Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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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. When we use the terms “we,” “us,” “our” or similar words in this discussion, unless the context otherwise requires, we are referring to LyondellBasell Industries N.V. and its consolidated subsidiaries.

OVERVIEW

We demonstrated the strength of our earnings performance under dynamic market conditions in 2017 with increased volumes, improved EBITDA and higher earnings relative to 2016. The complementary performance of our O&P—Americas and O&P—EAI segments combined with the relative stability of our I&D segment’s portfolio provided a resilient platform for profitability in 2017. Global operating rates remained strong in 2017 due to delays in new capacity, a volume shortfall from Hurricane Harvey and an improving market in China. Our reliable performance during the year positioned us to capture market opportunities as they arose. We also advanced our growth program by commencing construction on our new Hyperzone high-density polyethylene plant in La Porte, Texas and reaching a final investment decision for a world-scale PO/TBA plant.

Significant items that affected 2017 results include:

	•		Improved Olefins and Polyolefins—Americas (“O&P—Americas”) results driven by the impact of higher olefins volumes relative to 2016 following completion of our Corpus Christi expansion in late 2016;

	•		Higher Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”) segment results on higher olefins margins and increased volumes on most products, partly offset by lower polyethylene margins;

	•		Higher Intermediates and Derivatives (“I&D”) segment results driven mainly by higher intermediate chemicals margins; and

	•		Better crude processing rates, with a less unfavorable impact from planned and unplanned maintenance at our Houston refinery, and higher industry refining margins relative to 2016.

Other noteworthy items during 2017 include the following:

	•		Non-cash benefit of $819 million recognized in the fourth quarter of 2017 related to the lower federal income tax rate resulting from the newly enacted U.S. Tax Cuts and Jobs Act;

	•		Senior unsecured debt rating raised to BBB+ from BBB by Standard and Poor’s Rating Services in September 2017, matching our corporate investment-grade rating;

	•		Final investment decision announced in July 2017 to build a world-scale PO/TBA plant in Texas with a capacity of 1 billion pounds of PO and 2.2 billion pounds of TBA. Construction is expected to commence in the second half of 2018;

	•		Increased quarterly dividend from $0.85 to $0.90 in May 2017;

	•		Issued $1,000 million of 3.5% guaranteed notes due 2027 in March 2017, used to redeem $1,000 million aggregate principal amount of our outstanding 5% senior notes due 2019; and

	•		Repurchased approximately 10 million of our ordinary shares during 2017.

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


	Year Ended December 31,
Millions of dollars	2017			2016			2015
Sales and other operating revenues	$	34,484		$	29,183		$	32,735
Cost of sales		28,059			23,191			25,683
Selling, general and administrative expenses		859			833			828
Research and development expenses		106			99			102

Operating income		5,460			5,060			6,122
Interest expense		(491	)		(322	)		(310	)
Interest income		24			17			33
Other income, net		179			111			25
Income from equity investments		321			367			339
Provision for income taxes		598			1,386			1,730

Income from continuing operations		4,895			3,847			4,479
Loss from discontinued operations, net of tax		(18	)		(10	)		(5	)

Net income	$	4,877		$	3,837		$	4,474

RESULTS OF OPERATIONS

Revenues—We had revenues of $34,484 million in 2017, $29,183 million in 2016 and $32,735 million in 2015.

_2017 versus 2016—_Revenues increased by $5,301 million, or 18%, in 2017 compared to 2016.

Average sales prices in 2017 were higher across most products as sales prices generally correlate with crude oil and natural gas prices, which on average, increased compared to the corresponding period in 2016. These higher prices led to increases in revenues of 15%. Higher sales volumes in our O&P—Americas, O&P-EAI and Refining segments, which were partly offset by lower I&D segment volumes, led to a revenue increase in 2017 of 2%. Favorable foreign exchange impacts were responsible for a 1% revenue increase in 2017.

_2016 versus 2015—_Revenues decreased $3,552 million, or 11%, in 2016 compared to 2015.

Lower average sales prices driven by decreases in the prices of crude oil and other feedstocks led to revenue declines of 10% in 2016. Lower sales volumes in our Refining segment due to turnaround activities and unplanned outages, which were substantially offset by higher I&D segment sales volumes, led to a 1% volume-driven decline in revenues. The decline in revenues includes a $290 million impact from the sale of our wholly owned Argentine subsidiary. Revenues for each of our business segments are reviewed further in the “Segment Analysis” section below.

Cost of Sales—Cost of sales were $28,059 million in 2017, $23,191 million in 2016 and $25,683 million in 2015.

Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs, as all other material components remain relatively flat from year to year. 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 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 15% in each annual period.

_2017 versus 2016—_Cost of sales increased by $4,868 million, or 21%, in 2017 compared to 2016. This increase was primarily due to higher feedstock and energy costs. Costs for crude oil, heavy liquids and natural gas liquids (“NGLs”) and other feedstocks were higher in 2017 relative to 2016.

_2016 versus 2015—_Cost of sales decreased by $2,492 million, or 10%, in 2016 compared to 2015.

The decrease in cost of sales in 2016 was primarily due to lower feedstock and energy costs. Raw material costs for crude oil, heavy liquids and NGLs and other feedstocks were lower in 2016 compared to 2015. The sale of our wholly owned Argentine subsidiary in 2016 also contributed approximately $230 million to the decline in 2016 cost of sales.

Cost of sales in 2016 and 2015 also included non-cash, pretax LCM inventory valuation charges totaling $29 million and $548 million, respectively. The 2016 adjustment is related to a drop in polypropylene prices in our O&P—Americas segment and the adjustments in 2015 affected all of our segments except Technology. The 2015 adjustments were driven mainly by declines in the prices for crude oil, ethylene, propylene, benzene and ETBE. During 2015, cost of sales also included $35 million of amortization expense associated with the expiration of emission allowance credits in our Refining and I&D segments.

Operating Income—Our operating income was $5,460 million, $5,060 million and $6,122 million in 2017, 2016 and 2015, respectively.

_2017 versus 2016—_Operating income increased by $400 million in 2017.

This improvement over 2016 was primarily due to increases of $144 million, $140 million, $77 million and $68 million in operating income for our I&D, O&P—EAI, Refining and O&P—Americas segments, respectively.

_2016 versus 2015—_Operating income decreased by $1,062 million in 2016.

Operating income for 2016 reflects the impacts of the LCM inventory valuation adjustment discussed above and a $58 million pension settlement charge. Operating income for 2015 reflects the LCM inventory valuation adjustment and the emission credit allowance amortization discussed above. Including these impacts, 2016 operating income declined relative to 2015 by $863 million, $243 million and $166 million in our O&P—Americas, Refining and I&D segments, respectively. These lower results were partially offset by a $185 million improvement in operating income for our O&P—EAI segment.

Operating results for each of our business segments are reviewed further in the “Segment Analysis” section below.

Interest Expense—Interest expense was $491 million in 2017, $322 million in 2016 and $310 million in 2015.

_2017 versus 2016—_We recognized charges totaling $113 million related to the March 2017 redemption of $1,000 million of our outstanding 5% senior notes due 2019. These charges include $65 million of prepayment premiums, $44 million for adjustments associated with fair value hedges and $4 million for the write-off of associated unamortized debt issuance costs.

Compared to 2016 and excluding the effects of fair value hedges and the charges described above, interest expense decreased $39 million in 2017 due to the redemption of our 5% senior notes due 2019 in the first quarter of 2017, and increased $35 million as a result of the related to debt issuances in March 2017 of our 3.5% guaranteed notes due 2027 and in March 2016 of our 1.875% guaranteed notes due 2022. A reduction in the

amount of interest capitalized during 2017 and increased charges from our fair value hedges resulted in incremental increases in interest expense of $13 million and $45 million respectively, relative to 2016.

