LyondellBasell Industries N.V. (LYB)

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 accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).

The discussion summarizing the significant factors affecting the results of operations and financial condition for the year ended December 31, 2022 and for the year ended December 31, 2023 compared to 2022 has been excluded from this Form 10-K and can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023 which was filed with the Securities and Exchange Commission on February 22, 2024 of which Item 7 is incorporated herein by reference.

OVERVIEW

Results for 2024 decreased when compared to 2023 as impairments recognized in 2024 primarily in our Olefins and Polyolefins-Europe, Asia, International (“O&P-EAI”) segment were partially offset by impairment charges recognized in 2023 in our Advanced Polymer Solutions (“APS”) and Intermediates & Derivatives (“I&D”) segments. Throughout 2024, petrochemical markets faced headwinds from soft global demand, rising raw material costs and economic uncertainty. Markets were broadly pressured by weak demand for durable goods, which impacted margins in the company's Olefins and Polyolefins-Americas (“O&P-Americas”), O&P-EAI and I&D segments. Margins for our I&D and Refining segments fell due to lower crude oil prices and gasoline crack spreads. These decreases were offset by industry cracker outages which benefited olefins margins in our O&P-Americas segment. Margin recovery in the APS segment was limited by global declines in automotive production.

We remain committed to our balanced and disciplined capital allocation strategy. During 2024, we generated $3,819 million in cash from operating activities, invested $1,839 million in capital expenditures and returned $1,915 million to shareholders through dividend payments and share repurchases.

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Results of operations for the periods discussed are presented in the table below.

RESULTS OF OPERATIONS

Revenues—Revenues decreased by $805 million, or 2%, in 2024 compared to 2023. Lower average sales prices driven by lower demand resulted in a 2% decrease in revenues.

Cost of Sales—Cost of sales remained relatively unchanged, in 2024 compared to 2023. Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs. On an annual basis, feedstock and energy related costs generally represent approximately 75% to 80% of cost of sales. Other variable costs account for approximately 10% of cost of sales and fixed operating costs, consisting primarily of expenses associated with employee compensation, depreciation and amortization, and maintenance, account for the remainder.

Impairments—During 2024, we recognized non-cash impairment charges of $949 million, primarily consisting of impairments of property, plant and equipment of $892 million in our O&P-EAI and APS segments. During 2023, we recognized non-cash impairment charges of $518 million, primarily consisting of a goodwill impairment charge of $252 million in our APS segment and an impairment charge of $192 million related to our European PO joint venture recognized in our I&D segment. See Notes 7, 8 and 20 to the Consolidated Financial Statements for additional information regarding impairment charges.

SG&A Expenses—Selling, general and administrative (“SG&A”) expenses increased by $106 million, or 7%, in 2024 compared to 2023, primarily attributable to an increase in employee-related expenses.

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Operating Income—Operating income decreased by $1,236 million, or 40%, in 2024 compared to 2023. In 2024, Operating income decreased for our O&P-EAI, Refining, and I&D segments by $848 million, $434 million and $311 million, respectively. Operating income for our APS, O&P-Americas and Technology segments increased by $213 million, $140 million and $4 million, respectively, in 2024 compared to 2023. Results for each of our business segments are discussed further in the Segment Analysis section below.

Gain on Sale of Business—In the second quarter of 2024, we completed the sale of our Ethylene Oxide & Derivatives (“EO&D”) business and associated production facilities located in Bayport, Texas and recognized a pre-tax gain of $284 million. See Note 20 to the Consolidated Financial Statements for additional information.

Loss from Equity Investments—Losses from equity investments increased $197 million, or 985%, in 2024 compared to 2023. Approximately 82% of the change was driven by our O&P-EAI segment, primarily due to the recognition of a deferred tax valuation allowance charge by our Chinese joint venture. The remaining change was primarily driven by lower polypropylene margins at our Mexican joint venture in our O&P-Americas segment.

Income Taxes—Our effective income tax rates of 15.0% in 2024 and 19.1% in 2023 resulted in tax provisions of $240 million and $501 million, respectively. The lower effective tax rate for 2024 was primarily attributable to changes in earnings in countries with varying statutory tax rates, largely attributable to fourth quarter non-cash impairments decreasing the effective tax rate by 5.5% in comparison to 2023. There was a further decrease in the effective tax rate of 1.7% related to fluctuations in foreign exchange gains and losses, partially offset by an increase in the effective tax rate of 2.6% related to reduced exempt income in 2024. For additional information, see Note 16 to the Consolidated Financial Statements.

Comprehensive Income—Comprehensive income decreased by $706 million in 2024 compared to 2023, primarily due to a decrease in net income. The activities from the remaining components of Comprehensive income are discussed below.

Financial derivatives designated as cash flow hedges, primarily our commodity swaps, led to an increase in Comprehensive income of $195 million in 2024 compared to 2023, reflecting commodity pricing volatility. Defined benefit pension and other postretirement benefit plans led to an increase in Comprehensive income of $95 million in 2024 compared to 2023, primarily due to actuarial gains resulting from higher-than-expected asset returns offset by a decrease in discount rates. Foreign currency translations decreased Comprehensive income by $242 million in 2024 compared to 2023, primarily due to the strengthening of the U.S. dollar relative to the euro in 2024, offset by the effective portion of our net investment hedges. See Notes 13, 14 and 18 to the Consolidated Financial Statements for further discussions.

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Segment Analysis

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of, and allocate resources to, our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other post-retirement benefits other than service costs, are included in “Other.” See the table below for a reconciliation of EBITDA to its nearest generally accepted accounting principles (“GAAP”) measure.

The following table presents the reconciliation of Net Income to EBITDA for each of the periods presented:

Our continuing operations are managed through six reportable segments: O&P-Americas, O&P-EAI, I&D, APS, Refining and Technology. Revenues and other information for the periods presented are reflected in the tables below for our reportable segments:

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Olefins and Polyolefins-Americas Segment

Overview—EBITDA increased in 2024 relative to 2023 primarily due to improved olefins margins, partially offset by lower polymer margins.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—Ethylene and its co-products are produced from two major raw material groups:

•natural gas liquids (“NGLs”), principally ethane and propane, the prices of which are generally affected by natural gas prices; and

•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.

We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. Ethane made up approximately 75% and 70% of the raw materials used in our North American crackers in 2024 and 2023, respectively.

The following table sets forth selected financial information for the O&P-Americas segment including Income from equity investments, which is a component of EBITDA.

Revenues—Revenues increased by $253 million, or 2%, in 2024 compared to 2023. Higher average sales prices across most of our products resulted in a 5% increase in revenue. Lower co-product volumes driven by unplanned outages resulted in a 3% decrease in revenue.

EBITDA—EBITDA increased by $142 million, or 6%, in 2024 compared to 2023. Higher olefins results led to a 19% increase in EBITDA primarily driven by higher margins resulting from higher ethylene prices due to industry cracker downtime and lower feedstock and energy cost. Lower polymer results led to a 5% decrease in EBITDA primarily due to lower margins reflecting higher monomer cost. During 2024 and 2023, we recognized a LIFO inventory charge of $22 million and benefit of $73 million, respectively, which resulted in a 4% decrease in EBITDA. EBITDA decreased 2% due to lower income from equity investments reflecting lower polypropylene margins at our joint venture in Mexico.

Olefins and Polyolefins-Europe, Asia, International Segment

Overview—EBITDA decreased in 2024 compared to 2023 primarily driven by an $837 million non-cash impairment of property, plant and equipment related assets included in our European strategic review.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—In Europe, naphtha is the primary raw material for our ethylene production and represented approximately 60% and 65% of the raw materials used in 2024 and 2023, respectively.

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The following table sets forth selected financial information for the O&P-EAI segment including Loss from equity investments, which is a component of EBITDA.

Revenues—Revenues increased by $388 million, or 4%, in 2024 compared to 2023. Higher average sales prices and volumes each resulted in a 2% increase in revenue primarily due to higher demand.

EBITDA—EBITDA decreased by $982 million in 2024 compared to 2023. The decrease in EBITDA was largely driven by an $837 million non-cash impairment of property, plant and equipment related to our European assets included in our strategic review. Increase in losses from equity investments of $162 million, driven by a deferred tax valuation allowance recognized in the fourth quarter of 2024 by a Chinese joint venture reduced EBITDA. The remainder of the change was primarily driven by an increase in polymer results as margins improved due to higher average prices coupled with lower energy costs.

Intermediates and Derivatives Segment

Overview—EBITDA decreased in 2024 compared to 2023, primarily driven by lower oxyfuels and related products margins as a result of lower crude oil and gasoline pricing combined with lower blend premiums.

The following table sets forth selected financial information for the I&D segment including Loss from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased by $662 million, or 6%, in 2024 compared to 2023 driven by lower average sales prices for oxyfuels and related products as a result of lower gasoline crack spreads and blend premiums.

EBITDA—EBITDA decreased $15 million, or 1%, in 2024 compared to 2023. Lower oxyfuels and related products margins driven by lower gasoline cracks in the US and Europe and lower oxyfuel prices as compared to the prior year drove a 43% decrease in EBITDA. The decrease was partially offset by increased oxyfuels and related products volumes primarily from our newest PO/TBA plant which drove an 11% increase in EBITDA. During 2024 we recognized a $284 million gain on the sale of our EO&D business which resulted in a 17% increase in EBITDA. During 2023, we recognized a non-cash impairment charge of $192 million related to our equity investment in the European PO joint venture. The absence of a similar charge in 2024 resulted in a 11% increase in EBITDA.

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Advanced Polymer Solutions Segment

Overview—EBITDA increased in 2024 compared to 2023, largely due to a decrease in non-cash impairment charges.

The following table sets forth selected financial information for the APS segment including Loss from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased in 2024 by $64 million, or 2%, compared to 2023 as a result of lower average sales prices.

EBITDA—EBITDA increased in 2024 by $216 million, or 133%, compared to 2023. During 2023, we recognized a non-cash goodwill impairment charge of $252 million after the effect of moving our Catalloy and polybutene-1 businesses from our APS segment and reintegrating them into our O&P-Americas and O&P-EAI segments. During 2024, we recognized a non-cash impairment charge of $55 million related to our specialty powders business. The change in impairment charges in 2024 relative to 2023 resulted in a 122% increase in EBITDA. Improved margins primarily driven by lower raw material cost and favorable mix resulted in a 16% increase in EBITDA.

Refining Segment

Overview—EBITDA decreased in 2024 relative to 2023 primarily due to lower margins.

The following table sets forth selected financial information and heavy crude oil processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. “Brent” is a light sweet crude oil and is one of the main benchmark prices for purchases of oil worldwide. “Maya” is a heavy sour crude oil grade produced in Mexico that is a relevant benchmark for heavy sour crude oils in the U.S. Gulf Coast market. References to industry benchmarks for refining market margins are to industry prices reported by Platts, a division of S&P Global.

Revenues—Revenues decreased by $1,155 million, or 12%, in 2024 compared to 2023 driven by lower product prices reflecting lower margins on refined products.

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EBITDA—EBITDA decreased by $439 million or 116%, in 2024 compared to 2023. Lower margins drove a 152% decrease in EBITDA primarily due to a decrease in the Maya 2-1-1 industry crack spread of approximately $11 per barrel to $28 per barrel. A decrease in costs incurred related to our planned exit from the refining business in 2024 compared to 2023 resulted in a 25% increase in EBITDA.

Technology Segment

Overview—Our Technology segment recognizes revenues related to the sale of polyolefin catalysts and the licensing of chemical and polyolefin process technologies. These revenues are offset in part by the costs incurred in the production of catalysts, licensing and services activities and research and development (“R&D”) activities. In 2024 and 2023, our Technology segment incurred approximately 55% and 50% of all R&D costs, respectively.

EBITDA increased in 2024 compared to 2023 primarily due to higher licensing results partially offset by lower catalyst demand.

The following table sets forth selected financial information for the Technology segment.

Revenues—Revenues increased by $8 million, or 1%, in 2024 compared to 2023. Higher licensing revenues resulting from a higher number of contracts reaching significant milestones drove a 3% increase in revenue. Higher catalyst prices drove a 1% increase in revenues. Lower catalyst volumes resulting from lower demand drove a 3% decrease in revenues.

EBITDA—EBITDA in 2024 increased by $4 million, or 1%, compared to 2023. Licensing results led to a 6% increase in EBITDA resulting from more contracts reaching significant milestones. Lower catalyst volumes driven by lower demand resulted in a 4% decrease in EBITDA.

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FINANCIAL CONDITION

The following table summarizes operating, investing and financing cash flow activities:

Operating Activities—Cash provided by operating activities of $3,819 million in 2024 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital–Accounts receivable, Inventories and Accounts payable.

In 2024, the main components of working capital provided $30 million of cash driven by a decrease in Accounts receivable and Inventories, partially offset by a decrease in Accounts payable. The decrease in Accounts receivable was due to lower average sales prices coupled with timing of sales and customer payments. The decrease in Inventories was primarily driven by higher sales volumes, slightly offset by inventory build in anticipation of turnarounds in the first quarter of 2025. The decrease in Accounts payable was driven by decreased raw material costs, partially offset by timing of payments.

