||||||||||||||||||||
|
Equity and other investments
|
164 | 1,311 | 112 | — | — | — | 1,587 | |||||||||||||||||||||
|
Goodwill
|
354 | 178 | 246 | — | 9 | — | 787 | |||||||||||||||||||||
|
Predecessor
|
||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
Property, plant and equipment, net
|
$ | 4,170 | $ | 3,115 | $ | 2,583 | $ | 4,888 | $ | 323 | $ | 73 | $ | 15,152 | ||||||||||||||
|
Investment in PO Joint Ventures
|
— | — | 922 | — | — | — | 922 | |||||||||||||||||||||
|
Equity and other investments
|
117 | 869 | 99 | — | — | — | 1,085 | |||||||||||||||||||||
Property, plant and equipment, net, included in the
“Other” column above includes assets related to
corporate and support functions.
The following geographic data for revenues are based upon the
delivery location of the product and for long-lived assets, the
location of the assets.
| Revenues | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
May 1
|
January 1
|
||||||||||||||||
|
through
|
through
|
For the Year Ended
|
|||||||||||||||
|
December 31,
|
April 30,
|
December 31, | |||||||||||||||
| 2010 | 2010 | 2009 | 2008 | ||||||||||||||
|
Millions of dollars
|
|||||||||||||||||
|
Europe
|
$ | 10,480 | $ | 4,462 | $ | 10,931 | $ | 19,223 | |||||||||
|
North America
|
14,046 | 7,326 | 16,566 | 28,118 | |||||||||||||
|
All other
|
3,158 | 1,679 | 3,331 | 3,365 | |||||||||||||
|
Total
|
$ | 27,684 | $ | 13,467 | $ | 30,828 | $ | 50,706 | |||||||||
167
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | Segment and Related Information — (Continued) |
| Long-Lived Assets | |||||||||
|
Successor
|
Predecessor
|
||||||||
| 2010 | 2009 | ||||||||
|
Millions of dollars
|
|||||||||
|
United States
|
$ | 3,792 | $ | 11,211 | |||||
|
Non-U.S.:
|
|||||||||
|
Germany
|
1,706 | 1,958 | |||||||
|
The Netherlands
|
752 | 1,283 | |||||||
|
France
|
609 | 857 | |||||||
|
Other
non-U.S.
|
768 | 765 | |||||||
|
Total
non-U.S.
|
3,835 | 4,863 | |||||||
|
Total
|
$ | 7,627 | $ | 16,074 | |||||
Long-lived assets include Property, plant and equipment, net and
investments in PO joint ventures (see Note 12).
| 25. | Unaudited Quarterly Results |
Selected financial data for the quarterly periods in 2010 and
2009 are presented in the following table.
| Predecessor | Successor | ||||||||||||||||||||
|
For the
|
For the
|
For the
|
|||||||||||||||||||
|
Quarter
|
April 1
|
May 1
|
Quarter
|
Quarter
|
|||||||||||||||||
|
Ended
|
through
|
through
|
Ended
|
Ended
|
|||||||||||||||||
| March 31 | April 30 | June 30 | September 30 | December 31 | |||||||||||||||||
|
Millions of dollars
|
|||||||||||||||||||||
|
2010
|
|||||||||||||||||||||
|
Sales and other operating revenues
|
$ | 9,755 | $ | 3,712 | $ | 6,772 | $ | 10,302 | $ | 10,610 | |||||||||||
|
Operating income(a)
|
367 | 323 | 422 | 988 | 844 | ||||||||||||||||
|
Income from equity investments
|
55 | 29 | 27 | 29 | 30 | ||||||||||||||||
|
Reorganization items(b)
|
207 | 7,373 | (8 | ) | (13 | ) | (2 | ) | |||||||||||||
|
Income from continuing operations(c)
|
8 | 8,498 | 347 | 467 | 702 | ||||||||||||||||
|
Income (loss) from discontinued operations(c)
|
— | (2 | ) | — | — | 64 | |||||||||||||||
|
Net income
|
8 | 8,496 | 347 | 467 | 766 | ||||||||||||||||
|
Earnings per share:
|
|||||||||||||||||||||
|
Basic
|
0.61 | 0.84 | 1.35 | ||||||||||||||||||
|
Diluted
|
0.58 | 0.84 | 1.34 | ||||||||||||||||||
168
Table of Contents
LYONDELLBASELL
INDUSTRIES N.V.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 25. | Unaudited Quarterly Results — (Continued) |
| Predecessor | ||||||||||||||||
| For the Quarter Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
|
Millions of dollars
|
||||||||||||||||
|
2009
|
||||||||||||||||
|
Sales and other operating revenues
|