_2016 versus 2015—_Debt issuances of our 1.875% guaranteed notes due 2022 in March 2016 and our 4.625% senior notes due 2055 in March 2015 and reduced benefits from our fixed-for-floating interest rate swaps resulted in $42 million of higher interest expense in 2016. This increase was partially offset by a $22 million increase in capitalized interest and $7 million of lower bank and other fees.

For additional information related to our fair value hedges and fixed-for-floating interest rate swaps, see Notes 12 and 14.

Other Income, Net—Other income, net, was $179 million in 2017, $111 million in 2016 and $25 million in 2015.

_2017 versus 2016—_The $68 million increase in Other income, net, is primarily due to gains recognized on the 2017 sales of a joint venture interest and other assets, and the elimination of a non-cash obligation in 2017, as compared to the gain on the 2016 sale of our wholly owned subsidiary in Argentina.

In 2017, we recognized gains of $108 million on the sale of our O&P—EAI segment’s 27% interest in its Geosel joint venture and $31 million on the sale of our O&P—Americas segment’s Lake Charles, Louisiana site. We also recognized a $21 million non-cash gain in our O&P—EAI segment related to the elimination of an obligation associated with a lease.

In 2016, we recognized a $78 million gain related to the sale of our wholly owned Argentine subsidiary. We allocated $57 million and $21 million of this gain to our O&P—Americas and O&P—EAI segments, respectively.

_2016 versus 2015—_The $86 million increase in Other income, net, is largely due to the $78 million gain on the sale of our wholly owned subsidiary mentioned above.

Income from Equity Investments—Our income from equity investments was $321 million in 2017, $367 million in 2016 and $339 million in 2015.

2017 versus 2016—Income from our equity investments decreased in 2017 mainly due to lower results for our joint ventures in Poland, Asia and Mexico.

_2016 versus 2015—_The $28 million increase in Income from equity investments in 2016 is largely due to improved results for our joint ventures in Mexico, Saudi Arabia, Poland and Thailand.

**Income Taxes—**Our effective income tax rates of 10.9% in 2017, 26.5% in 2016 and 27.9% in 2015 resulted in tax provisions of $598 million, $1,386 million and $1,730 million, respectively.

On December 22, 2017, the U.S. enacted “H.R.1,” also known as the “Tax Cuts and Jobs Act” (the “Tax Act”), materially impacting our 2017 Consolidated Financial Statements. This change in U.S. tax law included a reduction in the federal corporate tax rate from 35% to 21% for years beginning after 2017, which resulted in the remeasurement of our U.S. net deferred income tax liabilities. Based upon a preliminary assessment of the expected impact of the Tax Act, we recorded a provisional tax benefit of $819 million as a result of the remeasurement of our deferred tax liabilities. In addition, excluding the impact of any discrete items, we expect our effective income tax rate for 2018 to be approximately 21%, which includes an estimated (-5.5%) benefit because of the Tax Act’s enactment. Some components of the Tax Act’s impact on 2018 were taken into consideration provisionally based upon reasonable estimates of future tax positions. We will continue to analyze the Tax Act to determine the full effects of the new law, including any further Treasury regulations as they are

issued, but we believe the future impact on the effective income tax rate will be positive. The ultimate impact of the Tax Act on our effective tax rate will largely depend on the percentage of pretax income generated in the U.S. as compared to the rest of the world.

In September 2016, the United Kingdom enacted provisions (the so called “anti-hybrid provisions”), effective for years beginning January 1, 2017, that resulted in changes to our internal financing structure which did not materially impact our consolidated financial statements. In addition, in October 2016 the U.S. Treasury issued final Section 385 debt-equity regulations that may impact our internal financings in future years. Pursuant to a recent Executive Order, the Treasury Department reviewed these regulations and determined to delay but retain these regulations, subject to further review after enactment of U.S tax reform.

Our effective income tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, the U.S. domestic production activity deduction, changes in valuation allowances, changes in foreign exchange gains/losses, the amount of exempt income, and changes in unrecognized tax benefits associated with uncertain tax positions. Our exempt income primarily includes interest income, export incentives, and equity earnings of joint ventures. The interest income is earned by certain of our European subsidiaries through intercompany financings and is either untaxed or taxed at rates substantially lower than the U.S. statutory rate. The export incentives relate to tax benefits derived from elections and structures available for U.S. exports. The equity earnings are attributable to our joint ventures and these earnings when paid through dividends to certain European subsidiaries are eligible for participation exemptions, which exempt the dividend payments from all or portions of normal statutory income tax rates. We currently anticipate the favorable treatment for the interest income and dividends to continue in the near term; however, this treatment is based on current law and tax rulings, which could change. The foreign exchange gains/losses have a permanent impact on our effective income tax rate that can cause unpredictable movement in our effective income tax rate. We continue to maintain valuation allowances in various jurisdictions totaling $96 million, which could impact our effective income tax rate in the future.

_2017—_The 2017 effective income tax rate, which was lower than the U.S. statutory tax rate of 35%, was favorably impacted by the remeasurement of U.S. net deferred tax liabilities due to the enactment of the Tax Act (-14.9%), exempt income (-7.0%), earnings in various countries (notably in Europe) with lower statutory tax rates (-3.0%), and the U.S. domestic production activity deduction (-1.0%). These favorable items were partially offset by the effects of U.S. state and local income taxes (0.7%) and changes in uncertain tax positions (0.5%). Although the Tax Act lowered the U.S. statutory federal income tax rate to 21% for tax years beginning after 2017, the reconciliation uses the 35% rate in effect for the year ended December 31, 2017.

_2016—_The 2016 effective income tax rate, which was lower than the U.S. statutory tax rate of 35%, was favorably impacted by exempt income (-6.7%), earnings in various countries (notably in Europe) with lower statutory tax rates (-3.0%), the impact of a change in non-U.S. tax law on our deferred tax liabilities (-1.0%) and the U.S. domestic production activity deduction (-0.8%). These favorable items were partially offset by the effects of non-cash out-of-period adjustments (2.5%) and U.S. state and local income taxes (0.5%).

Our 2016 income tax provision includes $135 million of non-cash out of period adjustments from prior years. For further information on these adjustments, please see Note 17.

_2015—_The 2015 effective income tax rate, which was lower than the U.S. statutory tax rate of 35%, was favorably impacted by exempt income (-5.1%), earnings in various countries (notably in Europe) with lower statutory tax rates (-2.1%), and the U.S. domestic production activity deduction (-1.4%). These favorable items were partially offset by the effects of U.S. state and local income taxes (1.0%).

**Comprehensive Income—**We had comprehensive income of $5,105 million in 2017, $3,763 million in 2016 and $4,064 million in 2015.

_2017 versus 2016—_The $1,342 million increase in Comprehensive income in 2017 relative to 2016 reflects higher net income, the net favorable impacts of unrealized net changes in foreign currency translation adjustments and actuarial losses related to our defined benefit pension and other postretirement benefit plans. These increases were offset by an unfavorable impact of financial derivative instruments recognized in 2017.

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 increased during 2017 resulting in net gains as reflected in the Consolidated Statements of Comprehensive Income. These net gains in 2017 include pretax losses of $288 million, which represent the effective portion of our net investment hedges.

We recognized net actuarial gains of $74 million in 2017 and net actuarial losses of $188 million in 2016. The $74 million net gain in 2017 reflects $74 million of gains due to changes in pension and other postretirement benefit discount rate assumptions and $6 million of gains due to favorable postretirement liability experience and other immaterial items. These gains were partly offset by $7 million of losses due to pension asset experience (actual asset return compared to expected return). In 2016, the $188 million net loss was primarily attributable to $279 million of losses due to pension and other postretirement benefit discount rate decreases, which was offset by $79 million of gains related to pension asset experience and $10 million due to favorable postretirement liability experience and other immaterial items. In 2016, we also recognized a $61 million reclassification adjustment related primarily to a voluntary lump sum program offered to certain former employees in select U.S. pension plans. Total lump sum payments from these plans exceeded annual service and interest cost in 2016 resulting in this loss.