Cash provided by operating activities of $4,942 million in 2023 primarily reflected earnings adjusted for non-cash items and cash provided by the main components of working capital.

In 2023, the main components of working capital provided $269 million of cash driven by a decrease in Accounts receivable and an increase in Accounts payable. The decrease in Accounts receivable was primarily due to lower revenues in our O&P-Americas, O&P-EAI and APS segments, primarily driven by lower average sales prices. The increase in Accounts payable was primarily driven by higher feedstock and energy costs in our O&P-Americas segment.

Investing Activities—Capital expenditures in 2024 totaled $1,839 million compared to $1,531 million in 2023, of which approximately 75% and 70%, respectively, support sustaining maintenance such as turnaround activities at several sites as well as other plant Health, Safety and Environmental projects. The remaining expenditures support profit-generating growth projects. See Note 20 to the Consolidated Financial Statements for additional information regarding capital spending by segment.

In 2024, we sold our EO&D business for $689 million and invested approximately $500 million to acquire a 35% stake in the National Petrochemical Industrial Company (“NATPET”) joint venture. See Notes 8 and 20 to the Consolidated Financial Statements for additional information.

In 2024, foreign currency contracts with an aggregate notional value of €850 million expired. Upon settlement of these foreign currency contracts, we paid €850 million ($921 million at the expiry spot rate) to our counterparties and received $967 million from our counterparties.

In 2023, foreign currency contracts with an aggregate notional value of €750 million expired. Upon settlement of these foreign currency contracts, we paid €750 million ($820 million at the expiry spot rate) to our counterparties and received $903 million from our counterparties.

Financing Activities—We made dividend payments totaling $1,720 million and $1,610 million, in 2024 and 2023, respectively. Additionally, in 2024 and 2023, we made payments of $195 million and $211 million to repurchase outstanding ordinary shares, respectively. For additional information related to our share repurchases and dividend payments, see Note 18 to the Consolidated Financial Statements.

In 2024, we issued $750 million of 5.5% guaranteed notes due 2034. Additionally, we repaid the $775 million remaining of outstanding principal on our 5.75% senior notes due 2024.

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In 2023, we issued $500 million of 5.625% guaranteed notes due 2033. Additionally, we repaid the $425 million remaining of outstanding principal on our 4.0% guaranteed notes due 2023. For additional detail regarding these debt transactions see Note 11 to the Consolidated Financial Statements.

In 2023, we made net repayments of $200 million through the issuance and repurchase of commercial paper instruments under our commercial paper program.

In 2024, foreign currency contracts with an aggregate notional value of €784 million expired. Upon settlement of these foreign currency contracts, which were designated as cash flow hedges, we paid €784 million ($835 million at the expiry spot rate) to our counterparties and received $849 million from our counterparties.

For additional information related to our swaps and currency contracts, see Note 13 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Overview

We plan to fund our working capital, capital expenditures, debt service, dividends and other cash requirements with our current available liquidity and cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Debt repayment, and the purchase of shares under our share repurchase authorization, may be funded from cash and cash equivalents, cash from short-term investments, cash from operating activities, proceeds from the issuance of debt, or a combination thereof.

As part of our overall capital allocation strategy, we plan to provide returns to shareholders in the form of dividends and share repurchases. Barring any significant or unforeseen business challenges, mergers or acquisitions, over the long-term, we are targeting shareholder returns of 70% of free cash flow, defined as net cash provided by operating activities less capital expenditures. We intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations. Our focus on funding our dividends while remaining committed to a strong investment grade balance sheet continues to be the foundation of our capital allocation strategy.

Cash and Liquid Investments

As of December 31, 2024, we had Cash and cash equivalents totaling $3,375 million, which includes $1,172 million in jurisdictions outside of the U.S., primarily held within the European Union. There are currently no legal or economic restrictions that would materially impede our transfers of cash.

Credit Arrangements

At December 31, 2024, we had total debt, including current maturities, of $11,149 million. Additionally, we had $174 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities.

We had total unused availability under our credit facilities of $4,650 million at December 31, 2024, which included the following:

•$3,750 million under our $3,750 million Senior Revolving Credit Facility. This facility backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. At December 31, 2024, we had no outstanding commercial paper and no borrowings or letters of credit outstanding under this facility; and

•$900 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. At December 31, 2024, we had no borrowings or letters of credit outstanding under this facility.

In 2024, we amended some terms of our credit agreements. See Note 11 to the Consolidated Financial Statements for additional details.

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At any time and from time to time, we may repay or redeem our outstanding debt, including purchases of our outstanding bonds in the open market, through privately negotiated transactions or a combination thereof, in each case using cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt or proceeds from asset divestitures. Any repayment or redemption of our debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In connection with such repurchases or redemptions, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.

In accordance with our current interest rate risk management strategy and subject to management’s evaluation of market conditions and the availability of favorable interest rates among other factors, we may from time to time enter into interest rate swap agreements to economically convert a portion of our fixed rate debt to variable rate debt or convert a portion of our variable rate debt to fixed rate debt.

Share Repurchases

In May 2024, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 24, 2025, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In 2024, we purchased 2.2 million shares under our share repurchase authorization for $198 million.

As of February 25, 2025, we had approximately 31.1 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased, if any, will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. For additional information related to our share repurchase authorizations, see Note 18 to the Consolidated Financial Statements.

Capital Budget

In 2025, we are planning to invest approximately $1.9 billion in capital expenditures. Approximately $1.2 billion of the 2025 budget is planned for sustaining maintenance, with the remaining budget supporting profit-generating growth projects. Our profit-generating growth project budget includes approximately $350 million, for projects that support our sustainability goals, including investments in emissions reduction and our CLCS business. Our capital spending plans are aligned with our strategic pillars.

Cash Requirements from Contractual and Other Obligations

As part of our ongoing operations, we enter into contractual arrangements that may require us to make future cash payments under certain circumstances. Our cash requirements related to contractual and other obligations primarily consist of purchase obligations, principal and interest payments on outstanding debt, lease payments, pension and other post-retirement benefits and income taxes. For more information regarding our debt arrangements, lease obligations, pension and other post-retirement benefits and income taxes, see Notes 11, 12, 14 and 16 to the Consolidated Financial Statements, respectively.

We are party to obligations to purchase raw materials, utilities and industrial gases which are designed to ensure sources of supply and are not expected to be in excess of normal requirements. These purchase arrangements include provisions which state minimum purchase quantities or fixed-fees; however, in the event we do not take the contractual minimum volumes, we are obligated to compensate the vendor only for any resulting economic losses they suffer. No material fees were paid to vendors for such losses in 2024. Assuming that contractual minimum volumes are purchased at contract prices as of December 31, 2024, these commitments represent approximately 15% of our annual Cost of sales with a weighted average remaining term of 8 years.

We also have purchase obligations under take-or-pay agreements which require us to either buy and take delivery of a minimum quantity of goods or to pay for any shortfall. These arrangements largely relate to product off-take agreements with a joint venture located in Poland. No material shortfall was paid for quantities not taken under these contracts in 2024. When valued using a contract price as of December 31, 2024, these commitments represent approximately 5% of our annual Cost of sales with a weighted average remaining term of 14 years.

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CURRENT BUSINESS OUTLOOK

In 2025 we remain watchful and prepared for the macroeconomic catalysts that will eventually drive restocking of supply chains, improve demand for durable goods and support a more broad-based economic recovery. One indicator of recovery is that North American domestic demand for polyolefins rebounded in 2024, after two years of declines. Increased driving and summertime gasoline specifications should lead to typical seasonal improvements in oxyfuels margins. We expect a gradual recovery in oxyfuel margins over the summer months, with strong octane premiums and the relatively low cost of butane raw materials supportive of long-term oxyfuels fundamentals. Tariff and trade uncertainties are potential headwinds. Our refining operations will cease in the first quarter of 2025, a strategic milestone paving the way for continued growth in circular and low-carbon feedstocks and products. We are aligning our first quarter operating rates with global demand and expect to operate our O&P-Americas, O&P-EAI and I&D assets at approximately 80%, 75% and 80%, respectively.

Value Enhancement Program (“VEP”)

During 2022, we introduced our VEP, which expands capacity through low-cost debottlenecks and improved reliability, reduces costs and emissions by saving energy and increases margins through improvements in procurement, logistics and customer service. We estimate Net income and recurring annual EBITDA benefits for the VEP based on 2017 through 2019 mid-cycle margins and modest inflation relative to a 2021 baseline year. We believe recurring annual EBITDA is useful to investors because it represents a key measure used by management to assess progress towards our strategy of value creation.

At the end of 2024, we estimated VEP benefits to have a year-end annual run rate of approximately $610 million of Net income which, after adding back income taxes and depreciation and amortization of $155 million and $35 million, respectively, results in approximately $800 million of recurring annual EBITDA. We incurred one-time costs of approximately $200 million per year in 2023 and 2024 related to our Value Enhancement Program.

We anticipate that our VEP will achieve a 2025 year-end annual run rate of approximately $760 million of Net income, which, after adding back income taxes and depreciation and amortization of approximately $190 million and $50 million, respectively, results in approximately $1,000 million of recurring annual EBITDA. We estimate incurring one-time costs of $200 million in 2025 related to our Value Enhancement Program.

RELATED PARTY TRANSACTIONS

We have related party transactions with our joint ventures. We believe that such transactions are affected 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. See Note 4 to the Consolidated Financial Statements for additional related party disclosures.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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. Inherent in such policies are certain key assumptions and estimates made by management and updated periodically based on its latest assessment of the current and projected business and general economic environment.

Management believes the following accounting policies and estimates, and the judgments and uncertainties affecting them, are critical in understanding our reported operating results and financial condition.

Inventories—We account for our raw materials, work-in-progress and finished goods inventories using the last-in, first-out (“LIFO”) method of accounting.

The cost of raw materials, which represents a substantial portion of our operating expenses, and energy costs generally follow price trends for crude oil and/or natural gas. Crude oil and natural gas prices are subject to many factors, including changes in economic conditions.

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Since our inventory consists of manufactured products derived from crude oil, natural gas, natural gas liquids and correlated materials, as well as the associated feedstocks and intermediate chemicals, our inventory market values are generally influenced by changes in the benchmark of crude oil and heavy liquid values and prices for manufactured finished goods. The degree of influence of a particular benchmark may vary from period to period, as the composition of the dollar value LIFO pools change. An actual valuation of inventory under the LIFO method is performed at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.

LIFO value is measured at the total pool level. The impact of the measurement of each LIFO pool at the lower of cost or market value (“LCM”) is a function of the current market prices and the composition, or product mix, of inventory within the pool at the balance sheet date. Due to the compositions of our LIFO pools, changes in market prices of the materials within the pool from period-to-period do not necessarily correlate with LCM charges. An LCM condition may arise due to a volumetric or price decline in a particular material that had previously provided a positive impact within a pool.

As indicated above, fluctuation in the prices of crude oil, natural gas and correlated products 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 interim periods, within the same fiscal year, as market prices recover. Accordingly, our cost of sales and results of operations may be affected by such fluctuations.

We do not believe any of our inventory is at risk for impairment at this time, however as prices for our products and raw materials are inherently volatile, no prediction can be given with certainty. Given the inherent volatility in the prices of our finished goods and raw materials, sustained price declines could result in LCM inventory valuation charges.

Long-Lived Assets Impairment Assessment—The need to test for impairment can be based on several indicators, including a significant reduction in prices of or demand for products produced, a weakened outlook for profitability, a significant reduction in margins, an expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, other changes to contracts or changes in the regulatory environment. If the sum of the undiscounted estimated pre-tax cash flows for an asset group is less than the asset group’s carrying value, fair value is calculated for the asset group using an income approach or a market approach when appropriate, and the carrying value is written down to the calculated fair value. For purposes of impairment evaluation, long-lived assets including finite-lived intangible assets must be grouped at the lowest level for which independent cash flows can be identified.

Significant judgment is involved in developing estimates of future cash flows since the results are based on forecasted financial information prepared using significant assumptions which may include, among other things, projected changes in supply and demand fundamentals (including industry-wide capacity, our planned utilization rate and end-user demand), new technological developments, capital expenditures, new competitors with significant raw material or other cost advantages, changes associated with world economies, the cyclical nature of the chemical and refining industries, uncertainties associated with governmental actions and other economic conditions. Such estimates are consistent with those used in our financial planning and business performance reviews.

When an income approach is used to estimate fair value of our long-lived assets, the cash flows are discounted using a rate that is based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. This discount rate is also compared to recent observable market transactions, if possible.

In conjunction with our fourth quarter 2024 quarterly asset impairment analysis, we recognized non-cash impairment charges related to property, plant and equipment of $837 million in our O&P-EAI segment related to the European assets under strategic review and $55 million in our APS segment related to our specialty powders business. See Note 7 to the Consolidated Financial Statements for additional information.