$ | 5,900 | $ | 7,499 | $ | 8,612 | $ | 8,817 | ||||||||
|
Operating income (loss)(d)
|
(141 | ) | 89 | 419 | (50 | ) | ||||||||||
|
Income (loss) from equity investments(e)
|
(20 | ) | 22 | (168 | ) | (15 | ) | |||||||||
|
Reorganization items(b)
|
(948 | ) | (124 | ) | (928 | ) | (961 | ) | ||||||||
|
Loss from continuing operations(d)(e)(f)
|
(1,013 | ) | (355 | ) | (650 | ) | (854 | ) | ||||||||
|
Income (loss) from discontinued operations
|
(4 | ) | 2 | (1 | ) | 4 | ||||||||||
|
Net loss
|
(1,017 | ) | (353 | ) | (651 | ) | (850 | ) | ||||||||
| (a) | Operating income in 2010 includes lower of cost or market charges of $333 million and $32 million, respectively, in the quarters ended June 30, 2010 and September 30, 2010, to adjust the value of inventory to market value. Operating income in the quarter ended December 31, 2010 includes a credit of $323 million, reflecting the recovery of market price during that period. | |
| (b) | See Note 3 for a description of reorganization items and Note 2 for the revision to Reorganization items previously reported for the 2010 predecessor period. | |
| (c) | The 2010 results included after-tax gains of $8,640 million for discharge of liabilities subject to compromise and change in net assets from application of fresh-start accounting on April 30, 2010, $53 million for a change in estimate related to a dispute over environmental indemnity in the quarter ended September 30, 2010, and $64 million for gain on sale of the Flavor and Fragrance chemicals business in the quarter ended December 31, 2010. See Note 2 for the revision to Income from continuing operations previously reported for the 2010 predecessor period. | |
| (d) | In the fourth quarter of 2009, LyondellBasell AF recorded 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. | |
| (e) | Loss from equity investments in the third and fourth quarters of 2009 included pretax charge for impairment of the carrying value of certain equity investments of $215 million and $13 million, respectively. | |
| (f) | The 2009 results included after tax charges of $1,924 million for reorganization items, $148 million for impairment of certain equity investments and $78 million for involuntary conversion gains on insurance proceeds related to damages sustained at a polymers plant in Münchsmünster, Germany. |
| 26. | Subsequent Events |
We have evaluated subsequent events through the date the
financial statements were issued.
169
Table of Contents
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| Item 9A. | CONTROLS AND PROCEDURES |
This annual report does not include a report of
management’s assessment regarding our internal control over
financial reporting or an attestation report of the
Company’s registered public accounting firm due to a
transition period established by rules of the Securities and
Exchange Commission for newly public companies.
Evaluation
of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed
to provide reasonable assurance that information we are required
to disclose in reports that we file or submit with the SEC is
recorded, processed, summarized and reported within the time
periods specified by the SEC. An evaluation was carried out
under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”),
of the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this report. Based on
that evaluation, the CEO and CFO have concluded that the
Company’s disclosure controls and procedures were not
effective to provide reasonable assurance that information
required to be disclosed in reports we file with the SEC is
processed, summarized and reported accurately as of the end of
the period covered by this annual report. This ineffectiveness
was caused by the material weakness described below.