The cumulative effects of our derivatives designated as cash flow hedges were losses of $323 million. The euro strengthened against the U.S. dollar in 2017 resulting in pretax losses of $287 million in 2017 related to our cross-currency swaps. Pretax gains of $264 million related to our cross-currency swaps were reclassification adjustments included in 2017 net income. Unrealized pretax losses of $25 million in 2017 related to forward-starting interest rate swaps were driven by increases in benchmark interest rates during those periods.

_2016 versus 2015—_In 2016, comprehensive income decreased on lower net income, the unfavorable impacts of financial derivative adjustments and the increase in actuarial losses related to our defined benefit pension and other postretirement benefit plans recognized in 2016. These decreases were offset in part by the net favorable impact of unrealized net changes in foreign currency translation adjustments.

In 2016, we had a pretax gain of $43 million related to the effective portion of the unrealized gains of our financial instruments designated as net investment hedges. The cumulative effect of our derivatives designated as cash flow hedges in 2016 was a loss of $29 million. In 2016, cumulative losses associated with the strengthening of the euro versus the U.S. dollar in the first half of the year resulted in a pretax loss of $15 million related to our cross-currency swaps. An unrealized loss of $17 million in 2016 related to forward-starting interest rate swaps was driven by decreases in benchmark interest rates during that period.

A pretax loss of $63 million related to our cross-currency swaps was a reclassification adjustment included in net income in 2016.

In 2016 and 2015, we recognized net actuarial losses of $188 million and $8 million, respectively. The $188 million net loss in 2016 reflects $279 million of losses due to pension and other postretirement benefit discount rate decreases, offset by $79 million of gains related to pension asset experience and $10 million due to favorable postretirement liability experience and other immaterial items. In 2015, the $8 million net loss was primarily attributable to $133 million of actual asset return less than the expected return. This loss was offset by gains due to $73 million of discount rate increases and, $50 million of gains due to favorable liability experience and healthcare assumptions. In 2016, we also recognized a $61 million reclassification adjustment related primarily to a voluntary lump sum program offered to certain former employees in select U.S. pension plans.

Total lump sum payments from these plans exceeded annual service and interest cost in 2016 resulting in this loss.

See “Critical Accounting Policies” below and Note 15 to the Consolidated Financial Statements for additional information on the key assumptions included in calculating the discount rate and expected return on plan assets.

Segment Analysis

We use earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of and allocate resources to our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations 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, Segment and Related Information, to our Consolidated Financial Statements.

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


	Year Ended December 31,
Millions of dollars	2017			2016			2015
Sales and other operating revenues:
O&P—Americas segment	$	10,400		$	9,077		$	9,964
O&P—EAI segment		12,263			10,579			11,576
I&D segment		8,472			7,226			7,772
Refining segment		6,848			5,135			6,557
Technology segment		450			479			465
Other, including intersegment eliminations		(3,949	)		(3,313	)		(3,599	)

Total	$	34,484		$	29,183		$	32,735

Operating income:
O&P—Americas segment	$	2,461		$	2,393		$	3,256
O&P—EAI segment		1,634			1,494			1,309
I&D segment		1,202			1,058			1,224
Refining segment		(22	)		(99	)		144
Technology segment		183			221			197
Other, including intersegment eliminations		2			(7	)		(8	)

Total	$	5,460		$	5,060		$	6,122

Depreciation and amortization:
O&P—Americas segment	$	439		$	362		$	353
O&P—EAI segment		239			229			219
I&D segment		279			269			233
Refining segment		177			163			196
Technology segment		40			41			46

Total	$	1,174		$	1,064		$	1,047

Income from equity investments:
O&P—Americas segment	$	42		$	59		$	42
O&P—EAI segment		271			302			283
I&D segment		8			6			14

Total	$	321		$	367		$	339

Other income (expense), net
O&P—Americas segment	$	40		$	63		$	10
O&P—EAI segment		138			42			14
I&D segment		1			—			4
Refining segment		2			8			2
Other, including intersegment eliminations		(2	)		(2	)		(5	)

Total	$	179		$	111		$	25

EBITDA:
O&P—Americas segment	$	2,982		$	2,877		$	3,661
O&P—EAI segment		2,282			2,067			1,825
I&D segment		1,490			1,333			1,475
Refining segment		157			72			342
Technology segment		223			262			243
Other, including intersegment eliminations		—			(9	)		(13	)

Total	$	7,134		$	6,602		$	7,533

Olefins and Polyolefins—Americas Segment

Overview—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 is a major building block of olefins and polyolefins and as such management assesses the performance of the segment based on ethylene sales volumes and prices and our internal cost of ethylene production.

_2017 versus 2016—_EBITDA improved in 2017 due to higher olefins volumes stemming from the expansion of our Corpus Christi, Texas olefins facility in late 2016. Higher olefins and polyethylene margins in 2017 were offset by lower polypropylene margins. EBITDA for 2017 also included a $31 million gain on the sale of our Lake Charles, Louisiana, site. EBITDA for 2016 included a $57 million gain on the first quarter sale of our wholly owned Argentine subsidiary and a $29 million non-cash LCM inventory valuation charge recognized in the fourth quarter due primarily to a reduction in polypropylene prices.

_2016 versus 2015—_EBITDA in 2016 reflects lower olefins and polyethylene results, partially offset by improved polypropylene results.

EBITDA in 2016 also reflects the net benefit arising from the gain on sale of our Argentine subsidiary and the non-cash LCM inventory valuation charge discussed above. In 2015, volatility in the benchmark prices for heavy liquids and natural gas and certain correlated products, particularly ethylene and propylene, which continued during most of the year, led to net non-cash LCM inventory valuation adjustments totaling $160 million.

Ethylene Raw Materials—Benchmark crude oil and natural gas prices generally have been indicators of the level and direction of the movement of raw material and energy costs for ethylene and its co-products in the O&P—Americas segment. Ethylene and its co-products are produced from two major raw material groups:

	•		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.

Although prices of these raw materials are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. We have significant flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices for both feedstocks and products change.

As in recent years, strong supplies from the U.S. shale gas/oil boom resulted in ethane being a preferred feedstock in our U.S. plants in 2017. We produced 75% of our ethylene from ethane. Despite generally higher liquid feedstock prices, strong propylene and butadiene coproduct prices at various points in the year also brought liquids into our feedslate.

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.


	Year Ended December 31,
Millions of dollars	2017		2016		2015
Sales and other operating revenues	$	10,400	$	9,077	$	9,964
Income from equity investments		42		59		42
EBITDA		2,982		2,877		3,661

Revenues—Revenues increased by $1,323 million, or 15%, in 2017 compared to 2016 and decreased by $887 million, or 9%, in 2016 compared to 2015.

_2017 versus 2016—_Average sales prices for most products increased in 2017, consistent with feedstock prices that are correlated with crude oil and natural gas prices, which on average increased relative to 2016. These higher sales prices were responsible for a 14% increase in 2017 revenues.

Operating rates and product volumes improved in 2017 due to turnaround activities and the expansion at our Corpus Christi, Texas facility during 2016. These increased volumes were responsible for a revenue increase of 1% in 2017.