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The estimated fair values for the European assets and specialty powders business were calculated using a discounted cash flow method under the income approach and assumptions including management’s view on long-term growth rates in our industry, discount rates and other assumptions based on a market participant perspective. In the fourth quarter of 2024 we launched a marketing effort to gauge market interest in the European assets included in our strategic review. Fair value indicators obtained through our marketing efforts were also considered. These estimates required considerable judgment and are sensitive to changes in underlying assumptions such as future commodity prices, margins, operating rates and capital expenditures including repairs and maintenance. As a result, there can be no assurance that the estimates and assumptions made for purposes of our impairment determination will prove to be an accurate prediction of the future. Should our estimates and assumptions significantly change in future periods, it is possible that we may determine future impairment charges.

An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes, discount rates, and market information provided by unrelated third parties that can materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions. Property, plant and equipment impairments incurred represent a full write down of the assets, sensitivity analysis would not change the outcome of the impairment assessment.

Equity Method Investments Impairment—Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount. When it is determined such a loss in value is other than temporary, an impairment charge is recognized for the difference between the investment’s carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the duration and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that will be sufficient to allow for any anticipated recovery in the value of the investment. Management’s estimate of fair value of an investment is based on the income approach and/or market approach. For the income approach, the fair value is typically based on the present value of expected future cash flows using discount rates believed to be consistent with those used by principal market participants. For the market approach, since quoted market prices are usually not available, we utilize market multiples of revenue and earnings derived from comparable publicly traded industrial gases companies.

During the fourth quarter of 2023, a trend of adverse financial performance triggered an impairment analysis of our investment in our European PO joint venture. We concluded the asset was impaired and recorded a non-cash impairment charge of $192 million. The fair value of our investment in the joint venture was determined using an income approach which utilized unobservable inputs, which generally consist of market information provided by unrelated third parties. Our fair value estimate was based on significant assumptions including management’s best estimates of the expected future cash flows. These estimates required considerable judgment and are sensitive to changes in underlying assumptions such as future commodity prices and PO/SM margins. As a result, there can be no assurance that the estimates and assumptions made for purposes of our impairment determination will prove to be an accurate prediction of the future.

An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes, discount rates, and market information provided by unrelated third parties that can materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

Goodwill—As of December 31, 2024, we had goodwill of $1,561 million, primarily relating to the acquisition of A. Schulman Inc. in 2018 and the tax effect of the differences between the tax and book basis of our assets and liabilities resulting from the revaluation of those assets and liabilities to fair value in connection with the Company’s emergence from bankruptcy and fresh-start accounting in 2010.

Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our APS segment and reintegrated into our O&P-Americas and O&P-EAI segments. When moved, a portion of the APS reporting unit’s goodwill was allocated to the O&P-Americas and O&P-EAI segments based on the fair values of the businesses that were reintegrated relative to the fair value of the APS segment. In the first quarter of 2023, we evaluated goodwill for impairment immediately before and after the transfer of these businesses. Our evaluation resulted in the recognition of a non-cash goodwill impairment of $252 million recognized in our APS segment. See Notes 7 and 20 to the Consolidated Financial Statements.

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An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes and discount rates, which could materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

We evaluate the recoverability of the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the reporting units include, but are not limited to, changes in long-term commodity prices, discount rates, competitive environments, planned capacity, cost factors such as raw material prices, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.

We also have the option to proceed directly to the quantitative impairment test. Under the quantitative impairment test, the fair value of each reporting unit, calculated using a discounted cash flow model, is compared to its carrying value, including goodwill. The discounted cash flow model inherently utilizes a significant number of estimates and assumptions, including operating margins, tax rates, discount rates, capital expenditures and working capital changes. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit.

In the fourth quarter of 2024, we performed a qualitative impairment assessment of our reporting units, which indicated that it was more likely than not that the fair value of our reporting units was greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required.

In the fourth quarter of 2023, management performed a quantitative impairment assessment for our reporting units within our APS segment and a qualitative impairment assessment of our other reporting units, which indicated that the fair values of our reporting units were greater than their carrying values, including goodwill. Based on this assessment, our historical assessment for impairment, and forecasted demand for our products, a quantitative goodwill impairment test in the fourth quarter was not necessary.

Long-Term Employee Benefit Costs—Our costs for long-term employee benefits, particularly pension and other post-retirement 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 and to review those assumptions periodically to reflect changes in economic or other factors.

The current benefit service costs, as well as the existing liabilities, for pensions and other post-retirement 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. Our assumed discount rate is based on yield information for high-quality corporate bonds with durations comparable to the expected cash settlement of our obligations. For the purpose of measuring the benefit obligations at December 31, 2024, we used a weighted average discount rate of 5.35% for the U.S. plans, which reflects the different terms of the related benefit obligations. The weighted average discount rate used to measure obligations for non-U.S. plans at December 31, 2024, was 3.66%, reflecting market interest rates. The discount rates in effect at December 31, 2024 will be used to measure net periodic benefit cost during 2025.

The benefit obligation and the net periodic benefit cost of other post-retirement medical benefits are also measured based on assumed rates of future increase in the per capita cost of covered health care benefits. As of December 31, 2024, the assumed rate of increase for our U.S. plans was 6.5%, decreasing to 4.5% in 2033 and thereafter.

The net periodic benefit cost of pension benefits included in expense 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 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.

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The weighted average expected long-term rate of return on assets in our U.S. plans of 7.25% is based on the average level of earnings that our independent pension investment advisor advised could be expected to be earned over time. The weighted average expected long-term rate of return on assets in our non-U.S. plans of 4.14% is based on expectations and asset allocations that vary by region. The asset allocations are summarized in Note 14 to the Consolidated Financial Statements.

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.

Net periodic pension cost recognized each year includes the expected asset earnings, rather than the actual earnings or loss. Along with other gains and losses, this unrecognized amount, to the extent it cumulatively exceeds 10% of the greater of the projected benefit obligation or the market related value of the plan assets for the respective plan, is recognized as additional net periodic benefit cost over the average remaining service period of the participants in each plan.

The following table reflects the sensitivity of the benefit obligations and the net periodic benefit costs of our pension plans to changes in the actuarial assumptions:

The sensitivity of our post-retirement benefit plans obligations and net periodic benefit costs to changes in actuarial assumptions are reflected in the following table:

Additional information on the key assumptions underlying these benefit costs appears in Note 14 to the Consolidated Financial Statements.

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 basis 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.

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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 is impacted by the recognition and release of valuation allowances related to net deferred tax assets in certain 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.

We recognize the financial statement benefits with respect to an uncertain income tax position that we have taken or may take on an income tax return when we believe it is more likely than not that the position will be sustained with the tax authorities.

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.

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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 accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).

Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from the Advanced Polymer Solutions (“APS”) segment and reintegrated into the Olefins and Polyolefins-Americas (“O&P-Americas”) and Olefins and Polyolefins-Europe, Asia, International (“O&P-EAI”) segments. This move allows the APS team to focus on our compounding and solutions business, and to develop a more agile operating model with meaningful regional and segment growth strategies. The segment information provided herein has been revised for all periods presented to reflect these changes.

The discussion summarizing the significant factors affecting the results of operations and financial condition for the year ended December 31, 2021 and for the year ended December 31, 2022 compared to 2021 has been excluded from this Form 10-K and can be found in the update to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 as reported in Exhibit 99.1 to the Current Report on form 8-K of the Company filed with the Securities and Exchange Commission on May 12, 2023 and is incorporated herein by reference.

OVERVIEW

Throughout 2023, petrochemical markets faced headwinds from soft global demand, capacity additions and economic uncertainty. Markets were broadly pressured by weak demand for durable goods which impacted margins in the O&P-Americas, O&P-EAI, Intermediates & Derivatives (“I&D”) and APS segments. Refining results declined primarily as a result of lower demand for diesel and other distillates, compared to the prior year. In contrast, oxyfuels margins benefited from tight supply and strong summertime gasoline crack spreads.

During 2023, we recognized non-cash impairment charges of $518 million, primarily consisting of a goodwill impairment charge of $252 million in our APS segment and an impairment charge of $192 million related to our European PO joint venture recognized in our I&D segment.

In the first quarter of 2023, we started up the world's largest propylene oxide (PO) and tertiary butyl alcohol (TBA) unit in Texas. These new assets on the U.S. Gulf Coast have an annual capacity of 470 thousand metric tons of PO and one million metric tons of TBA and its derivatives.

In May 2023, we issued our inaugural $500 million green bond. Proceeds from the bond are being used to finance or refinance, in whole or in part, new or existing eligible green projects in the areas of circular economy, renewable energy, pollution prevention and control, and energy efficiency.

During 2023, we generated $4.9 billion in cash from operating activities. We remain committed to a disciplined approach to capital allocation. Additionally, approximately $1.5 billion was reinvested in the business through capital expenditures while $1.8 billion was returned to shareholders through quarterly dividends and share repurchases.

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Results of operations for the periods discussed are presented in the table below.

RESULTS OF OPERATIONS

Revenues—Revenues decreased by $9,344 million, or 19%, in 2023 compared to 2022. Average sales prices in 2023 were lower for many of our products, as sales prices generally correlate with crude oil prices, which decreased relative to 2022. These lower prices led to a 21% decrease in revenue. Volume improvements resulted in a 1% increase in revenue, primarily driven by increased I&D sales volumes. Favorable foreign exchange impacts resulted in a 1% increase in revenue.

Cost of Sales—Cost of sales decreased by $7,998 million, or 18%, in 2023 compared to 2022. This decrease primarily related to lower feedstock and energy costs. Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs. On an annual basis, feedstock and energy related costs generally represent approximately 70% to 80% of cost of sales. Other variable costs account for approximately 10% of cost of sales and fixed operating costs, consisting primarily of expenses associated with employee compensation, depreciation and amortization, and maintenance, account for the remainder.

Impairments—During 2023, we recognized non-cash impairment charges of $518 million, primarily consisting of a goodwill impairment charge of $252 million in our APS segment and an impairment charge of $192 million related to our European PO joint venture recognized in our I&D segment. During 2022 we recognized a non-cash impairment of $69 million related to the sale of our Australian polypropylene manufacturing facility. See Notes 8, 9 and 21 to the Consolidated Financial Statements for additional information regarding impairment charges.

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SG&A Expenses—Selling, general and administrative (“SG&A”) expenses increased by $247 million, or 19%, in 2023 compared to 2022. Approximately 60% of this increase was attributable to higher employee-related expenses and the remaining increase was primarily driven by professional fees incurred for strategic projects.

Operating Income—Operating income decreased by $2,048 million, or 40%, in 2023 compared to 2022. In 2023, Operating income decreased for our Refining, O&P-Americas, I&D, APS and O&P-EAI segments by $668 million, $541 million, $342 million, $277 million and $235 million, respectively. Operating income for our Technology segment increased by $3 million in 2023 compared to 2022. Results for each of our business segments are discussed further in the Segment Analysis section below.

Interest Expense—Interest expense increased by $190 million, or 66%, in 2023 compared to 2022. Approximately 55% of this increase was attributable to lower capitalized interest associated with our new PO/TBA plant which started-up in the first quarter of 2023. The remaining increase was primarily due to the impact of our fixed-for-floating interest rate swaps driven by higher interest rates in 2023.

Interest Income—Interest income increased by $100 million, or 345%, in 2023 compared to 2022. Approximately three quarters of the increase was due to higher interest rates in 2023. The remaining increase was driven by higher cash balances during 2023.

Income Taxes—Our effective income tax rates of 19.1% in 2023 and 18.5% in 2022 resulted in tax provisions of $501 million and $882 million, respectively. In 2023, non-deductible impairments, an audit settlement in the second quarter, and fluctuations in uncertain tax positions increased the effective tax rate by 1.1%, 1.4%, and 2.2%, respectively. These increases were partially offset by decreases in the effective tax rate of 2.8% related to changes in pre-tax income in countries with varying statutory tax rates and 1.0% related to a patent box ruling received in the fourth quarter of 2023. For additional information, see Note 17 to the Consolidated Financial Statements.

Comprehensive Income—Comprehensive income decreased by $2,303 million in 2023 compared to 2022, primarily due to a decrease in net income. The activities from the remaining components of Comprehensive income are discussed below.

Financial derivatives designated as cash flow hedges, primarily our forward-starting interest rate swaps, led to a decrease in Comprehensive income of $288 million in 2023 compared to 2022, due to periodic changes in the benchmark interest rates combined with a decrease in notional outstanding.

Defined benefit pension and other postretirement benefit plans led to a decrease in Comprehensive income of $443 million in 2023 compared to 2022, primarily due to actuarial losses resulting from lower-than-expected asset returns combined with the absence of pre-tax pension settlements in 2023.

Foreign currency translations increased Comprehensive income by $196 million in 2023 compared to 2022, primarily due to the weakening of the U.S. dollar relative to the euro and the British pound sterling in 2023, offset by the effective portion of our net investment hedges.

See Notes 14, 15 and 19 to the Consolidated Financial Statements for further discussions.

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Segment Analysis

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of, and allocate resources to, our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains (losses) and components of pension and other post-retirement benefit costs other than service cost, are included in “Other.” For additional information related to our operating segments, as well as a reconciliation of EBITDA to its nearest generally accepted accounting principles (“GAAP”) measure, Income from continuing operations before income taxes, see Note 21 to our Consolidated Financial Statements.