Nevertheless, based on a number of factors, including the
performance of additional procedures by management designed to
ensure the correctness of our tax provision and reliability of
our financial reporting, we believe that the consolidated
financial statements in this annual report fairly present, in
all material respects, our financial position, results of
operations, and cash flows as of the dates, and for the periods,
presented, in conformity with U.S. GAAP.
Material
Weakness in Internal Control over Financial Reporting
The Company has identified a material weakness in its internal
controls. The Company did not maintain adequate controls over
the accounting for income taxes related to consideration of the
nonrecurring tax effects of fresh start accounting under ASC
Topic 852 “Reorganizations.” Specifically the
preparation and presentation of the complex information
supporting deferred tax accounting and related disclosures was
not sufficient to allow an effective review of that information.
Additionally, the analysis of the tax provision information was
not sufficient to ensure deferred taxes were accurately
accounted for in accordance with U.S. GAAP in the
appropriate predecessor and successor periods. This control
deficiency resulted in the misstatement of the deferred tax
provision in the successor period for the eight months ended
December 31, 2010 included in the Company’s press
release dated February 18, 2011 as furnished to the SEC
under Item 2.02 of
Form 8-K
on February 18, 2011. The control deficiency also resulted
in a revision of deferred tax expense and reorganization items
in the predecessor period for the four months ended
April 30, 2010 and of deferred tax liability and goodwill
in the opening balance sheet at May 1, 2010 (not presented)
included in the February 18, 2011 press release and
included in our
Form 10-Q
for the quarter ended September 30, 2010. This control
deficiency, if not corrected, could result in a material
misstatement of the income tax account that would result in a
material misstatement in our annual or interim consolidated
financial statements that would not be prevented or detected on
a timely basis.
We conducted a detailed review of our tax basis balance sheet
accounts at December 31, 2010 including a detailed analysis
of the tax provision to ensure deferred taxes were accurately
accounted for in the appropriate predecessor and successor
periods as reported in this annual report.
170
Table of Contents
Plan for
Remediation of Material Weakness in Internal Controls
To remediate the material weakness identified, we are
implementing improvements to our internal controls over the
calculation of our income tax provision and related balance
sheet accounts. Specifically, we are implementing improved
reporting processes to provide clarity of presentation and
supporting documentation of the tax provision information
including the implementation of standardization and enhanced
utilization of tax reporting software to allow timely and
effective review and analysis of the tax provision information.
We believe these actions will effectively remediate our internal
control over financial reporting and enhance our disclosure
controls and procedures.
Changes
in Internal Control over Financial Reporting
Management, together with our CEO and CFO, evaluated the changes
in our internal control over financial reporting during the
quarter ended December 31, 2010. We determined that there
were no changes in our internal control over financial reporting
during the quarter ended December 31, 2010, that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
| Item 9B. | OTHER INFORMATION |
None.
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Code of
Business Ethics and Conduct for Directors and
Employees
We have a Code of Conduct for all employees and directors,
including our principal executive officer, principal financial
officer, principal accounting officer and persons performing
similar functions. We also have a Code of Financial Conduct
specifically for our principal executive officer, principal
financial officer, principal accounting officer and persons
performing similar functions. We have posted copies of these
codes on the “Corporate Governance” section of our
Internet Web site at
www.lyondellbasell.com
(within the
Investor Relations section). Any waivers of the codes must be
approved, in advance, by our Supervisory Board. Any amendments
to, or waivers from, the codes that apply to our executive
officers and directors will be posted on the “Corporate
Governance” section of our Internet Web site.