_2016 versus 2015—_Average sales prices for ethylene and polyethylene declined in 2016, consistent with feedstock prices that are correlated to the price of natural gas, which declined relative to 2015. These lower average sales prices led to a revenue decrease of 11% in that period. A 2% revenue increase resulted from the improvement in 2016 product sales volumes as higher olefins sales volume, supported by an increase in the level of purchases for resale during turnaround activities, were only partly offset by lower polyolefins volumes. The sale of our Argentine subsidiary reduced 2016 revenues by $230 million.

EBITDA—EBITDA increased by $105 million, or 4%, in 2017 compared to 2016 and decreased by $784 million, or 21%, in 2016 compared to 2015.

2017 versus 2016—Increased volumes in 2017 due largely to the expansion of our Corpus Christi, Texas olefins facility was responsible for a 5% improvement in EBITDA. Margins were relatively unchanged in 2017 compared to 2016 due to an approximate 5 cents per pound decrease in polypropylene spreads that offset per pound increases in olefins and polyethylene spreads of a half cent and 2 cents, respectively. Polypropylene margins declined from the high levels in 2016 on the higher cost of propylene feedstocks, while the increase in olefins and polyethylene margins was attributable to higher average sales prices that more than offset the increased cost of ethylene. Lower income from our joint venture relative to the prior year led to a 1% decline in EBITDA. The net impact to EBITDA of the gain on sale of our wholly owned Argentine subsidiary in the first quarter of 2016 and the fourth quarter LCM inventory valuation adjustment mentioned above was offset by the first quarter 2017 gain on sale of our Lake Charles, Louisiana site.

_2016 versus 2015—_Lower olefin and polyethylene margins in 2016 were partially offset by higher polypropylene margins. The decline in olefins margins reflected a 2 cents per pound decrease in average ethylene sales prices and an approximate 4 cents per pound increase in the cost of ethylene production driven by lower co-product prices and an increase in the cost of NGL feedstocks. Polyethylene margins declined 4 cents per pound from very high levels in 2015 as average polyethylene sales prices caught up with the overall decline in the cost of ethylene feedstock, after lagging feedstock cost declines in 2015. A 4 cents per pound improvement in 2016 polypropylene margins reflects the benefits of lower propylene feedstock costs and tight market conditions. These olefin and polyethylene margin impacts led to a 17% decrease in EBITDA during 2016. An additional 10% decline in 2016 EBITDA is attributed to the impact of lower volumes related to lower ethylene production during the turnaround and expansion-related activities at our Corpus Christi, Texas ethylene facility and a site-wide outage related to turnaround activities at our Morris, Illinois site.

These negative impacts were partially offset by a 6% increase in 2016 EBITDA primarily due to a $131 million reduction in the unfavorable LCM inventory valuation adjustment recognized in 2016 versus 2015 and to the $57 million gain on the 2016 sale of our Argentine subsidiary.

Olefins and Polyolefins—Europe, Asia, International Segment

Overview_—_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 is a major building block of our olefins and polyolefins and as such management assesses the performance of the segment based on ethylene sales volumes and prices and our internal cost of ethylene production.

_2017 versus 2016—_EBITDA increased in 2017 compared to 2016. This improvement was driven by higher olefins margins and the impact of higher volumes across most products, partly offset by lower polyethylene margins and lower income from our equity investments.

EBITDA for 2017 also includes a $108 million gain on the third quarter sale of our 27% interest in Geosel and a $21 million beneficial impact related to the elimination of an obligation associated with a lease. In 2016, EBITDA reflected gains totaling $11 million from the sales of our joint venture in Japan and idled assets in Australia and a $21 million gain from the sale of our wholly owned Argentine subsidiary.

_2016 versus 2015—_Higher EBITDA in 2016 was largely the result of higher polyolefin margins, offset in part by lower olefins results and reductions in polyolefins volumes due to turnaround activity and unplanned downtime.

EBITDA in 2016 reflects the benefit of a $21 million gain from the sale of our wholly owned Argentine subsidiary and $11 million of gains from the sales of our joint venture in Japan and idled assets in Australia. EBITDA in 2015 included a $30 million non-cash LCM inventory valuation adjustment driven by a decline in the prices of naphtha and polyolefins.

Ethylene Raw Materials—In Europe, heavy liquids are the primary raw materials for our ethylene production. In recent years, we have sourced advantaged NGLs when the opportunity has arisen. In 2017, we benefited less from advantaged feedstocks than in recent years as prices for NGLs increased relative to oil-based naphtha feedstock prices.

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.


	Year Ended December 31,
Millions of dollars	2017		2016		2015
Sales and other operating revenues	$	12,263	$	10,579	$	11,576
Income from equity investments		271		302		283
EBITDA		2,282		2,067		1,825

Revenues—Revenues in 2017 increased by $1,684 million, or 16%, compared to 2016 and decreased by $997 million, or 9%, in 2016 compared to 2015.

_2017 versus 2016—_Average sales prices in 2017 were higher across most products as sales prices generally correlate with crude oil prices, which on average, increased compared to 2016. These higher average sales prices were responsible for a revenue increase of 11% in 2017. Better product availability compared to 2016, which was affected by turnaround activity and inventory requirements, led to higher sales volumes across most products. These increased volumes resulted in a revenue increase of 3% in 2017.

Foreign exchange impacts that, on average, were favorable for 2017 resulted in a revenue increase of 2% compared to the prior year.

_2016 versus 2015—_The decline in 2016 revenues comprises a 7% decrease related to lower average sales prices, and a 2% reduction of sales volumes stemming from turnaround activities and unplanned outages.

In 2016, average sales prices for olefins and polyolefins fell following feedstock prices that declined in conjunction with the price of crude oil.

EBITDA—EBITDA increased by $215 million, or 10%, in 2017 compared to 2016 and by $242 million, or 13%, in 2016 compared to 2015.

2017 versus 2016—An increase in olefin margins driven largely by a 6 cents per pound increase in ethylene sales prices was partly offset in 2017 by a 3 cents per pound decrease in European polyethylene spreads due to a more balanced European market compared to the prior year. This net increase resulted in a 1% improvement in 2017 EBITDA compared to 2016. The higher 2017 volumes discussed above added another 5% to EBITDA. Favorable foreign exchange impacts in 2017 also contributed an additional 1% to EBITDA. The net beneficial impact of the transactions in 2016 and 2017 discussed above related to the sales of our wholly owned subsidiary, joint venture interests and idled assets, and the elimination of a lease-related obligation, resulted in an additional 5% increase in EBITDA. These increases were partially offset by a 2% decrease in EBITDA driven by a reduction in income from equity investments in Poland and Asia in 2017 relative to very strong 2016 results.

2016 versus 2015—In 2016, higher European polyolefins margins stemming from declining ethylene and propylene feedstock costs outpaced falling product prices and led to an 11% increase in EBITDA. This margin improvement in 2016 was partially offset by a 2% decrease in EBITDA due largely to lower polyolefin volumes.

A 3% increase in 2016 EBITDA is attributed to gains associated with the sales of a joint venture, idled assets and our wholly owned Argentine subsidiary, as well as the absence of the 2015 LCM inventory valuation adjustment discussed above. Income from our equity investments also led to a 1% increase in EBITDA in 2016 due to higher polyolefin margins in our European joint venture and strong operating rates in our Saudi joint ventures.

Intermediates and Derivatives Segment

**Overview—**Improvements in 2017 EBITDA for intermediate chemicals and PO & derivatives were partly offset by lower results for oxyfuels and related products. EBITDA in 2017 also reflected an approximate $50 million unfavorable impact of charges related to precious metals catalyst financings relative to 2016.

_2017 versus 2016—_EBITDA was higher for our I&D segment in 2017 relative to 2016 due to stronger margins for intermediate chemicals products supported by reduced market supply stemming from industry outages and increased demand in Asia.