The following table presents the reconciliation of Net Income to EBITDA for each of the periods presented:

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Our continuing operations are managed through six reportable segments: O&P-Americas, O&P-EAI, I&D, APS, Refining and Technology. Revenues and the components of EBITDA for the periods presented are reflected in the tables below for our reportable segments:

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Olefins and Polyolefins-Americas Segment

Overview—EBITDA decreased in 2023 relative to 2022 primarily driven by lower polyolefin margins.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—Ethylene and its co-products are produced from two major raw material groups:

•NGLs, principally ethane and propane, the prices of which are generally affected by natural gas prices; and

•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.

We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. Ethane made up approximately 70% of the raw materials used in our North American crackers in 2023 and 2022.

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The following table sets forth selected financial information for the O&P-Americas segment including Income from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased by $3,200 million, or 22%, in 2023 compared to 2022. Lower average sales prices resulted in a 23% decrease in revenue primarily driven by increased market supply and lower demand. Higher volumes due to improved operating rates resulted in a 1% increase in revenue.

EBITDA—EBITDA decreased by $562 million, or 20%, in 2023 compared to 2022. Lower polyolefins results led to a 29% decrease in EBITDA primarily driven by lower margins as a result of lower average sales prices reflecting softer demand and new industry capacity. Higher olefins results contributed to a 7% increase in EBITDA driven equally by increased volumes and higher margins, due to higher operating rates and lower feedstock and energy costs, respectively.

Olefins and Polyolefins-Europe, Asia, International Segment

Overview—EBITDA decreased in 2023 compared to 2022 primarily as a result of lower polyolefin margins partially offset by higher olefins results.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—In Europe, naphtha is the primary raw material for our ethylene production and represents approximately 65% to 70% of the raw materials used in 2023 and 2022.

The following table sets forth selected financial information for the O&P-EAI segment including Loss from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased by $2,976 million, or 22%, in 2023 compared to 2022. Lower average sales prices resulted in a 23% decrease in revenue as sales prices generally correlate with crude oil prices, which, on average, decreased compared to 2022. Lower volumes resulted in a revenue decrease of 1% primarily due to weak demand. Favorable foreign exchange impacts resulted in a revenue increase of 2%.

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EBITDA—EBITDA decreased by $187 million, or 105%, in 2023 compared to 2022. Lower polyolefins results led to a 241% decrease in EBITDA primarily driven by decreased margins due to lower average sales prices reflecting weak demand. Higher olefins results led to an 88% increase in EBITDA driven equally by higher volumes and margins resulting from the absence of planned and unplanned downtime and lower feedstock and energy costs, respectively. In 2022, we recognized a $69 million non-cash impairment charge in conjunction with the sale of our polypropylene manufacturing facility located in Australia. The absence of this charge in 2023 resulted in a 39% increase in EBITDA. See Note 21 to the Consolidated Financial Statements for additional information.

Intermediates and Derivatives Segment

Overview—EBITDA decreased in 2023 compared to 2022, primarily driven by a non-cash impairment charge related to our European PO joint venture recognized in 2023. Segment results were relatively unchanged as improvements in our oxyfuels and related products results were offset by lower margins for propylene oxide and derivatives and intermediate chemicals.

The following table sets forth selected financial information for the I&D segment including Loss from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased by $1,864 million, or 14%, in 2023 compared to 2022. Lower average sales prices resulted in a 20% decrease in revenue as a result of lower demand. Sales volumes increased resulting in a 5% increase in revenue primarily due to additional volumes derived from our new PO/TBA facility and strong demand. Favorable foreign exchange impacts resulted in a revenue increase of 1%.

EBITDA—EBITDA decreased $193 million, or 10%, in 2023 compared to 2022. During 2023, we recognized a non-cash impairment charge of $192 million related to our equity investment in the European PO joint venture resulting in a 10% decrease in EBITDA. See Note 9 to the Consolidated Financial Statements for additional information.

Excluding the impact of the impairment discussed above, segment results remained relatively unchanged. Improved oxyfuels and related products results led to an EBITDA increase of 31% primarily driven by increased volumes due to increased capacity related to our PO/TBA facility combined with higher margins due to increased gasoline cracks. This improvement was largely offset by a 20% decrease in EBITDA from propylene oxide and derivatives results as margins decreased due to lower demand for durable goods. Lower intermediate chemicals results led to a 9% decrease in EBITDA driven by lower margins as demand softened.

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Advanced Polymer Solutions Segment

Overview—EBITDA decreased in 2023 compared to 2022, primarily due to the recognition of a $252 million non-cash goodwill impairment charge in 2023.

The following table sets forth selected financial information for the APS segment including Loss from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased in 2023 by $504 million, or 12%, compared to 2022. Average sales price declines resulted in an 11% decrease in revenue as a result of lower demand. Sales volumes declines resulted in a 2% decrease in revenue stemming from lower demand. Favorable foreign exchange impacts resulted in a revenue increase of 1%.

EBITDA—EBITDA decreased in 2023 by $277 million, or 241%, compared to 2022. During 2023, we recognized a non-cash goodwill impairment charge of $252 million after the effect of moving our Catalloy and polybutene-1 businesses from our APS segment and reintegrating them into our O&P-Americas and O&P-EAI segments. This impairment charge resulted in a 219% decrease in EBITDA. See Note 8 to the Consolidated Financial Statements for additional information. Lower volumes resulted in a 43% decrease in EBITDA as a result of a decline in demand. During 2023 and 2022, we recognized a LIFO inventory benefit of $8 million and charge of $21 million, respectively, which resulted in a 25% increase in EBITDA.

Refining Segment

Overview—EBITDA decreased in 2023 relative to 2022 primarily due to lower margins.

The following table sets forth selected financial information and heavy crude oil processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. “Brent” is a light sweet crude oil and is one of the main benchmark prices for purchases of oil worldwide. “Maya” is a heavy sour crude oil grade produced in Mexico that is a relevant benchmark for heavy sour crude oils in the U.S. Gulf Coast market. References to industry benchmarks for refining market margins are to industry prices reported by Platts, a division of S&P Global.

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Revenues—Revenues decreased by $2,179 million, or 18%, in 2023 compared to 2022. Lower product prices led to a revenue decrease of 19% as the average Brent crude oil price decreased approximately $16.68 per barrel. Sales volumes led to a revenue increase 1% due to higher operating rates at our fluid catalytic cracker and coker units, which yielded more higher-value refined products such as gasoline and distillates.

EBITDA—EBITDA decreased by $542 million or 59%, in 2023 compared to 2022. Lower margins drove a 45% decrease in EBITDA primarily due to a decrease in the Maya 2-1-1 industry crack spread of approximately $6 per barrel as a result of lower demand for diesel and other distillates, compared to the prior year. During 2023 and 2022, we recognized a LIFO inventory charge of $42 million and benefit of $40 million, respectively, which resulted in a 9% decrease in EBITDA.

Technology Segment

Overview—Our Technology segment recognizes revenues related to the sale of polyolefin catalysts and the licensing of chemical and polyolefin process technologies. These revenues are offset in part by the costs incurred in the production of catalysts, licensing and services activities and research and development (“R&D”) activities. In 2023 and 2022, our Technology segment incurred approximately 50% to 55% of all R&D costs.

EBITDA was relatively unchanged in 2023 compared to 2022 as higher catalyst margins and favorable foreign exchange impacts were partially offset by a decline in catalyst volumes.

The following table sets forth selected financial information for the Technology segment.

Revenues—Revenues decreased by $30 million, or 4%, in 2023 compared to 2022. Lower catalyst volumes resulted in an 8% decrease in revenue primarily driven by lower demand. Favorable foreign exchange impact increased revenue by 3%. Higher licensing revenues resulting from more contracts reaching significant milestones drove a 1% increase in revenue.

EBITDA—EBITDA in 2023 increased by $9 million, or 2%, compared to 2022. Higher catalyst margins resulted in a 5% increase in EBITDA. During 2023 and 2022, we recognized a LIFO inventory benefit of $7 million and charge of $13 million, respectively, which resulted in a 5% increase in EBITDA. Lower catalyst volumes resulted in an 11% decrease in EBITDA driven by lower demand. Favorable foreign exchange impacts resulted in an EBITDA increase of 3%.

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FINANCIAL CONDITION

Operating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:

Operating Activities—Cash provided by operating activities of $4,942 million in 2023 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital–Accounts receivable, Inventories and Accounts payable.

In 2023, the main components of working capital provided $269 million of cash driven by a decrease in Accounts receivable and an increase in Accounts payable. The decrease in Accounts receivable was primarily due to lower revenues in our O&P-Americas, O&P-EAI and APS segments, primarily driven by lower average sales prices. The increase in Accounts payable was primarily driven by higher feedstock and energy costs in our O&P-Americas segment.

Cash provided by operating activities of $6,119 million in 2022 primarily reflected earnings adjusted for non-cash items and cash provided by the main components of working capital.

In 2022, the main components of working capital provided $450 million of cash driven by a decrease in Accounts receivable, partially offset by a decrease in Accounts payable. The decrease in Accounts receivable was primarily due to lower revenues across most businesses primarily driven by lower average sales prices. The decrease in Accounts payable was driven by lower production volumes as a result of lower operating rates.

Investing Activities—Capital expenditures in 2023 totaled $1,531 million compared to $1,890 million in 2022. Approximately 30% and 50% of our capital expenditures in 2023 and 2022, respectively, was for profit-generating growth projects, largely for our PO/TBA plant, with the remaining expenditures supporting sustaining maintenance. See Note 21 to the Consolidated Financial Statements for additional information regarding capital spending by segment.

In 2023, foreign currency contracts with an aggregate notional value of €750 million expired. Upon settlement of these foreign currency contracts, we paid €750 million ($820 million at the expiry spot rate) to our counterparties and received $903 million from our counterparties.

In 2022, foreign currency contracts with an aggregate notional value of €500 million expired. Upon settlement of these foreign currency contracts, we paid €500 million ($501 million at the expiry spot rate) to our counterparties and received $614 million from our counterparties.

Financing Activities—We made dividend payments totaling $1,610 million and $3,246 million, in 2023 and 2022, respectively. The 2022 dividend payments included a special dividend of $5.20 per share totaling $1,704 million. Additionally, in 2023 and 2022, we made payments of $211 million and $420 million to repurchase outstanding ordinary shares, respectively. For additional information related to our share repurchases and dividend payments, see Note 19 to the Consolidated Financial Statements.

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In 2023, we issued $500 million of 5.625% guaranteed notes due 2033. Additionally, we repaid the $425 million remaining of outstanding principal on our 4.0% guaranteed notes due 2023. For details see Note 12 to the Consolidated Financial Statements.

In 2023 and 2022, we made net repayments of $200 million and $4 million, respectively, through the issuance and repurchase of commercial paper instruments under our commercial paper program.

In 2022, we received a return of collateral of $238 million related to the positions held with our counterparties for certain forward-starting interest rate swaps. For additional information related to our swaps contracts, see Note 14 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Overview

We plan to fund our working capital, capital expenditures, debt service, dividends and other cash requirements with our current available liquidity and cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Debt repayment, and the purchase of shares under our share repurchase authorization, may be funded from cash and cash equivalents, cash from short-term investments, cash from operating activities, proceeds from the issuance of debt, or a combination thereof.

As part of our overall capital allocation strategy, we plan to provide returns to shareholders in the form of dividends and share repurchases. Barring any significant or unforeseen business challenges, mergers or acquisitions, over the long-term, we are targeting shareholder returns of 70% of free cash flow, defined as net cash provided by operating activities less capital expenditures. We intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations. Our focus on funding our dividends while remaining committed to a strong investment grade balance sheet continues to be the foundation of our capital allocation strategy.

Cash and Liquid Investments

As of December 31, 2023, we had Cash and cash equivalents totaling $3,390 million, which includes $1,816 million in jurisdictions outside of the U.S., primarily held within the European Union and the United Kingdom. There are currently no legal or economic restrictions that would materially impede our transfers of cash.

Credit Arrangements

At December 31, 2023, we had total debt, including current maturities, of $11,232 million, and $171 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities.

We had total unused availability under our credit facilities of $4,150 million at December 31, 2023, which included the following:

•$3,250 million under our $3,250 million Senior Revolving Credit Facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. At December 31, 2023, we had no outstanding borrowings of commercial paper, and no borrowings or letters of credit outstanding under this facility; and

•$900 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. At December 31, 2023 we had no borrowings or letters of credit outstanding under this facility.

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At any time and from time to time, we may repay or redeem our outstanding debt, including purchases of our outstanding bonds in the open market, through privately negotiated transactions or a combination thereof, in each case using cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt or proceeds from asset divestitures. Any repayment or redemption of our debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In connection with such repurchases or redemptions, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.

In accordance with our current interest rate risk management strategy and subject to management’s evaluation of market conditions and the availability of favorable interest rates among other factors, we may from time to time enter into interest rate swap agreements to economically convert a portion of our fixed rate debt to variable rate debt or convert a portion of our variable rate debt to fixed rate debt.

Share Repurchases

In May 2023, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 19, 2024, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In 2023, we purchased 2.3 million shares under our share repurchase authorization for $211 million.

As of February 20, 2024, we had approximately 33.1 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased, if any, will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. For additional information related to our share repurchase authorizations, see Note 19 to the Consolidated Financial Statements.