All other information required by Item 10 of Part III
will be included in our Proxy Statement relating to our 2010
Annual General Meeting of Shareholders, to be filed pursuant to
Regulation 14A on or before March 25, 2011, and is
incorporated herein by reference.*
| Item 11. | EXECUTIVE COMPENSATION |
Information required by Item 11 of Part III will be
included in our Proxy Statement relating to our 2010 Annual
General Meeting of Shareholders, to be filed pursuant to
Regulation 14A on or before March 25, 2011, and is
incorporated herein by reference.*
171
Table of Contents
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Equity
Compensation Plan Table
The following table provides information as of December 31,
2010 about the number of shares to be issued upon vesting or
exercise of equity awards and the number of shares remaining
available for issuance under our 2010 Long Term Incentive Plan
(the “2010 LTIP”).
The 2010 LTIP provides for the issuance of up to 22 million
ordinary shares pursuant to stock options, stock awards and
stock appreciation rights. No awards may be granted after ten
years of the effective date of the plan. The 2010 LTIP was
approved by the Bankruptcy Court and became effective upon our
emergence from bankruptcy. The plan is categorized as “not
approved by security holders,” because it has not been
approved by our shareholders since our listing on the NYSE. As
described, the 2010 LTIP was a considered part of our
capitalization in connection with emergence and was approved by
our shareholder at that time.
|
Number of Securities
|
||||||||||||
|
to be Issued
|
Number of Securities
|
|||||||||||
|
Upon Exercise of
|
Weighted-Average
|
Remaining Available
|
||||||||||
|
Outstanding Options,
|
Exercise Price of
|
for Future Issuance
|
||||||||||
|
Warrants and Rights
|
Outstanding Options,
|
Under Equity
|
||||||||||
|
Plan Category
|
(a) | Warrants and Rights(b) | Compensation Plans(c) | |||||||||
|
Equity compensation plans approved by security holders
|
— | — | — | |||||||||
|
Equity compensation plans not approved by security holders
|
10,362,717 | $ | 17.63 | 9,865,489 | ||||||||
|
Total
|
10,362,717 | $ | 17.63 | 9,865,489 | ||||||||
| (a) | Includes 8,482,498 stock options and 1,880,219 restricted stock units. | |
| (b) | Includes only the weighted-average exercise price of the outstanding stock options. Does not include the restricted stock units, as those awards have no exercise price associated with them. | |
| (c) | In addition to the stock options and restricted stock units included in the table, 1,771,794 restricted shares were issued to Mr. Gallogly effective April 30, 2010 under the 2010 LTIP. These shares may not be sold or transferred until they vest on May 14, 2014, subject to earlier forfeiture in the case of termination of employment. |
All other information required by Item 12 of Part III
will be included in our Proxy Statement relating to our 2010
Annual General Meeting of Shareholders, to be filed pursuant to
Regulation 14A on or before March 25, 2011, and is
incorporated herein by reference.*
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information required by Item 13 of Part III will be
included in our Proxy Statement relating to our 2010 Annual
General Meeting of Shareholders, to be filed pursuant to
Regulation 14A on or before March 25, 2011, and is
incorporated herein by reference.*
| Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Information required by Item 14 of Part III will be
included in our Proxy Statement relating to our 2010 Annual
General Meeting of Shareholders, to be filed pursuant to
Regulation 14A on or before March 25, 2011, and is
incorporated herein by reference.*
*Except for information or data specifically incorporated
herein by reference under Items 10 through 14, other
information and data appearing in our 2011 Proxy Statement are
not deemed to be a part of this Annual Report on
Form 10-K
or deemed to be filed with the Commission as a part of this
report.
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Table of Contents
| Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) (1)
Consolidated Financial
Statements
:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Income for the years ended
December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
Consolidated Statements of Changes in Equity for the years ended
December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
(a) (2)
Consolidated Financial Statement
Schedules
:
Schedule II—Valuation and Qualifying Accounts
All other schedules have been omitted because the required
information is not significant or is included in the financial
statements or notes thereto, or is not applicable.
(b) Exhibits:
The exhibit list required by this Item is incorporated by
reference to the Exhibit Index filed as part of this report.