_2016 versus 2015—_Operating results for 2016 were lower than in 2015, as margin compression for most products related to declining energy prices, higher industry production rates and additional industry capacity was only partly offset by the impact of higher volumes.

EBITDA in 2015 was negatively impacted by the recognition of $181 million of LCM inventory valuation adjustments driven by the continued decline in prices for feedstocks, certain oxyfuels and related products, and intermediate chemical products to levels that were lower than the carrying value of our related inventories at reporting dates throughout the year.

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


	Year Ended December 31,
Millions of dollars	2017		2016		2015
Sales and other operating revenues	$	8,472	$	7,226	$	7,772
Income from equity investments		8		6		14
EBITDA		1,490		1,333		1,475

Revenues—Revenues for 2017 increased by $1,246 million, or 17%, compared to 2016 and decreased by $546 million, or 7%, in 2016 compared to 2015.

_2017 versus 2016—_Higher average sales prices in 2017 for most products, which reflect the impacts of higher feedstock and energy costs and industry supply constraints, were responsible for revenue increases of 17%. Favorable foreign exchange impacts also led to a 1% revenue increase in 2017. These increases were partially offset by a revenue decrease of 1% in 2017, primarily due to lower sales volumes for intermediate chemicals and oxyfuels and related products. This volume-driven decline was largely due to reduced production associated with two major turnarounds at our Botlek, Netherlands, and Channelview, Texas, facilities.

_2016 versus 2015—_Lower average sales prices in 2016 reflected the impacts of lower crude oil, lower gasoline prices and the decline in various feedstock prices. Additional industry supply also negatively impacted the average sales prices for certain products during 2016. These lower sales prices in 2016 were responsible for an 11% revenue decrease.

This price driven decrease was offset in part by a 4% volume-related revenue increase in 2016 resulting from fewer planned and unplanned production outages relative to 2015.

EBITDA—EBITDA increased by $157 million, or 12%, in 2017 compared to 2016 and decreased by $142 million, or 10%, in 2016 compared to 2015.

_2017 versus 2016—_Higher intermediate chemicals and PO and derivative product margins driven by higher average sales prices resulted in a 19% increase in EBITDA. This increase was offset in part by a 2% decline in margins for oxyfuels and related products primarily due to higher butane pricing. This margin improvement was partly offset by decreases in EBITDA of 4% and 1%, respectively, stemming from the unfavorable impacts associated with charges related to precious metals catalyst financings and the lower volumes discussed above.

_2016 versus 2015—_Lower margins in most I&D products in 2016 resulted in a 30% decrease in EBITDA. Weaker gasoline markets drove oxyfuels and related product values lower relative to butane feedstock costs, and lower product prices in propylene oxide and derivatives and intermediate chemicals were driven largely by increased industry supply. Lower income from our equity investments in 2016 also resulted in a 1% decrease in EBITDA during that period.

An EBITDA increase in 2016 of 9% related to the higher volumes discussed above, partially offset the negative margin impact. EBITDA in 2016 also reflected an increase of 12% related to the absence of the LCM inventory valuation adjustment recognized in the 2015 comparison period.

Refining Segment

Overview

_2017 versus 2016—_EBITDA for our Refining segment benefited from higher crude processing rates in 2017 as the impacts of planned and unplanned maintenance outages were less than in 2016. Higher industry margins were offset by higher maintenance-related fixed costs in 2017.

_2016 versus 2015—_Lower margins and reduced production due to planned and unplanned outages in 2016 as described below resulted in significantly lower results for our Refining segment in 2016 as compared to 2015. EBITDA in 2015 included charges totaling $177 million related to non-cash charges associated with LCM inventory valuation adjustments driven by a decline of nearly $20 per barrel in crude oil prices and corresponding reductions in refined product prices.

The following table sets forth selected financial information and heavy crude processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. “LLS” is a light crude oil, while “Maya” is a heavy crude oil.


	Year Ended December 31,
Millions of dollars	2017		2016		2015
Sales and other operating revenues	$	6,848	$	5,135	$	6,557
EBITDA		157		72		342

Heavy crude oil processing rates, thousands of barrels per day		236		201		238


Market margins, dollars per barrel
Light crude oil—2-1-1	$	13.54	$	10.73	$	14.04
Light crude oil—Maya differential		7.02		8.51		8.26

Total Maya 2-1-1	$	20.56	$	19.24	$	22.30

Revenues—Revenues increased by $1,713 million, or 33% in 2017 compared to 2016 and decreased by $1,422 million, or 22%, in 2016 compared to 2015.

_2017 versus 2016—_Higher product prices in 2017 largely driven by an increase in average crude oil prices of approximately $10 per barrel led to a revenue increase of 26% relative to 2016. Heavy crude oil processing rates increased by 17% in 2017, leading to a volume driven revenue increase of 7%, as the impacts of planned and unplanned outages and the effects of Hurricane Harvey in 2017 had less of an impact on processing rates than the unplanned outages in 2016 referenced below. In 2017, we completed planned turnarounds on one of our crude units and our fluid catalytic converter.

_2016 versus 2015—_Major refined product prices declined due to lower crude oil prices and to weakness relative to crude oil. The average per barrel price of benchmark Maya crude oil declined $7.59 in 2016 compared to 2015. A 16% price-related revenue decline in 2016 versus 2015 reflected per barrel price declines of approximately $10.51 and $10.77 for gasoline and distillates, respectively.

The remaining 6% revenue decrease in 2016 is attributed to reduced processing rates. Processing declines resulted from several unplanned outages, including a coker unit fire, downtime at crude units with reduced processing and several utility interruptions. Planned turnaround activity on a crude unit and a coker unit processing train early in 2016 also contributed to lower throughput during 2016.

EBITDA—EBITDA increased by $85 million, or 118%, in 2017 compared to 2016 and decreased by $270 million, or 79%, in 2016 compared to 2015.

_2017 versus 2016—_Increased production accounted for approximately 90% of the improvement in 2017 EBITDA. Crude oil processing rates in 2017 were higher than 2016 as discussed above. Higher refining margins, which were partly offset by higher maintenance-related fixed costs, accounted for the remaining 10% improvement in 2017 EBITDA.

_2016 versus 2015—_A decline in refining margins in 2016 led to a 90% decrease in EBITDA. The Maya 2-1-1 benchmark refining spread declined in 2016 by approximately $3.10 per barrel relative to 2015. This decrease was driven by per barrel declines of approximately $3.15 and $3.40 in gasoline and diesel spreads, respectively, and an approximate $1.00 reduction in the price differential between Brent and Maya crude oils. The operating issues that drove lower crude throughput in 2016 also negatively impacted margins due to a less favorably priced crude oil mix and higher variable costs per barrel.

Lower production stemming from a reduction in average heavy crude oil processing rates relative to 2015 led to a decrease in EBITDA in 2016 of 41%. This reduction in rates was attributable to the unplanned outages, crude unit operating limitations and planned turnaround activities discussed above.

The absence of the $177 million LCM inventory valuation adjustment recognized in 2015 resulted in an EBITDA increase of 52% in 2016 as compared to 2015.

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 2017, 2016 and 2015, our Technology segment incurred approximately 55% of all R&D costs.

_2017 versus 2016—_A decline in 2017 EBITDA reflects lower licensing revenues, partially offset by higher catalyst sales volumes, compared to 2016.

_2016 versus 2015—_EBITDA in 2016 improved with higher catalyst margins. A small increase in licensing and services revenue was mostly offset by slightly lower catalyst sales volumes.

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


	Year Ended December 31,
Millions of dollars	2017		2016		2015
Sales and other operating revenues	$	450	$	479	$	465
EBITDA		223		262		243

Revenues—Revenues decreased by $29 million, or 6%, in 2017 compared to 2016 and increased by $14 million, or 3%, in 2016 compared to 2015.

_2017 versus 2016—_Lower licensing revenues were responsible for a revenue decrease of 12% in 2017 relative to 2016. This decrease was partially offset by revenue increases of 3% and 1%, respectively, related to increased catalyst sales volumes and higher average sales prices. Favorable foreign exchange impacts were responsible for an additional 2% increase in EBITDA.

_2016 versus 2015—_Higher average catalyst sales prices and higher revenues recognized on process licenses each led to a 2% increase in 2016 revenues. These increases were partly offset by a 1% revenue decrease resulting from lower catalyst sales volumes.

EBITDA—EBITDA in 2017 decreased by $39 million, or 15%, compared to 2016 and increased by $19 million, or 8%, in 2016 compared to 2015.

_2017 versus 2016—_Lower licensing and services revenues in 2017 were largely responsible for a 20% decrease in 2017 EBITDA. This decline was partly offset by a 5% improvement in EBITDA resulting from an increase in catalyst volumes during 2017.

_2016 versus 2015—_A 10% improvement in EBITDA during 2016 due to higher catalyst margins and an increase in licensing and services revenue was partly offset by a 2% decrease in EBITDA resulting from lower catalyst volumes.

FINANCIAL CONDITION

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


	Year Ended December 31,
Millions of dollars	2017			2016			2015
Source (use) of cash:
Operating activities	$	5,206		$	5,606		$	5,842
Investing activities		(1,756	)		(2,301	)		(1,046	)
Financing activities		(2,859	)		(3,349	)		(4,850	)

Operating Activities—Cash of $5,206 million generated in 2017 primarily reflected earnings adjusted for non-cash items partly offset by $593 million of cash used by the main components of working capital—accounts receivable, inventories and accounts payable. Higher sales prices across all of our segments in the fourth quarter of 2017 and brief delays in the receipt of payments for products in our Refining and I&D segments led to the increase in accounts receivable. Inventories increased for most products in our O&P—EAI and O&P—Americas segments and included an inventory build in our O&P–Americas segment in anticipation of first quarter 2018 turnaround activities These increases were partly offset by an increase in feedstock pricing in the fourth quarter of 2017 in our O&P—Americas, O&P—EAI and Refining segments which led to an increase in accounts payable.

Cash of $5,606 million generated in 2016 primarily reflected earnings adjusted for non-cash items and cash generated by the main components of working capital. The non-cash items in 2016 included a $78 million gain related to the sale of our wholly owned Argentine subsidiary with adjustments for related working capital and gains totaling $11 million related to sales of our joint venture in Japan and idled assets in Australia.

The main components of working capital generated cash of $123 million in 2016. Higher product sales prices in the fourth quarter of 2016 across all segments combined with the impact of higher fourth quarter 2016 sales volumes in our O&P—Americas, Refining and I&D segments led to an increase in accounts receivable. This increase in accounts receivable was offset by higher accounts payable, which was driven by the higher cost of crude oil and other feedstocks. The level of inventories fell in our O&P—Americas segment following the completion of turnaround activities in the fourth quarter of 2016 and in our Refining segment, which had higher crude oil inventories at the end of 2015 due to operational issues during the fourth quarter.

Cash of $5,842 million generated in 2015 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital. The main components of working capital consumed cash of

$246 million in 2015. The lower cost of crude oil and other feedstocks in 2015 led to a decline in accounts payable. Preparation for the turnaround in 2016 at our Corpus Christi, Texas facility and the unplanned maintenance outage at our Houston refinery, which resulted in higher levels of U.S. olefins and crude oil inventories at year end, led to the increase in consolidated inventories in 2015. Accounts receivable decreased on lower average product sales prices, reflective of the drop in 2015 crude oil prices.

Investing Activities—We invested cash of $1,756 million, $2,301 million and $1,046 million in 2017, 2016 and 2015, respectively.

We invest 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 2017, 2016 and 2015, we invested $653 million, $764 million and $2,073 million, respectively, in securities that are classified as Short-term investments. We also invested $512 million, $674 million and $397 million in tri-party repurchase agreements in 2017, 2016 and 2015, respectively. We received proceeds upon the sale and maturity of certain of our Short-term investments and tri-party purchase agreements of $574 million and $381 million, respectively, in 2017; $674 million and $685 million, respectively, in 2016; and $2,489 million and $350 million, respectively, in 2015. See Note 14 to the Consolidated Financial Statements for additional information regarding these investments.

_Joint Venture Activity—_In September 2017, we sold our 27% interest in our Geosel joint venture and received proceeds of $155 million.

In April 2017, we increased our interest in the entity that holds our equity interest in Al Waha Petrochemicals Ltd. from 83.79% to 100% by paying $21 million to exercise a call option to purchase the remaining 16.21% interest held by a third party.

In September 2016, we purchased a net additional interest in our joint venture in Korea for $36 million. In February 2016, we received proceeds of $72 million for the sale of our joint venture in Japan.

_Financial Instruments Activity—_Upon expiration in 2017 and 2016, we settled foreign currency contracts with a notional value of €550 million and €1,200 million, respectively, which were designated as net investment hedges of our investments in foreign subsidiaries. Payments to and proceeds from our counterparties resulted in a net cash outflows of $49 million and $61 million during 2017 and 2016, respectively. See Note 14 to the Consolidated Financial Statements for additional information regarding these foreign currency contracts.

_Sale of Wholly Owned Subsidiary—_In February 2016, we received net cash proceeds of $137 million for the sale of our wholly owned Argentine subsidiary.

The following table summarizes our capital expenditures for continuing operations for the periods from 2015 through 2017:


	Year Ended December 31,
Millions of dollars	2017		2016		2015
Capital expenditures by segment:
O&P—Americas	$	753	$	1,376	$	668
O&P—EAI		206		261		186
I&D		332		333		441
Refining		213		224		108
Technology		32		36		24
Other		11		13		13

Consolidated capital expenditures of continuing operations	$	1,547	$	2,243	$	1,440

In 2018, we expect to spend approximately $2.4 billion, which includes contributions to our PO joint ventures. The higher level of expected capital expenditures in 2018 versus 2017 is largely driven by construction related to our new Hyperzone polyethylene plant at our La Porte, Texas facility and construction related to our new PO/TBA plant in Texas.

In 2017 and 2016, capital expenditures included construction related to our new Hyperzone polyethylene plant, construction related to our new PO/TBA, debottlenecks of certain assets to enhance production, turnaround activities at several sites as well as other plant improvement projects. The lower level of capital expenditures in 2017 versus 2016 for our O&P—Americas segment is largely due to the completion of the 800 million pound ethylene expansion at our Corpus Christi, Texas facility in the fourth quarter of 2016.

Financing Activities—Financing activities used cash of $2,859 million, $3,349 million and $4,850 million in 2017, 2016 and 2015, respectively.

We made payments totaling $866 million, $2,938 million and $4,656 million in 2017, 2016 and 2015, respectively, to acquire a portion of our outstanding ordinary shares. We also made dividend payments totaling $1,415 million, $1,395 million and $1,410 million to our shareholders in 2017, 2016 and 2015, respectively. For additional information related to these share repurchases and dividend payments, see Note 19 to the Consolidated Financial Statements.

Through the issuance and repurchase of commercial paper instruments under our commercial paper program, we made net repayments of $493 million in 2017 and received net proceeds of $177 million and $61 million in 2016 and 2015, respectively.

In March 2017, we issued $1,000 million of 3.5% guaranteed notes due 2027 and received net proceeds of $990 million. The proceeds from these notes, together with available cash, were used to repay $1,000 million of our outstanding 5% senior notes due 2019. We paid $65 million in premiums in connection with this prepayment.