Capital Budget

In 2024, we are planning to invest approximately $2.1 billion in capital expenditures. Approximately 60% of the 2024 budget is planned for sustaining maintenance, with the remaining budget supporting profit-generating growth projects. Approximately half of our profit-generating growth project budget, or $400 million, is for projects that support our sustainability goals.

Cash Requirements from Contractual and Other Obligations

As part of our ongoing operations, we enter into contractual arrangements that may require us to make future cash payments under certain circumstances. Our cash requirements related to contractual and other obligations primarily consist of purchase obligations, principal and interest payments on outstanding debt, lease payments, pension and other post-retirement benefits and income taxes. For more information regarding our debt arrangements, lease obligations, pension and other post-retirement benefits and income taxes, see Notes 12, 13, 15 and 17 to the Consolidated Financial Statements, respectively.

We are party to obligations to purchase raw materials, utilities and industrial gases which are designed to ensure sources of supply and are not expected to be in excess of normal requirements. These purchase arrangements include provisions which state minimum purchase quantities; however, in the event we do not take the contractual minimum volumes, we are obligated to compensate the vendor only for any resulting economic losses they suffer. No material fees were paid to vendors for such losses in 2023. Assuming that contractual minimum volumes are purchased at contract prices as of December 31, 2023, these commitments represent approximately 20% of our annual Cost of sales with a weighted average remaining term of 7 years.

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We also have purchase obligations under take-or-pay agreements which require us to either buy and take delivery of a minimum quantity of goods or to pay for any shortfall. These arrangements largely relate to product off-take agreements with a joint venture located in Poland. No material shortfall was paid for quantities not taken under these contracts in 2023. When valued using a contract price as of December 31, 2023, these commitments represent approximately 5% of our annual Cost of sales with a weighted average remaining term of 14 years.

CURRENT BUSINESS OUTLOOK

In the first quarter of 2024, seasonally slow demand and economic uncertainty provide headwinds for most businesses. Relatively low ethane raw material costs continue to benefit our O&P-Americas margins while regional demand is showing modest improvement. We expect oxyfuels and refining margins to be within typical winter seasonal ranges. In China, January demand was subdued as buyers managed inventories around the Lunar New Year holidays and growth remained uncertain. Spring and summer seasonal demand improvements are expected across global markets. We are aligning first quarter operating rates with global demand and expect to operate our O&P-Americas assets at 80% and both our O&P-EAI and I&D assets at 75%.

Value Enhancement Program (“VEP”)

During 2022, we introduced our VEP, which expands capacity through low-cost debottlenecks and improved reliability, reduces costs and emissions by saving energy and increases margins through improvements in procurement, logistics and customer service. We estimate Net income and recurring annual EBITDA benefits for the VEP based on 2017 through 2019 mid-cycle margins and modest inflation relative to a 2021 baseline year. We believe recurring annual EBITDA is useful to investors because it represents a key measure used by management to assess progress towards our strategy of value creation.

At the end of 2023, we estimated VEP benefits to have a year-end annual run rate of approximately $300 million of Net income which, after adding back income taxes and depreciation and amortization of $75 million and $25 million, respectively, results in approximately $400 million of recurring annual EBITDA, which exceeded our original expectations. We incurred one-time costs of approximately $200 million in 2023 to achieve this milestone.

Given its performance in 2023, we anticipate that our VEP will achieve a 2024 year-end annual run rate of approximately $445 million of Net income, which, after adding back income taxes and depreciation and amortization of approximately $110 million and $45 million, respectively, results in approximately $600 million of recurring annual EBITDA. We estimate incurring one-time costs of $325 million in 2024 to achieve this milestone.

By the end of 2025, the VEP is expected to achieve a 2025 year-end annual run rate of up to $750 million in Net income improvement, which, after adding back income taxes and depreciation and amortization of $185 million and $65 million, respectively, results in up to $1 billion of recurring annual EBITDA.

RELATED PARTY TRANSACTIONS

We have related party transactions with 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. See Note 5 to the Consolidated Financial Statements for additional related party disclosures.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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. Inherent in such policies are certain key assumptions and estimates made by management and updated periodically based on its latest assessment of the current and projected business and general economic environment.

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Management believes the following accounting policies and estimates, and the judgments and uncertainties affecting them, are critical in understanding our reported operating results and financial condition.

Inventories—We account for our raw materials, work-in-progress and finished goods inventories using the last-in, first-out (“LIFO”) method of accounting.

The cost of raw materials, which represents a substantial portion of our operating expenses, and energy costs generally follow price trends for crude oil and/or natural gas. Crude oil and natural gas prices are subject to many factors, including changes in economic conditions.

Since our inventory consists of manufactured products derived from crude oil, natural gas, natural gas liquids and correlated materials, as well as the associated feedstocks and intermediate chemicals, our inventory market values are generally influenced by changes in the benchmark of crude oil and heavy liquid values and prices for manufactured finished goods. The degree of influence of a particular benchmark may vary from period to period, as the composition of the dollar value LIFO pools change. An actual valuation of inventory under the LIFO method is performed at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.

LIFO value is measured at the total pool level. The impact of the measurement of each LIFO pool at the lower of cost or market value (“LCM”) is a function of the current market prices and the composition, or product mix, of inventory within the pool at the balance sheet date. Due to the compositions of our LIFO pools, changes in market prices of the materials within the pool from period-to-period do not necessarily correlate with LCM charges. An LCM condition may arise due to a volumetric or price decline in a particular material that had previously provided a positive impact within a pool.

As indicated above, fluctuation in the prices of crude oil, natural gas and correlated products 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 interim periods, within the same fiscal year, as market prices recover. Accordingly, our cost of sales and results of operations may be affected by such fluctuations.

We do not believe any of our inventory is at risk for impairment at this time, however as prices for our products and raw materials are inherently volatile and therefore no prediction can be given with certainty. Given the inherent volatility in the prices of our finished goods and raw materials, sustained price declines could result in LCM inventory valuation charges.

Long-Lived Assets Impairment Assessment—The need to test for impairment can be based on several indicators, including a significant reduction in prices of or demand for products produced, a weakened outlook for profitability, a significant reduction in margins, an expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, other changes to contracts or changes in the regulatory environment. If the sum of the undiscounted estimated pre-tax cash flows for an asset group is less than the asset group’s carrying value, fair value is calculated for the asset group using an income approach or a market approach when appropriate, and the carrying value is written down to the calculated fair value. For purposes of impairment evaluation, long-lived assets including finite-lived intangible assets must be grouped at the lowest level for which independent cash flows can be identified.

Significant judgment is involved in developing estimates of future cash flows since the results are based on forecasted financial information prepared using significant assumptions which may include, among other things, projected changes in supply and demand fundamentals (including industry-wide capacity, our planned utilization rate and end-user demand), new technological developments, capital expenditures, new competitors with significant raw material or other cost advantages, changes associated with world economies, the cyclical nature of the chemical and refining industries, uncertainties associated with governmental actions and other economic conditions. Such estimates are consistent with those used in our financial planning and business performance reviews.

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When an income approach is used to estimate fair value of our long-lived assets, the cash flows are discounted using a rate that is based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. This discount rate is also compared to recent observable market transactions, if possible.

Equity Method Investments Impairment—Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount. When it is determined such a loss in value is other than temporary, an impairment charge is recognized for the difference between the investment’s carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the duration and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that will be sufficient to allow for any anticipated recovery in the value of the investment. Management’s estimate of fair value of an investment is based on the income approach and/or market approach. For the income approach, the fair value is typically based on the present value of expected future cash flows using discount rates believed to be consistent with those used by principal market participants. For the market approach, since quoted market prices are usually not available, we utilize market multiples of revenue and earnings derived from comparable publicly-traded industrial gases companies.

During the fourth quarter of 2023, a trend of adverse financial performance triggered an impairment analysis of our investment in our European PO joint venture. We concluded the asset was impaired and recorded a non-cash impairment charge of $192 million. The fair value of our investment in the joint venture was determined using an income approach which utilized unobservable inputs, which generally consist of market information provided by unrelated third parties. Our fair value estimate was based on significant assumptions including management’s best estimates of the expected future cash flows. These estimates required considerable judgment and are sensitive to changes in underlying assumptions such as future commodity prices and PO/SM margins. As a result, there can be no assurance that the estimates and assumptions made for purposes of our impairment determination will prove to be an accurate prediction of the future.

An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes, discount rates, and market information provided by unrelated third parties that can materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

In response to challenging market conditions in China, during 2023, we assessed our equity method investment in Bora LyondellBasell Petrochemical Co. Ltd. (“BLYB”) for impairment and concluded that our $231 million investment in BLYB is not impaired. However, certain circumstances beyond our control could change in the near-term resulting in the need to recognize a non-cash impairment in subsequent periods.

Goodwill—As of December 31, 2023, we had goodwill of $1,647 million, primarily relating to the acquisition of A. Schulman Inc. in 2018 and the tax effect of the differences between the tax and book basis of our assets and liabilities resulting from the revaluation of those assets and liabilities to fair value in connection with the Company’s emergence from bankruptcy and fresh-start accounting in 2010.

Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our APS segment and reintegrated into our O&P-Americas and O&P-EAI segments. When moved, a portion of the APS reporting unit’s goodwill was allocated to the O&P-Americas and O&P-EAI segments based on the fair values of the businesses that were reintegrated relative to the fair value of the APS segment. In the first quarter of 2023, we evaluated goodwill for impairment immediately before and after the transfer of these businesses. Our evaluation resulted in the recognition of a non-cash goodwill impairment of $252 million recognized in our APS segment. See Notes 8 and 21 to the Consolidated Financial Statements.

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An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes and discount rates, which could materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

We evaluate the recoverability of the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the reporting units include, but are not limited to, changes in long-term commodity prices, discount rates, competitive environments, planned capacity, cost factors such as raw material prices, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.

We also have the option to proceed directly to the quantitative impairment test. Under the quantitative impairment test, the fair value of each reporting unit, calculated using a discounted cash flow model, is compared to its carrying value, including goodwill. The discounted cash flow model inherently utilizes a significant number of estimates and assumptions, including operating margins, tax rates, discount rates, capital expenditures and working capital changes. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit.

In the fourth quarter of 2023, we performed a quantitative impairment assessment for our reporting units within our Advanced Polymer Solutions segment and a qualitative impairment assessment of our other reporting units, which indicated that the fair value of our reporting units was greater than their carrying value including goodwill. Based on this assessment, our historical assessment for impairment and forecasted demand for our products, a quantitative goodwill impairment test in the fourth quarter was not necessary.

During the fourth quarter of 2022, management performed a qualitative impairment assessment of our reporting units, which indicated that it was more likely than not that the fair value of our reporting units was greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required.

Long-Term Employee Benefit Costs—Our costs for long-term employee benefits, particularly pension and other post-retirement 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 and to review those assumptions periodically to reflect changes in economic or other factors.

The current benefit service costs, as well as the existing liabilities, for pensions and other post-retirement 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. Our assumed discount rate is based on yield information for high-quality corporate bonds with durations comparable to the expected cash settlement of our obligations. For the purpose of measuring the benefit obligations at December 31, 2023, we used a weighted average discount rate of 5.80% for the U.S. plans, which reflects the different terms of the related benefit obligations. The weighted average discount rate used to measure obligations for non-U.S. plans at December 31, 2023, was 4.00%, reflecting market interest rates. The discount rates in effect at December 31, 2023 will be used to measure net periodic benefit cost during 2024.

The benefit obligation and the net periodic benefit cost of other post-retirement medical benefits are also measured based on assumed rates of future increase in the per capita cost of covered health care benefits. As of December 31, 2023, the assumed rate of increase for our U.S. plans was 6.3%, decreasing to 4.5% in 2031 and thereafter.

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The net periodic benefit cost of pension benefits included in expense 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 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 assets in our U.S. plans of 7.25% is based on the average level of earnings that our independent pension investment advisor advised could be expected to be earned over time. The weighted average expected long-term rate of return on assets in our non-U.S. plans of 3.57% is based on expectations and asset allocations that vary by region. The asset allocations are summarized in Note 15 to the Consolidated Financial Statements.

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.

Net periodic pension cost recognized each year includes the expected asset earnings, rather than the actual earnings or loss. Along with other gains and losses, this unrecognized amount, to the extent it cumulatively exceeds 10% of the greater of the projected benefit obligation or the market related value of the plan assets for the respective plan, is recognized as additional net periodic benefit cost over the average remaining service period of the participants in each plan.

The following table reflects the sensitivity of the benefit obligations and the net periodic benefit costs of our pension plans to changes in the actuarial assumptions:

The sensitivity of our post-retirement benefit plans obligations and net periodic benefit costs to changes in actuarial assumptions are reflected in the following table:

Additional information on the key assumptions underlying these benefit costs appears in Note 15 to the Consolidated Financial Statements.

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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 basis, 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 is impacted by the recognition and release of valuation allowances related to net deferred tax assets in certain 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.

We recognize the financial statement benefits with respect to an uncertain income tax position that we have taken or may take on an income tax return when we believe it is more likely than not that the position will be sustained with the tax authorities.

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.

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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 accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).