173
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LYONDELLBASELL INDUSTRIES N.V.
/s/ James
L. Gallogly
James L. Gallogly
Chairman of the Management Board
and Chief Executive Officer
March 18, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed, as of March 18, 2011, on
behalf of the registrant by the following officers in the
capacity indicated and by a majority of directors.
|
Signature
|
Title
|
|||
|
/s/ James
L. Gallogly
|
Chairman of the Management Board
and Chief Executive Officer (Principal executive officer) |
|||
|
/s/ C.
Kent Potter
|
Executive Vice President
and Chief Financial Officer (Principal financial officer) |
|||
|
/s/ Wendy
M. Johnson
|
Vice President and Controller
(Principal accounting officer) |
|||
|
/s/ Milton
Carroll
|
Director | |||
|
/s/ Stephen
F. Cooper
|
Director | |||
|
/s/ Joshua
J. Harris
|
Director | |||
|
/s/ Scott
Kleinman
|
Director | |||
|
/s/ Marvin
O. Schlanger
|
Director | |||
|
|
Director | |||
|
/s/ Bruce
A. Smith
|
Director | |||
|
/s/ Rudy
van der Meer
|
Director | |||
174
Table of Contents
INDEX TO
EXHIBITS
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 2 | .1 | Third Amended and Restated Joint Chapter 11 Plan of Reorganization for the LyondellBasell Debtors, dated as of March 12, 2010 (incorporated by reference to Exhibit 2.1 to Form 10 dated April 28, 2010). | ||
| 3 | .1 | Amended and Restated Articles of Association of LyondellBasell Industries N.V., dated as of April 29, 2010 (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 3 | .2 | Rules for the Supervisory Board of LyondellBasell Industries N.V. (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 3 | .3 | Rules for the Management Board of LyondellBasell Industries N.V. (incorporated by reference to Exhibit 3.3 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .1 | Specimen certificate for Class A ordinary shares, par value €0.04 per share, of LyondellBasell Industries N.V. (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .2 | Nomination Agreement between Leveragesource (Delaware), LLC and LyondellBasell Industries N.V., dated as of April 30, 2010 (incorporated by reference to Exhibit 4.3 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .3 | Nomination Agreement between Ares Corporate Opportunities Fund III, L.P. and LyondellBasell Industries N.V., dated as of April 30, 2010 (incorporated by reference to Exhibit 4.4 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .4 | Nomination Agreement between AI International Chemicals S.à.r.l. and LyondellBasell Industries N.V., dated as of April 30, 2010 (incorporated by reference to Exhibit 4.5 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .5 | Registration Rights Agreement by and among LyondellBasell Industries N.V., Banc of America Securities LLC and UBS Securities LLC, dated as of April 8, 2010 (incorporated by reference to Exhibit 4.4 to Form 10 dated April 28, 2010). | ||
| 4 | .6 | Registration Rights Agreement by and among LyondellBasell Industries N.V. and the Holders (as defined therein), dated as of April 30, 2010 (incorporated by reference to Exhibit 4.7 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .7 | Amended and Restated Indenture relating to 8% Senior Secured Notes due 2017 between Lyondell Chemical Company, certain of its subsidiaries, LyondellBasell Industries N.V. and Wilmington Trust FSB, dated as of April 30, 2010 (incorporated by reference to Exhibit 4.8 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .8 | Security Agreement relating to 8% Senior Secured Notes due 2017 dated as of April 30, 2010 among Lyondell Chemical Company, certain of its subsidiaries, LyondellBasell Industries N.V. and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.9 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .9 | Indenture relating to 11% Senior Secured Notes due 2018 by and among LyondellBasell Industries N.V., Lyondell Chemical Company and Wells Fargo, N.A., dated as of April 30, 2010 (incorporated by reference to Exhibit 4.10 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .10 | Security Agreement relating to 11% Senior Secured Notes due 2018 by and among LyondellBasell Industries N.V., Lyondell Chemical Company and Wells Fargo, N.A., dated as of April 30, 2010 (incorporated by reference to Exhibit 4.11 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 4 | .11 | Warrant Agreement by and among LyondellBasell Industries N.V. and Computershare Inc. and Computershare Trust Company, N.A., dated as of April 30, 2010 (incorporated by reference to Exhibit 4.12 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .1 | Employment agreement by and among James L. Gallogly, Lyondell Chemical Company and LyondellBasell AFGP, dated as of May 14, 2009 (incorporated by reference to Exhibit 10.1 to Form 10 dated April 28, 2010). | ||