In March 2016, we issued €750 million of 1.875% guaranteed notes due 2022 and received net proceeds of $812 million. In March 2015, we issued $1,000 million of 4.625% senior notes due 2055 and received net proceeds of $984 million.

Additional information related to our commercial paper program and the issuance and repayment of debt can be found in the Liquidity and Capital Resources section below and in Note 12 to the Consolidated Financial Statements.

Liquidity and Capital Resources—As of December 31, 2017, we had $2,830 million of unrestricted cash and cash equivalents and marketable securities classified as Short-term investments. We also held $570 million of tri-party repurchase agreements classified as Prepaid expenses and other current assets at December 31, 2017. For additional information related to our purchases of marketable securities, which currently include time deposits, certificates of deposit, commercial paper, bonds and limited partnership investments, and our investments in tri-party repurchase agreements, see “Investing Activities” above and Note 14 to the Consolidated Financial Statements.

At December 31, 2017, we held $557 million of cash in jurisdictions outside the U.S., principally in the United Kingdom. There are currently no material legal or economic restrictions that would impede our transfers of cash.

We also had total unused availability under our credit facilities of $3,400 million at December 31, 2017, which included the following:

	•		$2,500 million under our $2,500 million revolving credit facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. A small portion of our availability under this facility is impacted by changes in the euro/U.S. dollar exchange rate. At December 31, 2017, we had no outstanding commercial paper, no outstanding letters of credit and no outstanding borrowings under the facility; and

	•		$900 million under our $900 million U.S. accounts receivable securitization 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. This facility had no outstanding borrowings or letters of credit at December 31, 2017.

We have $413 million of outstanding letters of credit, bank guarantees, and surety bonds issued under uncommitted credit facilities at December 31, 2017. At December 31, 2017, we had total debt, including current maturities, of $8,619 million.

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 variable rate debt to fixed rate debt. For information related to our Senior Notes and Guaranteed Notes and credit facilities, including terms of redemption, see Note 12 to the Consolidated Financial Statements.

In May 2017, our shareholders approved a proposal to authorize us to repurchase up to an additional 10%, or approximately 40 million, of our shares outstanding through November 2018 (“May 2017 Share Repurchase Program”). As a result, the authorization of the remaining unpurchased shares under the share repurchase program approved by our shareholders in May 2016 (“May 2016 Share Repurchase Program”) was suspended. Our share repurchase program 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. In 2017, we have purchased approximately 10 million shares under these programs for approximately $845 million. As of February 20, 2018, we had approximately 34 million shares remaining under the current authorization. The timing and amount of additional shares repurchased will be determined by our Management Board based on its evaluation of market conditions and other factors. For additional information related to our share repurchase programs, see Note 19 to the Consolidated Financial Statements.

We may repay or redeem our debt, including purchases of our outstanding bonds in the open market, using cash and cash equivalents, cash from our short-term investments and tri-party repurchase agreements, cash from operating activities, proceeds from the issuance of debt, proceeds from asset divestitures or a combination thereof. In connection with any repayment or redemption of our debt, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.

In July 2017, we announced our final investment decision to build a world-scale PO/TBA plant in Texas with a capacity of 1 billion pounds of PO and 2.2 billion pounds of TBA. The project is estimated to cost approximately $2.4 billion, with construction estimated to commence in the second half of 2018. We anticipate the project to be completed in the middle of 2021.

We plan to fund our ongoing working capital, capital expenditures, debt service and other funding requirements with cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Cash and cash

equivalents, cash from our short-term investments and tri-party repurchase agreements, cash from operating activities, proceeds from the issuance of debt, or a combination thereof, may be used to fund the purchase of shares under our share repurchase program.

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.

As discussed in Note 23 of the Notes to the Consolidated Financial Statements, subsequent to our 2017 fiscal year end we entered into a definitive agreement to acquire A. Schulman. We plan to use cash-on-hand to fund the acquisition.

We believe that our current liquidity availability and cash from operating activities provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due.

Contractual and Other Obligations—The following table summarizes, as of December 31, 2017, our minimum payments for long-term debt, including current maturities, short-term debt, and contractual and other obligations for the next five years and thereafter:


	Total		Payments Due By Period
Millions of dollars		2018		2019		2020		2021		2022		Thereafter
Total debt	$	8,788	$	70	$	1,005	$	5	$	1,004	$	903	$	5,801
Interest on total debt		5,566		408		383		358		358		298		3,761
Advances from customers		105		61		15		6		3		3		17
Other		2,157		1,227		491		35		34		15		355
Deferred income taxes		1,655		296		105		104		91		107		952
Other obligations:
Purchase obligations:
Take-or-pay contracts		16,958		2,846		2,898		2,981		2,994		2,718		2,521
Other contracts		9,803		4,561		2,026		1,047		618		293		1,258
Operating leases		1,445		311		232		194		165		26		517

Total	$	46,477	$	9,780	$	7,155	$	4,730	$	5,267	$	4,363	$	15,182

Total Debt—Our debt includes unsecured senior notes, guaranteed notes and various other U.S. and non-U.S. loans. See Note 12 to the Consolidated Financial Statements for a discussion of covenant requirements under the credit facilities and indentures and additional information regarding our debt facilities.

Interest on Total Debt—Our debt and related party debt agreements contain provisions for the payment of monthly, quarterly or semi-annual interest at a stated rate of interest over the term of the debt.

Pension and other Postretirement Benefits—We maintain several defined benefit pension plans, as described in Note 15 to the Consolidated Financial Statements. Many of our U.S. and non-U.S. plans are subject to minimum funding requirements; however, the amounts of required future contributions for all our plans are not fixed and can vary significantly due to changes in economic assumptions, liability experience and investment return on plan assets. As a result, we have excluded pension and other postretirement benefit obligations from the Contractual and Other Obligations table above. Our annual contributions may include amounts in excess of minimum required funding levels. Contributions to our non-U.S. plans in years beyond 2018 are not expected to be materially different than the expected 2018 contributions disclosed in Note 15 to the Consolidated Financial Statements. At December 31, 2017, the projected benefit obligation for our pension plans exceeded the fair value of plan assets by $903 million. Subject to future actuarial gains and losses, as well as future asset earnings, we, together with our consolidated subsidiaries, will be required to fund the discounted obligation of $903 million in future years. We contributed $103 million, $114 million and $107 million to our pension plans in 2017, 2016 and

2015, respectively. We provide other postretirement benefits, primarily medical benefits to eligible participants, as described in Note 15 to the Consolidated Financial Statements. We pay other unfunded postretirement benefits as incurred.

Advances from Customers—We are obligated to deliver products in connection with long-term sales agreements under which advances from customers were received in prior years. These advances are treated as deferred revenue and will be amortized to earnings as product is delivered over the remaining terms of the respective contracts, which range predominantly from 1 to 15 years. The unamortized long-term portion of such advances totaled $44 million as of December 31, 2017.

Other—Other primarily consists of accruals for environmental remediation costs, obligations under deferred compensation arrangements, and anticipated asset retirement obligations. See “Critical Accounting Policies” below for a discussion of obligations for environmental remediation costs.

Deferred Income Taxes—The scheduled settlement of the deferred tax liabilities shown in the table is based on the scheduled reversal of the underlying temporary differences. Actual cash tax payments will vary depending upon future taxable income. See Note 17 to the Consolidated Financial Statements for additional information related to our deferred tax liabilities.

Purchase Obligations—We are party to various obligations to purchase products and services, principally for raw materials, utilities and industrial gases. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. The commitments are segregated into take-or-pay contracts and other contracts. Under the take-or-pay contracts, we are obligated to make minimum payments whether or not we take the product or service. Other contracts include contracts that specify minimum quantities; however, in the event that we do not take the contractual minimum, we are only obligated for any resulting economic loss suffered by the vendor. The payments shown for the other contracts assume that minimum quantities are purchased. For contracts with variable pricing terms, the minimum payments reflect the contract price at December 31, 2017.

Operating Leases—We lease various facilities and equipment under noncancelable lease arrangements for various periods. See Note 13 to the Consolidated Financial Statements for related lease disclosures.

CURRENT BUSINESS OUTLOOK

Over the past several months, strong global demand and delays in capacity additions across the industry have improved the outlook for 2018. We look forward to realizing the benefits of strong operating rates across our broad portfolio of assets. and continuing the improvement in the reliability and profitability of our Houston refinery.

Unusually cold weather on the U.S. Gulf Coast in the third week of January caused industry disruptions. The impact of these disruptions, which also affected our assets, is currently expected to negatively impact our EBITDA by approximately $45 million. About two thirds of this impact is expected to be borne by our O&P—Americas segment with the remaining impact negatively affecting our I&D segment. Planned maintenance scheduled for one cracker at our Channelview Texas facility is also expected to negatively impact our O&P—Americas EBITDA by approximately $50 million in each of the first and second quarters of 2018. Our I&D segment is expected to benefit from continued strength in the market for oxyfuels and related products We expect to continue the improvement in reliability and profitability of our Houston refinery in 2018.

Over the coming years, we will advance our growth by increasing the pace of organic business investments while diligently pursuing value-adding inorganic opportunities.

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.

CRITICAL ACCOUNTING POLICIES

Management applies those accounting policies that it believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the U.S. (see Note 2 to the Consolidated Financial Statements). Our more critical accounting policies include those related to the valuation of inventory, long-lived assets, the valuation of goodwill, accruals for long-term employee benefit costs such as pension and other postretirement costs, and accruals for taxes based on income. Inherent in such policies are certain key assumptions and estimates made by management. Management periodically updates its estimates used in the preparation of the financial statements based on its latest assessment of the current and projected business and general economic environment.

Inventory—We account for our inventory 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 benchmark 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. Due to natural inventory composition changes, variation in pricing from period to period does not necessarily result in a linear LCM impact. Additionally, an LCM condition may arise due to a volumetric decline in a particular material that had previously provided a positive impact within a pool. As a result, market valuations and LCM conditions are dependent upon the composition and mix of materials on hand at the balance sheet date. In the measurement of an LCM adjustment, the numeric input value for determining the crude oil market price includes pricing that is weighted by volume of inventories held at a point in time, including WTI, Brent and Maya crude oils.

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.

During 2015 and 2016 we incurred LCM inventory adjustments of $548 million and $29 million respectively. In 2015 the LCM adjustments were driven by declines in the prices of crude oil, ethylene, propylene, benzene and ETBE. The 2016 adjustment, which occurred in the fourth quarter was driven by a decline in the price of propylene. As a result of the impairments charges taken in 2014, 2015 and 2016 all of our inventory pools are valued at 2015 or 2016 year-end market prices prior to indexation. While prices for our products and raw materials are inherently volatile and therefore no prediction can be given with certainty, we do not believe any of our inventory is at risk for impairment at this time.

Goodwill—Goodwill of $570 million at December 31, 2017 represents the tax effect of the differences between the tax and book bases 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 adoption of fresh-start

accounting. 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 is compared to its carrying value, including goodwill. For the quantitative impairment test, the fair value of the reporting unit is calculated using a discounted cash-flow model. Such a 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 goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized.

For 2017 and 2016, management performed a qualitative impairment assessment of our reporting units which indicated that the fair value of our reporting units was greater than their carrying value. Accordingly, a quantitative goodwill impairment test was not required. Accordingly, no goodwill impairment was recognized in 2017 or 2016.

Long-Term Employee Benefit Costs—Our costs for long-term employee benefits, particularly pension and other postretirement medical and life insurance benefits, are incurred over long periods of time, and involve many uncertainties over those periods. The net periodic benefit cost attributable to current periods is based on several assumptions about such future uncertainties, and is sensitive to changes in those assumptions. It is management’s responsibility, often with the assistance of independent experts, to select assumptions that in its judgment represent its best estimates of the future effects of those uncertainties. It also is management’s responsibility to review those assumptions periodically to reflect changes in economic or other factors that affect those assumptions.

The current benefit service costs, as well as the existing liabilities, for pensions and other postretirement benefits are measured on a discounted present value basis. The discount rate is a current rate, related to the rate at which the liabilities could be settled. 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, 2017, we used a weighted average discount rate of 3.73% 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, 2017 was 2.13%, reflecting market interest rates. The discount rates in effect at December 31, 2017 will be used to measure net periodic benefit cost during 2018.

The benefit obligation and the periodic cost of other postretirement 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, 2017, the assumed rate of increase for our U.S. plans was 6.7%, decreasing to 4.5% in 2038 and thereafter. A one hundred basis point change in the health care cost trend rate assumption as of December 31, 2017 would have resulted in a $18 million increase or $12 million decrease in the accumulated other postretirement benefit liability, for our non-U.S. plans and would have resulted in an increase or decrease of less than $1 million for U.S. plans. Due to limits on our maximum contribution level under the medical plan, there would have been no significant effect on either our benefit liability or net periodic cost.

The net periodic cost of pension benefits included in expense also is affected by the expected long-term rate of return on plan assets assumption. Investment returns that are recognized currently in net income represent the expected long-term rate of return on plan assets applied to a market-related value of plan assets which, for us, 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 8.00% is based on the average level of earnings that our independent pension investment advisor had advised could be expected to be earned over time and 2.15%, for our non-U.S. plan assets is based on an expectation and asset allocation that varies by region. In 2018, the average expected long-term rate of return on assets in our U.S. plans is expected to be 7.50%. The asset allocations are summarized in Note 15 to the Consolidated Financial Statements. The actual returns in 2017 were gains of 14.45% and 8.82% for our U.S. and non-U.S. plan assets, respectively.

The actual rate of return on plan assets may differ from the expected rate due to the volatility normally experienced in capital markets. Management’s goal is to manage the investments over the long term to achieve optimal returns with an acceptable level of risk and volatility.

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 projected benefit obligation for the respective plan, is recognized as additional net periodic benefit cost over the average remaining service period of the participants in each plan.

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:


	Effects on Benefit Obligations in 2017						Effects on Net Periodic Pension Costs in 2018
Millions of dollars	U.S.			Non-U.S.			U.S.			Non-U.S.
Projected benefit obligations at December 31, 2017	$	1,924		$	1,511		$	—		$	—
Projected net periodic pension costs in 2018								11			54

Discount rate increases by 100 basis points		(177	)		(190	)		(7	)		(7	)
Discount rate decreases by 100 basis points		215			231			12			12

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


	Effects on Benefit Obligations in 2017					Effects on Net Periodic Benefit Costs in 2018
Millions of dollars	U.S.			Non-U.S.		U.S.			Non-U.S.
Projected benefit obligations at December 31, 2017	$	280		$	62	$	—		$	—
Projected net periodic benefit costs in 2018							11			4

Discount rate increases by 100 basis points		(24	)		—		(2	)		—
Discount rate decreases by 100 basis points		29			—		(2	)		—

Additional information on the key assumptions underlying these benefit costs appears in Note 15 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 bases, and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. At December 31, 2017, the measurement of our deferred tax balances was materially affected by the U.S. enactment of “H.R.1,” also known as the Tax Act, as explained in Note 17 to the Consolidated Financial Statements.

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 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. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest cumulative amount that is greater than 50 percent likely of being realized.

For further information related to our income taxes, see Note 17 to the Consolidated Financial Statements.

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.

Previous: Item 6. Selected Financial Data. · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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