The discussion summarizing the significant factors affecting the results of operations and financial condition for the year ended December 31, 2020 and for the year ended December 31, 2021 compared to 2020 have been excluded from this Form 10-K and can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on February 24, 2022, of which Item 7 is incorporated herein by reference.

OVERVIEW

In 2022, our balanced business portfolio, consistent cash generation and strong balance sheet enabled us to successfully navigate through challenging market conditions while continuing to provide significant returns for our shareholders. During the year, petrochemical markets were pressured by high and volatile energy and feedstock costs as well as reduced global demand for our products. Our O&P-Americas and O&P-EAI segments encountered headwinds from reduced demand in Europe and Asia as well as global capacity additions. Our I&D segment benefited from improved oxyfuels margins which were partially offset by lower margins for other products due to lower demand. Margins in our Refining segment benefited from increased global mobility and favorable markets.

During 2022 we generated $6.1 billion in cash from operating activities. We remain committed to a disciplined approach to capital allocation. In 2022, approximately $1.9 billion was reinvested in the business and $3.7 billion was returned to shareholders through quarterly dividends, a special dividend and share repurchases.

In 2022, we launched a comprehensive review of our strategy. Initial strategic actions included the decision to exit the refining business and the sale of the Australian polypropylene business. We also formed a circular and low carbon solutions business within our O&P-Americas and O&P-EAI segments. This business was created to accelerate progress in capturing value from serving the rapidly growing customer demand for recycled and renewable solutions.

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Results of operations for the periods discussed are presented in the table below.

RESULTS OF OPERATIONS

Revenues—Revenues increased $4,278 million, or 9%, in 2022 compared to 2021. Average sales prices in 2022 were higher for many of our products as sales prices generally correlate with crude oil prices, which increased relative to 2021. These higher prices led to a 13% increase in revenue. Unfavorable foreign exchange impacts resulted in a 4% decrease in revenue.

Cost of Sales—Cost of sales increased $6,450 million, or 17%, in 2022 compared to 2021. This increase primarily related to higher feedstock and energy costs. Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs. Feedstock and energy related costs generally represent approximately 70% to 80% of cost of sales, other variable costs account for approximately 10% of cost of sales on an annual basis and fixed operating costs, consisting primarily of expenses associated with employee compensation, depreciation and amortization, and maintenance, range from approximately 10% to 20% in each annual period.

Impairments—During 2022 we recognized a non-cash impairment charge of $69 million related to the sale of our Australian polypropylene manufacturing facility. During 2021 we recognized a non-cash impairment charge of $624 million related to our Houston refinery. See Notes 7 and 20 to the Consolidated Financial Statements for additional information regarding impairment charges.

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Operating Income—Operating income decreased by $1,672 million or 25% in 2022 compared to 2021. In 2022, Operating income decreased for our O&P-Americas, O&P-EAI, Technology and APS segments by $2,470 million, $1,214 million, $140 million and $85 million, respectively. These decreases were partially offset by increases in Operating income for our Refining and I&D segments of $1,585 million and $637 million, respectively. Results for each of our business segments are discussed further in the Segment Analysis section below.

Interest Expense—Interest expense decreased $232 million or 45% in 2022 compared to 2021 primarily driven by debt extinguishment costs of $130 million recognized in 2021 related to the redemption of certain guaranteed notes, including a cash tender offer, coupled with a decrease in the weighted average outstanding debt balance in 2022 compared to 2021. See Note 11 to the Consolidated Financial Statements for additional information.

Income from Equity Investments—Income from equity method investments decreased $456 million, or 99%, in 2022 compared to 2021, primarily due to lower polyolefin spreads for our joint ventures in our O&P—EAI segment, particularly those in Asia and Saudi Arabia.

Income Taxes—Our effective income tax rates of 18.5% in 2022 and 17.1% in 2021 resulted in tax provisions of $882 million and $1,163 million, respectively. In 2021, we benefited from return to accrual adjustments primarily associated with a step-up of certain Italian assets to fair market value and benefits from the Coronavirus Aid, Relief, and Economic Security Act, also known as “CARES Act” of 1.8% and 0.9%, respectively. These increases were coupled with a decrease in exempt income in 2022 resulting in a 2% increase in the effective tax rate, partially offset by changes in pretax income in countries with varying statutory tax rates and fluctuations in uncertain tax positions of 2.1% and 1.8%, respectively. For additional information, see Note 16 to our Consolidated Financial Statements.

Comprehensive Income—Comprehensive income decreased by $1,437 million in 2022 compared to 2021, primarily due to a decrease in net income. The activities from the remaining components of Comprehensive income are discussed below.

Financial derivatives designated as cash flow hedges, primarily our forward-starting interest rate swaps, led to an increase in Comprehensive income of $136 million in 2022 compared to 2021, due to periodic changes in the benchmark interest rates.

Defined benefit pension and other postretirement benefit plans led to an increase in Comprehensive income of $122 million in 2022 compared to 2021, primarily resulting from changes in actuarial assumptions and pension settlements.

In 2022, a decrease in foreign currency translation losses led to an increase in Comprehensive income of $32 million compared to 2021, primarily due to continued strengthening of the U.S. dollar relative to the euro and the pre-tax gain from the effective portion of our net investment hedges in 2022.

See Notes 13, 14 and 18 to our Consolidated Financial Statements for further discussions.

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Segment Analysis

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of, and allocate resources to, our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such a    s foreign exchange gains (losses) and components of pension and other post-retirement benefit costs other than service cost, are included in “Other.” For additional information related to our operating segments, as well as a reconciliation of EBITDA to its nearest generally accepted accounting principles (“GAAP”) measure, Income from continuing operations before income taxes, see Note 20 to our Consolidated Financial Statements.

Our continuing operations are managed through six reportable segments: O&P-Americas, O&P-EAI, I&D, APS, Refining and Technology. The following tables reflect selected financial information for our reportable segments.

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Olefins and Polyolefins-Americas Segment

Overview—EBITDA decreased in 2022 relative to 2021 primarily driven by lower olefins margins.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—Ethylene and its co-products are produced from two major raw material groups:

•NGLs, principally ethane and propane, the prices of which are generally affected by natural gas prices; and

•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.

We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. In 2022 and 2021, approximately 70% and 60%, respectively, of the raw materials used in our North American crackers was ethane.

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The following table sets forth selected financial information for the O&P-Americas segment including Income from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased by $1,067 million, or 7%, in 2022 compared to 2021. Lower average sales prices for all businesses resulted in the 7% decrease in revenue primarily driven by reduced demand and increased market supply.

EBITDA—EBITDA decreased by $2,539 million, or 48%, in 2022 compared to 2021. Lower olefins results led to a 33% decrease in EBITDA primarily due to margin compression driven by lower ethylene prices coupled with higher feedstock and energy costs. Lower polyethylene and polypropylene results led to a 9% and 5% decrease in EBITDA, respectively, primarily driven by lower demand, an increase in industry capacity and higher energy costs.

Olefins and Polyolefins-Europe, Asia, International Segment

Overview—EBITDA decreased in 2022 compared to 2021 mainly as a result of lower volumes and margins across all businesses, lower income from equity investments and unfavorable impacts of foreign exchange.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—In Europe, naphtha is the primary raw material for our ethylene production and represents approximately 70% of the raw materials used in 2022 and 2021.

The following table sets forth selected financial information for the O&P-EAI segment including Income from equity investments, which is a component of EBITDA.

Revenues—Revenues decreased by $667 million, or 5%, in 2022 compared to 2021. Unfavorable foreign exchange impacts resulted in a revenue decrease of 8%. Lower volumes resulted in a revenue decrease of 8% primarily due to lower demand along with planned and unplanned maintenance. During 2022, we had planned and unplanned maintenance resulting in ethylene cracker operating rates of approximately 67% of capacity compared to 89% of capacity during 2021. Higher average sales prices resulted in a 11% increase in revenue as sales prices generally correlate with crude oil prices, which on average, increased compared to 2021.

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EBITDA—EBITDA decreased by $1,637 million, or 94%, in 2022 compared to 2021. Lower polyolefin results led to a 39% decrease in EBITDA. Approximately 60% of the change was driven by decreased margins resulting from higher energy costs and lower spreads with the remainder due to a decrease in volumes driven by lower demand. Lower olefins results led to a 20% decrease in EBITDA, approximately half of the change was driven by lower volumes due to unplanned maintenance and reduced operating rates to manage working capital. The other half of the change was due to lower margins resulting from higher feedstock and energy costs which outpaced increased ethylene prices. Lower income from our equity investments led to a decrease in EBITDA of 22% mainly attributable to lower polyolefin spreads across all joint ventures, particularly those located in Asia and Saudi Arabia. Unfavorable foreign exchange impacts resulted in a 10% decrease in EBITDA.

In the second quarter of 2022, we recognized a $69 million non-cash impairment charge in conjunction with the sale of our polypropylene manufacturing facility located in Australia, resulting in a 4% decrease in EBITDA for 2022 compared to 2021.

Intermediates and Derivatives Segment

Overview—EBITDA increased in 2022 compared to 2021, primarily driven by increased oxyfuels and related products margin, partially offset by decreases in margin for propylene oxide and derivatives and intermediate chemicals.

The following table sets forth selected financial information for the I&D segment including Income from equity investments, which is a component of EBITDA.

Revenues—Revenues increased by $2,770 million, or 27%, in 2022 compared to 2021. Higher average sales prices resulted in a 25% increase in revenue as sales prices generally correlate with crude oil prices, which, on average, increased compared to the same period in 2021, coupled with lower industry supply. Sales volumes improved resulting in a 6% increase in revenue as 2021 was impacted by unusually cold temperatures and associated electrical power outages that led to shutdowns of our manufacturing facilities in Texas. Unfavorable foreign exchange impacts resulted in a revenue decrease of 4%.

EBITDA—EBITDA increased $494 million, or 36%, in 2022 compared to 2021. Oxyfuels and related products increased EBITDA by 53% primarily driven by margin improvement as a result of higher gasoline prices. Propylene oxide and derivatives and intermediate chemicals results declined each resulting in a 5% reduction in EBITDA driven by reduced margins from higher energy and feedstock costs. Unfavorable foreign exchange impacts resulted in a 4% decrease in EBITDA. Lower income from our equity investments led to a decrease in EBITDA of 4% mainly attributable to lower margins in Asia. During 2022 and 2021, we recognized LIFO inventory charges of $26 million and $93 million, respectively, which resulted in a 5% increase in EBITDA.

Advanced Polymer Solutions Segment

Overview—EBITDA decreased in 2022 compared to 2021, primarily due to a decline in compounding and solutions results partially offset by improved advanced polymers results. In the first quarter of 2023, our Catalloy and polybutene-1 products, previously reflected in our APS segment, will be transferred to and reflected in our O&P-Americas and O&P-EAI segments. Our reporting structure will be revised in the first quarter of 2023 to reflect this change.

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The following table sets forth selected financial information for the APS segment:

Revenues—Revenues increased in 2022 by $86 million, or 2%, compared to 2021. Higher average sales prices resulted in a 13% increase in revenue as sales prices generally correlate with prices for crude oil and its derivatives, which, on average, increased compared to 2021. Foreign exchange impacts resulted in a revenue decrease of 8%. Sales volumes declined resulting in a 3% decrease in revenue stemming from lower demand.

EBITDA—EBITDA decreased in 2022 by $97 million, or 24%, compared to 2021. Compounding and solutions results led to a 29% reduction in EBITDA. Approximately 55% of the change was driven by higher raw material and energy costs with the remainder due to lower volumes as demand declined. Advanced polymers results increased by 4% driven by margin improvements for Catalloy due to higher sales prices. Unfavorable foreign exchange impacts resulted in a EBITDA decrease of 9%. During 2022 and 2021, we recognized $28 million and $55 million, respectively, of LIFO inventory charges which resulted in a 7% increase in EBITDA.

Refining Segment

Overview—EBITDA increased in 2022 relative to 2021 primarily due to higher margins.

The following table sets forth selected financial information and heavy crude oil processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. “Brent” is a light sweet crude oil and is one of the main benchmark prices for purchases of oil worldwide. “Maya” is a heavy sour crude oil grade produced in Mexico that is a relevant benchmark for heavy sour crude oils in the U.S. Gulf Coast market. References to industry benchmarks for refining market margins are to industry prices reported by Platts, a division of S&P Global.

Revenues—Revenues increased by $3,891 million, or 49%, in 2022 compared to 2021. Higher product prices led to a revenue increase of 45% as the average Brent crude oil price increased approximately $28.11 per barrel. Sales volumes increased resulting in a 4% increase in revenue due to improved demand as refined products markets recovered from the impacts of the COVID-19 pandemic.

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EBITDA—EBITDA increased by $1,545 million or 248%, in 2022 compared to 2021. Margin improvements drove a 173% increase in EBITDA primarily due to an increase in the Maya 2-1-1 market margin driven by higher demand for transportation fuels. Additionally, during 2022 we incurred costs related to our planned exit from the refining business, which resulted in a 25% decrease in EBITDA compared to 2021. See Notes 7, 12 and 20 to the Consolidated Financial Statements for additional information regarding the planned exit. The remaining change is due to non-cash impairment charges of $624 million recorded in 2021 with no similar charge incurred in 2022. For additional information see Notes 7 and 20 to our Consolidated Financial Statements.

Technology Segment

Overview—The Technology segment recognizes revenues related to the sale of polyolefin catalysts and the licensing of chemical and polyolefin process technologies. These revenues are offset in part by the costs incurred in the production of catalysts, licensing and services activities and research and development (“R&D”) activities. In 2022 and 2021, our Technology segment incurred approximately 55% of all R&D costs. EBITDA decreased in 2022 compared to 2021 driven by lower licensing revenues and the unfavorable impacts of foreign exchange.

The following table sets forth selected financial information for the Technology segment.

Revenues—Revenues decreased by $150 million, or 18%, in 2022 compared to 2021. Lower licensing revenues resulting from fewer contracts reaching significant milestones drove an 11% decrease in revenue. Unfavorable foreign exchange impacts resulted in a 10% decrease in revenue. Changes in average catalyst sales price resulted in a 2% increase in revenue. Higher catalyst volumes resulted in a 1% increase in revenue primarily driven by increased demand.

EBITDA—EBITDA in 2022 decreased by $148 million, or 29%, compared to 2021. Lower licensing revenues resulting from fewer contracts reaching significant milestones drove a 16% decrease in EBITDA. Unfavorable foreign exchange impacts resulted in an EBITDA decrease of 11%.

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FINANCIAL CONDITION

Operating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:

Operating Activities—Cash provided by operating activities of $6,119 million in 2022 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital–Accounts receivable, Inventories and Accounts payable.

In 2022, the main components of working capital provided $450 million of cash driven by a decrease in Accounts receivable, partially offset by a decrease in Accounts payable. The decrease in Accounts receivable was primarily due to lower revenues across most businesses primarily driven by lower average sales prices. The decrease in Accounts payable was driven by lower production volumes as a result of lower operating rates.

Cash provided by operating activities of $7,695 million in 2021 primarily reflected earnings adjusted for non-cash items and cash provided by the main components of working capital.

In 2021, the main components of working capital used $960 million of cash driven by an increase in Inventories and Accounts receivable, partially offset by an increase in Accounts payable. The increase in Inventories was primarily due to an increase in raw material costs coupled with an increase in inventory to levels required to support improved demand and in anticipation of turnarounds in 2022. The increase in Accounts receivable was driven by higher revenues across most businesses primarily driven by higher average sales prices. The increase in Accounts payable was primarily driven by increased raw material and energy costs.

Other operating activities in 2021 includes an $870 million tax refund received in the fourth quarter of 2021 and the effects of changes in income tax accruals primarily driven by increased pretax income. For additional information see Note 16 to our Consolidated Financial Statements.

Investing Activities—Capital expenditures in 2022 totaled $1,890 million compared to $1,959 million in 2021. Approximately 50% and 60% of our capital expenditures in 2022 and 2021, respectively, was for profit-generating growth projects, primarily our PO/TBA plant, with the remaining expenditures supporting sustaining maintenance. See Note 20 to the Consolidated Financial Statements for additional information regarding capital spending by segment.

We invest cash in investment-grade and other high-quality instruments that provide adequate flexibility to redeploy funds as needed to meet our cash flow requirements while maximizing yield.

In 2022 and 2021, we received proceeds of $8 million and $335 million, respectively, from the liquidation of our investment in equity securities. Additionally, in 2021 we received proceeds of $346 million, upon the maturities of certain of our available-for-sale debt securities.

In 2021, we made an equity contribution of $104 million to form Ningbo ZRCC LyondellBasell New Material Company Limited, a 50/50 joint venture with Sinopec. For additional information related to our Equity investments, see Note 8 to the Consolidated Financial Statements.

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In 2022, foreign currency contracts with an aggregate notional value of €500 million expired. Upon settlement of these foreign currency contracts, we paid €500 million ($501 million at the expiry spot rate) to our counterparties and received $614 million from our counterparties.

In 2021, foreign currency contracts with an aggregate notional value of €300 million expired. Upon settlement of these foreign currency contracts, we paid €300 million ($355 million at the expiry spot rate) to our counterparties and received $358 million from our counterparties.

Financing Activities—We made dividend payments totaling $3,246 million, which included a combination of a special dividend of $5.20 per share and an increased quarterly dividend, and $1,486 million in 2022 and 2021, respectively. Additionally, in 2022 and 2021, we made payments of $420 million and $463 million to repurchase outstanding ordinary shares, respectively. For additional information related to our share repurchases and dividend payments, see Note 18 to the Consolidated Financial Statements.

In 2022 and 2021, we made net repayments of $4 million and $296 million, respectively, through the issuance and repurchase of commercial paper instruments under our commercial paper program.

In 2022, we received a return of collateral of $238 million related to the positions held with our counterparties for certain forward-starting interest rate swaps.

In 2021, we prioritized debt reduction resulting in a $4 billion decrease in our outstanding long-term debt. For a detailed discussion of financing activities for 2021, see Note 11 to the Consolidated Financial Statements.

In November 2021, foreign currency contracts previously designated as cash flow hedges with an aggregate notional value of $855 million expired. Upon settlement of these foreign currency contracts we paid €790 million ($904 million at the expiry spot rate) to our counterparties and received $855 million from our counterparties.

For additional information related to our swaps and currency contracts, see Note 13 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Overview

We plan to fund our working capital, capital expenditures, debt service, dividends and other cash requirements with our current available liquidity and cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Debt repayment, and the purchase of shares under our share repurchase authorization, may be funded from cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt, or a combination thereof.

We intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations. Our focus on funding our dividends while remaining committed to a strong investment grade balance sheet continues to be the foundation of our capital allocation strategy.

Cash and Liquid Investments

As of December 31, 2022, we had Cash and cash equivalents totaling $2,151 million, which includes $1,044 million in jurisdictions outside of the U.S., primarily held within the United Kingdom. There are currently no legal or economic restrictions that would materially impede our transfers of cash.

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Credit Arrangements

At December 31, 2022, we had total debt, including current maturities, of $11,321 million, and $227 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities.

We had total unused availability under our credit facilities of $3,844 million at December 31, 2022, which included the following:

•$3,050 million under our $3,250 million Senior Revolving Credit Facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. At December 31, 2022, we had $200 million of outstanding commercial paper, net of discount, and no borrowings or letters of credit outstanding under this facility; and

•$794 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. At December 31, 2022 we had no borrowings or letters of credit outstanding under this facility.

At any time and from time to time, we may repay or redeem our outstanding debt, including purchases of our outstanding bonds in the open market, through privately negotiated transactions or a combination thereof, in each case using cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt or proceeds from asset divestitures. Any repayment or redemption of our debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In connection with such repurchases or redemptions, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.

In accordance with our current interest rate risk management strategy and subject to management’s evaluation of market conditions and the availability of favorable interest rates among other factors, we may from time to time enter into interest rate swap agreements to economically convert a portion of our fixed rate debt to variable rate debt or convert a portion of our variable rate debt to fixed rate debt.

Share Repurchases

In May 2022, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 27, 2023, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In 2022, we purchased 4.4 million shares under our share repurchase authorization for $406 million.

As of February 21, 2023, we had approximately 31.7 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased, if any, will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. For additional information related to our share repurchase authorizations, see Note 18 to the Consolidated Financial Statements.

Capital Budget

In 2023, we are planning to invest approximately $1.6 billion in capital expenditures. Approximately 70% of the 2023 budget is planned for sustaining maintenance, with the remaining budget supporting profit-generating growth projects.

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Cash Requirements from Contractual and Other Obligations

As part of our ongoing operations, we enter into contractual arrangements that may require us to make future cash payments under certain circumstances. Our cash requirements related to contractual and other obligations primarily consist of purchase obligations, principal and interest payments on outstanding debt, lease payments, pension and other post-retirement benefits and income taxes. For more information regarding our debt arrangements, lease obligations, pension and other post-retirement benefits and income taxes, see Notes 11, 12, 14 and 16 to the Consolidated Financial Statements, respectively.

We are party to obligations to purchase raw materials, utilities and industrial gases which are designed to ensure sources of supply and are not expected to be in excess of normal requirements. These purchase arrangements include provisions which state minimum purchase quantities; however, in the event we do not take the contractual minimum volumes, we are obligated to compensate the vendor only for any resulting economic losses they suffer. No material fees were paid to vendors for such losses in 2022. Assuming that contractual minimum volumes are purchased at contract prices as of December 31, 2022, these commitments represent approximately 20% of our annual Cost of sales with a weighted average remaining term of 7 years.

We also have purchase obligations under take-or-pay agreements which require us to either buy and take delivery of a minimum quantity of goods or to pay for any shortfall. These arrangements primarily relate to product off-take agreements with joint ventures located in Poland. No material shortfall was paid for quantities not taken under these contracts in 2022. When valued using a contract price as of December 31, 2022, these commitments represent approximately 5% of our annual Cost of sales with a weighted average remaining term of 14 years.

CURRENT BUSINESS OUTLOOK

In January 2023, demand from consumer packaging, oxyfuels and refining markets remained stable. Moderating energy and feedstock costs are providing some offsets to tepid global demand. Nonetheless, challenging market conditions are expected to persist through the first half of 2023. We are aligning production with global demand trends and expect first quarter average utilization rates for assets operated by us to be 80% for each of our O&P-Americas, O&P-EAI and I&D segments. Start-up activities for the new PO/TBA capacity remain on track for the end of the first quarter 2023, with approximately half of the assets nameplate capacity expected to be produced and sold during the first year of operations. We expect typical spring and summer seasonal demand improvements and are prepared to leverage any increased economic activity in China as the year progresses.

During 2022, we introduced our value enhancement program that is anticipated to generate approximately $575 million in recurring annual Net income improvement by the end of 2025, which, after adding back income taxes and depreciation and amortization of $140 million and $35 million, respectively, results in $750 million of EBITDA. By the end of 2023, we anticipate that our value enhancement program will achieve annual recurring Net income of approximately $115 million, which, after adding back income taxes and depreciation and amortization of approximately $25 million and $10 million, respectively, results in $150 million of EBITDA. We estimate costs of $150 million in 2023 to achieve this milestone.

RELATED PARTY TRANSACTIONS

We have related party transactions with 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. See Note 4 to the Consolidated Financial Statements for additional related party disclosures.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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. Inherent in such policies are certain key assumptions and estimates made by management and updated periodically based on its latest assessment of the current and projected business and general economic environment.

Management believes the following accounting policies and estimates, and the judgments and uncertainties affecting them, are critical in understanding our reported operating results and financial condition.

Inventories—We account for our raw materials, work-in-progress and finished goods inventories using the last-in, first-out (“LIFO”) method of accounting.

The cost of raw materials, which represents a substantial portion of our operating expenses, and energy costs generally follow price trends for crude oil and/or natural gas. Crude oil and natural gas prices are subject to many factors, including changes in economic conditions.

Since our inventory consists of manufactured products derived from crude oil, natural gas, natural gas liquids and correlated materials, as well as the associated feedstocks and intermediate chemicals, our inventory market values are generally influenced by changes in the benchmark of crude oil and heavy liquid values and prices for manufactured finished goods. The degree of influence of a particular benchmark may vary from period to period, as the composition of the dollar value LIFO pools change. An actual valuation of inventory under the LIFO method is performed at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.

The impact of the measurement of each LIFO pool at the lower of cost or market value (“LCM”) is a function of the current market prices and the composition, or product mix, of inventory within the pool at the balance sheet date. Due to the compositions of our LIFO pools, changes in market prices from period-to-period do not necessarily correlate with LCM charges. Additionally, an LCM condition may arise due to a volumetric or price decline in a particular material that had previously provided a positive impact within a pool. In the measurement of an LCM adjustment, the numeric input value for determining the crude oil market price includes pricing that is weighted by volume of inventories held at a point in time, including WTI, Brent and Maya crude oils.

As indicated above, fluctuation in the prices of crude oil, natural gas and correlated products 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 interim periods as market prices recover. Accordingly, our cost of sales and results of operations may be affected by such fluctuations.

No LCM inventory valuation charges were recorded in 2022 or 2021, and we do not believe any of our inventory balance at year-end is at risk for impairment. Given the inherent volatility in the prices of our finished goods and raw materials, sustained price declines could result in LCM inventory valuation charges.

Long-Lived Assets Impairment Assessment—The need to test for impairment can be based on several indicators, including a significant reduction in prices of or demand for products produced, a weakened outlook for profitability, a significant reduction in margins, an expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, other changes to contracts or changes in the regulatory environment. If the sum of the undiscounted estimated pre-tax cash flows for an asset group is less than the asset group’s carrying value, fair value is calculated for the asset group using an income approach or a market approach when appropriate, and the carrying value is written down to the calculated fair value. For purposes of impairment evaluation, long-lived assets including finite-lived intangible assets must be grouped at the lowest level for which independent cash flows can be identified.

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Significant judgment is involved in developing estimates of future cash flows since the results are based on forecasted financial information prepared using significant assumptions which may include, among other things, projected changes in supply and demand fundamentals (including industry-wide capacity, our planned utilization rate and end-user demand), new technological developments, capital expenditures, new competitors with significant raw material or other cost advantages, changes associated with world economies, the cyclical nature of the chemical and refining industries, uncertainties associated with governmental actions and other economic conditions. Such estimates are consistent with those used in our financial planning and business performance reviews.

When an income approach is used to estimate fair value of our long-lived assets, the cash flows are discounted using a rate that is based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. This discount rate is also compared to recent observable market transactions, if possible.

Houston Refinery Impairment—During the fourth quarter of 2021, we identified impairment triggers relating to our Houston refinery’s asset group which resulted in non-cash impairment charges of $624 million. Refer to Note 7 to our Consolidated Financial Statements.

In 2021, the estimate of the Houston refinery’s undiscounted pre-tax cash flows was based on significant assumptions including management’s best estimates of the expected future cash flows, the estimated useful lives of the asset group, and the residual value of the refinery. These estimates required considerable judgment and are sensitive to changes in underlying assumptions such as future commodity prices, margins on refined products, operating rates and capital expenditures including repairs and maintenance. As a result, there can be no assurance that the estimates and assumptions made for purposes of our impairment determination will prove to be an accurate prediction of the future. The Houston refinery’s estimated fair value was calculated using a market approach which utilized unobservable inputs, which generally consist of market information provided by unrelated third parties. Should our estimates and assumptions significantly change in future periods, it is possible that we may determine future impairment charges. An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes, discount rates, and market information provided by unrelated third parties that can materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

Equity Method Investments Impairment—Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount. When it is determined such a loss in value is other than temporary, an impairment charge is recognized for the difference between the investment’s carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the duration and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that will be sufficient to allow for any anticipated recovery in the value of the investment. Management’s estimate of fair value of an investment is based on the income approach and/or market approach. For the income approach, the fair value is typically based on the present value of expected future cash flows using discount rates believed to be consistent with those used by principal market participants. For the market approach, since quoted market prices are usually not available, we utilize market multiples of revenue and earnings derived from comparable publicly-traded industrial gases companies.

In response to challenging market conditions in China, during 2022 we assessed our equity method investment in Bora LyondellBasell Petrochemical Co. Ltd. (“BLYB”) for impairment and concluded that our $345 million investment in BLYB is not impaired. However, certain circumstances beyond our control could change in the near-term resulting in the need to recognize a non-cash impairment in subsequent periods.

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Goodwill—As of December 31, 2022, we had goodwill of $1,827 million. Of this amount, $1,357 million is related to the acquisition of A. Schulman Inc. in 2018, which is included in our APS segment. The remaining goodwill at December 31, 2022 primarily represents the tax effect of the differences between the tax and book basis of our assets and liabilities resulting from the revaluation of those assets and liabilities to fair value in connection with the Company’s emergence from bankruptcy and fresh-start accounting in 2010. Additional information on the amount of goodwill allocated to our reporting units appears in Notes 7 and 20 to the Consolidated Financial Statements.

We evaluate the recoverability of the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the reporting units include, but are not limited to, changes in long-term commodity prices, discount rates, competitive environments, planned capacity, cost factors such as raw material prices, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.

We also have the option to proceed directly to the quantitative impairment test. Under the quantitative impairment test, the fair value of each reporting unit, calculated using a discounted cash flow model, is compared to its carrying value, including goodwill. The discounted cash flow model inherently utilizes a significant number of estimates and assumptions, including operating margins, tax rates, discount rates, capital expenditures and working capital changes. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit.

For 2022 and 2021, management performed a qualitative impairment assessment of our reporting units, which indicated that it was more likely than not that the fair value of our reporting units was greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required, and no goodwill impairment was recognized in 2022 or 2021. See Note 20 to the Consolidated Financial Statements regarding subsequent events impacting our reporting units.

Long-Term Employee Benefit Costs—Our costs for long-term employee benefits, particularly pension and other post-retirement 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 and to review those assumptions periodically to reflect changes in economic or other factors.

The current benefit service costs, as well as the existing liabilities, for pensions and other post-retirement 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. Our assumed discount rate is based on yield information for high-quality corporate bonds with durations comparable to the expected cash settlement of our obligations. For the purpose of measuring the benefit obligations at December 31, 2022, we used a weighted average discount rate of 5.50% for the U.S. plans, which reflects the different terms of the related benefit obligations. The weighted average discount rate used to measure obligations for non-U.S. plans at December 31, 2022, was 3.99%, reflecting market interest rates. The discount rates in effect at December 31, 2022 will be used to measure net periodic benefit cost during 2023.

The benefit obligation and the net periodic benefit cost of other post-retirement medical benefits are also measured based on assumed rates of future increase in the per capita cost of covered health care benefits. As of December 31, 2022, the assumed rate of increase for our U.S. plans was 6.5%, decreasing to 4.5% in 2031 and thereafter.

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The net periodic benefit cost of pension benefits included in expense 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 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 assets in our U.S. plans of 7.25% is based on the average level of earnings that our independent pension investment advisor advised could be expected to be earned over time. The weighted average expected long-term rate of return on assets in our non-U.S. plans of 1.85% is based on expectations and asset allocations that vary by region. The asset allocations are summarized in Note 14 to the Consolidated Financial Statements.

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.

Net periodic pension cost recognized each year includes the expected asset earnings, rather than the actual earnings or loss. Along with other gains and losses, this unrecognized amount, to the extent it cumulatively exceeds 10% of the greater of the projected benefit obligation or the market related value of the plan assets for the respective plan, is recognized as additional net periodic benefit cost over the average remaining service period of the participants in each plan.

The following table reflects the sensitivity of the benefit obligations and the net periodic benefit costs of our pension plans to changes in the actuarial assumptions:

The sensitivity of our post-retirement benefit plans obligations and net periodic benefit costs to changes in actuarial assumptions are reflected in the following table:

Additional information on the key assumptions underlying these benefit costs appears in Note 14 to the Consolidated Financial Statements.

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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 basis, 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 is impacted by the recognition and release of valuation allowances related to net deferred tax assets in certain 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.

We recognize the financial statement benefits with respect to an uncertain income tax position that we have taken or may take on an income tax return when we believe it is more likely than not that the position will be sustained with the tax authorities.

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.

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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 accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).

The discussion summarizing the significant factors affecting the results of operations and financial condition for the year ended December 31, 2019, can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 25, 2021, of which Item 7 is incorporated herein by reference.

OVERVIEW

Our 2021 results reflect robust demand for our products and tight market conditions. During 2021 relative to 2020, EBITDA increased largely due to margin improvements in our O&P—Americas, O&P—EAI and I&D segments.

Our 2021 cash generation allowed us to complete our goal of reducing long-term debt by $4 billion during the year and demonstrated our commitment to a solid investment-grade credit rating. We do not plan to pursue further long-term debt reduction in 2022. During 2021, we repurchased 5.2 million shares and increased our annual dividend for the eleventh consecutive year.

During the second quarter of 2021, we invested $104 million to purchase a 50% interest in a joint venture with the China Petroleum & Chemical Corporation (“Sinopec”) which will commission a new propylene oxide and styrene monomer unit in China in 2022.

Results of operations for the periods discussed are presented in the table below.

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RESULTS OF OPERATIONS

Revenues—Revenues increased $18,420 million, or 66%, in 2021 compared to 2020. Average sales prices in 2021 were higher for many of our products as sales prices generally correlate with crude oil prices, which increased relative to 2020. These higher prices led to a 62% increase in revenue. Higher sales volumes, driven by increased demand, resulted in a revenue increase of 3%. Favorable foreign exchange impacts resulted in a revenue increase of 1%.

Cost of Sales—Cost of sales increased $13,038 million, or 54%, in 2021 compared to 2020. This increase primarily related to higher feedstock and energy costs. Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs. Feedstock and energy related costs generally represent approximately 70% to 80% of cost of sales, other variable costs account for approximately 10% of cost of sales on an annual basis and fixed operating costs, consisting primarily of expenses associated with employee compensation, depreciation and amortization, and maintenance, range from approximately 15% to 20% in each annual period.

Impairments—Results for our Refining segment include non-cash impairment charges of $624 million and $582 million recognized in 2021 and 2020, respectively. See Note 7 to the Consolidated Financial Statements for additional information regarding impairment charges.

SG&A Expense—Selling, general and administrative (“SG&A”) expense increased $115 million, or 10% in 2021 compared to 2020 primarily due to higher employee-related expenses.

Operating Income—Operating income increased by $5,214 million or 334% in 2021 compared to 2020. In 2021, Operating income increased for our O&P—Americas, O&P—EAI, I&D, Refining, Technology and APS segments by $3,382 million, $816 million, $466 million, $328 million, $184 million and $60 million, respectively. Results for each of our business segments are discussed further in the Segment Analysis section below.

Income from Equity Investments—Income from equity method investments increased $205 million, or 80%, in 2021 compared to 2020. Higher demand coupled with industry supply constraints resulted in improved margins for our joint ventures in our O&P—Americas and O&P—EAI segments.

Income Taxes—Our effective income tax rates of 17.1% in 2021 and -3.1% in 2020 resulted in a tax provision of $1,163 million and a tax benefit of $43 million, respectively.

The 2021 effective income tax rate of 17.1%, which is lower than the U.S. statutory tax rate of 21%, was favorably impacted by exempt income (-4.5%), return to accrual adjustments primarily from a tax benefit associated with an election made in 2021 to step-up certain Italian assets to fair market value retroactively (-1.8%) and the impact of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (-0.9%) partially offset by the effects of earnings in various countries, notably in Europe, with higher statutory tax rates (1.1%) and U.S. state and local income taxes (1.2%).

The 2020 effective income tax rate of -3.1%, which is lower than the U.S. statutory tax rate of 21%, was favorably impacted by tax law changes including the CARES Act (-21.5%) coupled with exempt income (-10.4%), partially offset by changes in unrecognized tax benefits associated with uncertain tax positions (7.0%).

During 2021 and 2020, we recorded an overall tax benefit in relation to the CARES Act of approximately $64 million and $300 million, respectively, due to our 2020 U.S. tax losses which we carried back to tax years with a higher tax rate. For additional information, see Note 16 to our Consolidated Financial Statements.

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Comprehensive Income—We had comprehensive income of $5,757 million in 2021 and $1,268 million in 2020. Comprehensive income increased by $4,489 million in 2021 compared to 2020, primarily due to higher net income, net favorable changes in defined pension and other post-retirement benefits, and net favorable impacts of financial derivative instruments primarily driven by periodic changes in benchmark interest rates. These increases were partially offset by net unfavorable impacts of unrealized changes in foreign currency translation adjustments.

We recognized defined benefit pension and other post-retirement benefit plans pre-tax gains of $291 million and pre-tax losses of $51 million in 2021 and 2020, respectively. In 2021, changes in actuarial assumptions, primarily related to an increase in discount rates and higher actual returns versus expected returns on plan assets, resulted in a pre-tax gain of $214 million. In 2021, pre-tax gains of $77 million related to the amortization of accumulated actuarial losses and settlements were reclassified to Other income, net. In 2020, pre-tax losses of $109 million were recognized due to the decrease in discount rates and higher actual returns versus expected returns on plan assets. Pre-tax losses were partially offset by pre-tax gains of $58 million, primarily due to amortization of accumulated actuarial losses reclassified to Other income, net.

In 2021, the cumulative after-tax effect of our derivatives designated as cash flow hedges was a net gain of $72 million. The weakening of the euro against the U.S. dollar in 2021 and periodic changes in benchmark interest rates resulted in a pre-tax gain of $207 million related to our cross-currency swaps. In 2021, pre-tax losses of $216 million related to our cross-currency swaps were reclassified to Other income, net. In 2021, we recognized pre-tax gains of $75 million related to forward-starting interest rate swaps primarily driven by changes in benchmark interest rates. The remaining change relates to our commodity cash flow hedges.

The predominant functional currency for our operations outside of the U.S. is the euro. Relative to the U.S. dollar, the value of the euro weakened during 2021, resulting in net losses related to unrealized changes in foreign currency translation impacts which are reflected in the Consolidated Statements of Comprehensive Income. These losses were partially offset by a pre-tax gain of $199 million related to the effective portion of our net investment hedges.

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Segment Analysis

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of, and allocate resources to, our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains (losses) and components of pension and other post-retirement benefit costs other than service cost, are included in “Other.” For additional information related to our operating segments, as well as a reconciliation of EBITDA to its nearest generally accepted accounting principles (“GAAP”) measure, Income from continuing operations before income taxes, see Note 20 to our Consolidated Financial Statements.

Our continuing operations are managed through six reportable segments: O&P—Americas, O&P—EAI, I&D, APS, Refining and Technology. The following tables reflect selected financial information for our reportable segments.

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Olefins and Polyolefins–Americas Segment

Overview—EBITDA improved in 2021 relative to 2020 driven by olefin and combined polyolefin margin improvements.

In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin.

Ethylene Raw Materials—Ethylene and its co-products are produced from two major raw material groups:

•NGLs, principally ethane and propane, the prices of which are generally affected by natural gas prices; and

•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.

We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. In 2021 and 2020, approximately 60% of the raw materials used in our North American crackers was ethane.

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The following table sets forth selected financial information for the O&P—Americas segment including Income from equity investments, which is a component of EBITDA.