| 10 | .2 | Compensation terms of C. Kent Potter (incorporated by reference to Exhibit 10.2 to Form 10 dated April 28, 2010). | ||
| 10 | .3 | Employment agreement by and among Craig B. Glidden, Lyondell Chemical Company and LyondellBasell AFGP, dated as of August 5, 2009 (incorporated by reference to Exhibit 10.3 to Form 10 dated April 28, 2010). | ||
Table of Contents
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 10 | .4 | Employment agreement by and among Kevin Brown, Lyondell Chemical Company and LyondellBasell AFGP, dated as of March 19, 2010 (incorporated by reference to Exhibit 10.4 to Form 10 dated April 28, 2010). | ||
| 10 | .5 | Employment agreement by and among Bhavesh V. Patel, Lyondell Chemical Company and LyondellBasell AFGP, dated as of August 5, 2009 (incorporated by reference to Exhibit 10.5 to Form 10 dated April 28, 2010). | ||
| 10 | .6 | LyondellBasell Industries N.V. Short-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .7 | LyondellBasell Industries N.V. Medium Term Incentive Plan (incorporated by reference to Exhibit 10.12 to Form 10 dated April 28, 2010). | ||
| 10 | .8 | LyondellBasell Industries N.V. 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.13 to Form 10 dated April 28, 2010). | ||
| 10 | .9 | Form of Officer and Director Indemnification Agreement (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .10 | Form of Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .11 | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .12 | Form of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.18 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .13 | Senior Secured Term Loan Credit Agreement by and between Lyondell Chemical Company, LBI Escrow Corporation, LyondellBasell Industries, N.V. and UBS AG, Stamford Branch, dated as of April 8, 2010 (incorporated by reference to Exhibit 10.19 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .14 | U.S. Security Agreement among Lyondell Chemical Company, certain of its subsidiaries, LyondellBasell Industries N.V. and USB AG Stamford Branch, dated as of April 30, 2010 (incorporated by reference to Exhibit 10.20 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .15 | Senior Secured Asset-Based Credit Agreement by and between Lyondell Chemical Company, certain of its subsidiaries, LyondellBasell Industries N.V. and Citibank, N.A., dated as of April 8, 2010 (incorporated by reference to Exhibit 10.21 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .16 | Security Agreement dated as of April 30, 2010 between Lyondell Chemical Company, certain of its subsidiaries, LyondellBasell Industries N.V. and Citibank N.A. (incorporated by reference to Exhibit 10.22 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 10 | .17 | Master Receivables Purchase Agreement dated May 4, 2010 among Basell Sales and Marketing Company B.V., Lyondell Chemie Nederland B.V., Basell Polyolefins Collections Limited, Citicorp Trustee Company Limited and Citibank, N.A., London Branch (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to Form 10 dated July 26, 2010). | ||
| 12 | .1* | Computation of Ratio of Earnings to Fixed Charges. | ||
| 21 | .1* | List of subsidiaries of the registrant. | ||
| 23 | .1* | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | ||
| 31 | .1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | ||
| 31 | .2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | ||
| 32* | Certifications pursuant to 18 U.S.C. Section 1350. | |||
| * | Filed herewith. |
TABLE OF CONTENTS
Part IItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 3. Legal ProceedingsPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules