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, 2017, 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, 2018, which was filed with the Securities and Exchange Commission on February 21, 2019 , of which Item 7 is incorporated herein by reference.

OVERVIEW

During 2019 LyondellBasell continued to exhibit strong cash generation and remained committed to our disciplined capital allocation strategy. Over each of the past six years, we have consistently delivered $5 billion to $6 billion in cash from operating activities. We affirmed our commitment to a strong and progressive dividend during 2019 by increasing our quarterly dividend for the eleventh time and returning a total of $5.2 billion in dividends and share repurchases to shareholders. Our businesses benefited from abundant and low-cost natural gas liquid feedstocks throughout the year, and we demonstrated our capability to derive value from mergers and acquisitions through the integration of the A. Schulman acquisition.

During the fourth quarter, margins within most of our businesses were impacted by slow industrial demand and typical seasonality. Refining margins improved on a higher Maya 2-1-1 crack spread and relatively strong prices for naphtha and coke. Our Technology segment achieved record licensing revenues, contributing to the most profitable year in the Company’s history for the segment.

In 2019, we developed opportunities to expand into new markets by leveraging our technologies to strengthen our position in Asia. In June, we announced new polypropylene capacity through our Thailand joint venture, HMC Polymers. In September, we signed a joint venture Memorandum of Understanding (“MoU”) with Liaoning Bora Enterprise Group to build an integrated cracker and polyolefins project expanding our footprint in the rapidly growing Chinese market. Recently, we announced our intention to expand our existing partnership with Sinopec to build a second propylene oxide and styrene monomer plant in China utilizing our advantaged technology.

Significant items that affected results in 2019 relative to 2018 include:

•	Lower Olefins and Polyolefins—Americas (“O&P—Americas”) segment results due to a decline in polyethylene margins while olefins margins improved;

•	Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”) segment results decreased due to unfavorable foreign exchange impacts and lower income from equity investments;

•	Intermediates and Derivatives (“I&D”) segment results declined due to margin and volume decreases primarily driven by intermediate chemicals;

•	Higher Advanced Polymer Solutions (“APS”) segment results primarily due to the contribution of results from A. Schulman product lines;

•	Lower Refining segment results due to a decline in margins; and

•	Higher Technology segment results due to increased licensing revenue.

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Other noteworthy items in 2019 include the following:

•	Redeemed $1,000 million of our 5% senior notes due 2019;

•	Executed a three-year, $4,000 million senior unsecured delayed draw term loan credit facility, of which $1,950 million was outstanding as of December 31, 2019;

•	Issued €1,000 million of long-term guaranteed notes used to refinance $1,000 million of long-term debt and repay a portion of our outstanding short-term debt;

•	Issued $1,000 million of long-term guaranteed notes used to repay our indebtedness outstanding under our Term Loan due 2020;

•	Repurchased $3.8 billion of shares, primarily through the completion of a tender offer;

•	Increased quarterly dividend from $1.00 per share to $1.05 per share in the second quarter;

•	Commenced commissioning of our Hyperzone high density polyethylene plant; and

•	Continued construction of our new PO/TBA plant at our Channelview, Texas facility, which is on track to be completed in late 2021.

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

		Year Ended December 31,
Millions of dollars		2019				2018
Sales and other operating revenues		$	34,727			$	39,004
Cost of sales		29,301				32,529
Selling, general and administrative expenses		1,199				1,129
Research and development expenses		111				115
Operating income		4,116				5,231
Interest expense		(347		)		(360		)
Interest income		19				45
Other income, net		39				106
Income from equity investments		225				289
Provision for income taxes		648				613
Income from continuing operations		3,404				4,698
Loss from discontinued operations, net of tax		(7		)		(8		)
Net income		$	3,397			$	4,690

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RESULTS OF OPERATIONS

Revenues—Revenues decreased $4,277 million, or 11%, in 2019 compared to 2018. Average sales prices were lower for most of our products as sales prices generally correlate with crude oil prices, which decreased relative to 2018. These lower prices led to a revenue decrease of 10% in 2019. Lower sales volumes resulted in a revenue decrease of 2% relative to 2018. Unfavorable foreign exchange impacts in 2019 resulted in a revenue decrease of 2% relative to the prior period. These decreases were partially offset by the acquired operations of A. Schulman, which contributed an additional 3%, or $1,304 million, of revenues in 2019 compared to 2018.

Cost of Sales—Cost of sales decreased $3,228 million, or 10%, in 2019 compared to 2018. This decrease in cost of sales is primarily due to lower feedstock and energy costs. Costs for crude oil, heavy liquid feedstocks and natural gas liquids (“NGLs”) and other feedstocks were lower in 2019 relative to 2018. This decrease corresponds with the decrease in revenues as discussed above.

Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs. 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.

In 2019, our O&P—Americas segment and APS segment recognized lower of cost or market (“LCM”) inventory valuation charges of $25 million and $8 million, respectively, primarily due to a decline in domestic polyethylene prices. Cost of sales also includes $23 million related to A. Schulman integration costs incurred during 2019.

Depreciation and amortization increased $71 million, or 6%, in 2019 compared to 2018. This increase is primarily due to the addition of A. Schulman assets acquired in August 2018. In 2020, we estimate depreciation and amortization charges will increase approximately 15% due to the completion of various capital projects, including our Hyperzone project.

SG&A Expense—Selling, general and administrative (“SG&A”) expenses increased $70 million in 2019 compared to 2018. Higher SG&A costs related to operating the A. Schulman assets acquired in August 2018 for a full year which resulted in a $115 million, or 10%, increase. Additionally, integration costs increased by $20 million compared to 2018. These increased costs were partially offset by a 5% decline in evaluation and pre-project planning costs of certain growth projects and a 2% decline in employee-related expenses, relative to 2018.

Operating Income—Operating income decreased $1,115 million in 2019 compared to 2018. Operating income for our O&P—Americas, I&D, Refining, APS and O&P—EAI segments declined by $474 million, $467 million, $212 million, $39 million and $9 million, respectively, relative to 2018. These decreases were partially offset by an increase in operating income in our Technology segment of $90 million. Operating results for each of our business segments are reviewed further in the “Segment Analysis” section below.

Other Income, Net—Other income, net decreased $67 million in 2019 compared to 2018, which included a $36 million gain on the sale of our carbon black subsidiary in France. In addition, foreign currency exchange rate fluctuations and pension and other postretirement benefits decreased Other income by $15 million and $13 million, respectively, relative to 2018.

Income from Equity Investments—Our income from equity investments decreased $64 million in 2019 primarily due to reduced polyolefin spreads for our joint ventures in our O&P—EAI segment.

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**Income Taxes—**Our effective income tax rates of 16.0% in 2019 and 11.5% in 2018 resulted in tax provisions of $648 million and $613 million, respectively.

We monitor tax law changes and the potential impact to our results of operations. There continues to be increased attention to the tax practices of multinational companies, including certain provisions of H.R.1, also known as the U.S. Tax Cuts and Jobs Act (the “Tax Act”), the European Union’s state aid investigations, proposals by the Organization for Economic Cooperation and Development with respect to base erosion and profit shifting, and European Union tax directives and their implementation. Management does not believe that recent changes in income tax laws, other than those disclosed and reflected in our financial statements, will have a material impact on our Consolidated Financial Statements, although new or proposed changes to tax laws could affect our tax liabilities in the future.

Our effective income tax rate fluctuates based on, among other factors, changes in pre-tax income in countries with varying statutory tax rates, the U.S. domestic production activity deduction that applied to periods prior to 2018, 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 our joint ventures. Interest income earned by certain of our European subsidiaries through intercompany financings is either untaxed or taxed at rates substantially lower than the U.S. statutory rate. Export incentives relate to tax benefits derived from elections and structures available for U.S. exports. Equity earnings attributable to the earnings of our joint ventures, when paid through dividends to certain European subsidiaries, are exempt from all or portions of normal statutory income tax rates. We currently anticipate the favorable treatment for interest income, dividends, and export incentives to continue in the near term; however, this treatment is based on current law and tax rulings, which could change, including changes with respect to proposed Treasury regulations under the Tax Act if finalized. 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 $85 million as of 2019, which could impact our effective income tax rate in the future. We believe our effective income tax rate for 2020 will be approximately 20%.

The 2019 effective income tax rate of 16.0%, which was lower than the U.S. statutory tax rate of 21%, was favorably impacted by exempt income (-4.5%), a tax benefit related to a patent box ruling (-1.6%), a loss on the liquidation of an entity (-1.3%), and changes in unrecognized tax benefits associated with uncertain tax positions (-1.0%). These favorable items were partially offset by the effects of earnings in various countries, notably in Europe, with higher statutory tax rates (1.6%) and U.S. state and local income taxes (0.7%).

During 2019, we recognized a $113 million non-cash benefit to our effective tax rate primarily as a result of the expiration of certain statutes of limitations. This amount consists of the recognition of $100 million of previously unrecognized tax benefits and the release of $13 million of previously accrued interest.

The 2018 effective income tax rate of 11.5%, which was lower than the U.S. statutory tax rate of 21%, was favorably impacted by changes in unrecognized tax benefits associated with uncertain tax positions (-6.0%) and exempt income (-5.6%). These favorable items were partially offset by the effects of earnings in various countries, notably in Europe, with higher statutory tax rates (1.7%) and U.S. state and local income taxes (1.0%).

During 2018, we entered into various audit settlements impacting specific uncertain tax positions. These audit settlements resulted in a $358 million non-cash benefit to our effective tax rate consisting of the recognition of $299 million of previously unrecognized tax benefits as a reduction for tax positions of prior years and the release of $59 million of previously accrued interest.

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Comprehensive Income

We had comprehensive income of $2,976 million in 2019 and $4,682 million in 2018. Comprehensive income decreased by $1,706 million in 2019 compared to 2018, primarily due to lower net income, net unfavorable changes in defined pension and other postretirement benefits, and net unfavorable impacts of financial derivative instruments primarily driven by periodic changes in benchmark interest rates. These decreases were partially offset by net less unfavorable impacts of unrealized changes in foreign currency translation adjustments.

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 decreased during 2019 resulting in net losses as reflected in the Consolidated Statements of Comprehensive Income. These net losses include pre-tax gains of $26 million in 2019, which represent the effective portion of our net investment hedges.

In 2019, the cumulative after-tax effect of our derivatives designated as cash flow hedges was a net loss of $132 million. The strengthening of the U.S. dollar against the euro in 2019 and periodic changes in benchmark interest rates resulted in a pre-tax gain of $109 million related to our cross-currency swaps. A $40 million pre-tax loss related to our cross-currency swaps was reclassified to Other income, net in 2019. In 2019, a pre-tax loss of $223 million related to forward-starting interest rate swaps was driven by changes in benchmark interest rates. The remaining change relates to our commodity cash flow hedges.

We recognized defined benefit pension and other post-retirement benefit plans pre-tax losses of $361 million in 2019 and pre-tax gains of $41 million in 2018, primarily due to the fluctuations in the discount rate assumption used in determining the net benefit liabilities for our pension and other post-retirement benefit plans. See Note 16 to the Consolidated Financial Statements for additional information regarding net actuarial losses.

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Segment Analysis

We use earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of and allocate resources to our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains (losses) and components of pension and other postretirement 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 22 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. Results for our APS segment incorporates the businesses acquired from A. Schulman beginning August 21, 2018. The following tables reflect selected financial information for our reportable segments.

		Year Ended December 31,
Millions of dollars		2019				2018
Sales and other operating revenues:
O&P–Americas		$	8,435			$	10,408
O&P–EAI		9,504				10,838
I&D		7,834				9,588
APS		4,850				4,024
Refining		8,251				9,157
Technology		663				583
Other, including segment eliminations		(4,810		)		(5,594		)
Total		$	34,727			$	39,004
Operating income (loss):
O&P–Americas		$	1,777			$	2,251
O&P–EAI		673				682
I&D		1,249				1,716
APS		290				329
Refining		(240		)		(28		)
Technology		374				284
Other, including segment eliminations		(7		)		(3		)
Total		$	4,116			$	5,231

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		Year Ended December 31,
Millions of dollars		2019				2018
Depreciation and amortization:
O&P–Americas		$	470			$	442
O&P–EAI		208				208
I&D		295				287
APS		133				69
Refining		169				192
Technology		37				43
Total		$	1,312			$	1,241
Income from equity investments:
O&P—Americas		$	46			$	58
O&P—EAI		172				225
I&D		7				6
Total		$	225			$	289
Other income, net:
O&P—Americas		$	9			$	11
O&P—EAI		9				48
I&D		6				2
APS		1				2
Refining		6				3
Technology		—				1
Other, including intersegment eliminations		8				39
Total		$	39			$	106
EBITDA:
O&P—Americas		$	2,302			$	2,762
O&P—EAI		1,062				1,163
I&D		1,557				2,011
APS		424				400
Refining		(65		)		167
Technology		411				328
Other, including intersegment eliminations		1				36
Total		$	5,692			$	6,867

Olefins and Polyolefins–Americas Segment

Overview—EBITDA declined in 2019 relative to 2018 primarily due to lower polyethylene results, partially offset by improved olefin 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 is a major building block of olefins and polyolefins and as such, ethylene sales volumes and prices and our internal cost of ethylene production are included in management’s assessment of the segment’s performance.

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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.

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.

Strong supplies from the U.S. shale gas/oil boom resulted in ethane being a preferred feedstock in our U.S. plants in 2019. Ethane remained the preferred U.S. feedstock for ethylene despite higher prices driven by increased demand from newly-constructed U.S. olefins units and supply constraints in the Gulf Coast NGL fractionation and pipeline systems. In 2019 and 2018, we produced approximately 80% of our ethylene from ethane.

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

		Year Ended December 31,
Millions of dollars		2019				2018
Sales and other operating revenues		$	8,435			$	10,408
Income from equity investments		46				58
EBITDA		2,302				2,762

Revenues—Revenues decreased by $1,973 million, or 19%, in 2019 compared to 2018. Average olefins and polyethylene sales prices were lower in 2019 compared to 2018 due to increased market supply stemming from new industry capacity additions and, to a lesser extent, a lower oil price environment. Polypropylene sales prices decreased with declining propylene feedstock prices. These lower sales prices were responsible for a revenue decrease of 18% in 2019. Lower sales volumes, driven mainly by planned downtime at our Matagorda, Texas and Clinton, Iowa facilities, accompanied by softer demand, also led to a revenue decrease of 1% in 2019.

EBITDA—EBITDA decreased by $460 million, or 17%, in 2019 compared to 2018. Polyethylene results declined resulting in a 27% decrease in EBITDA driven by a $261 per ton reduction in price spreads over ethylene as a result of increased market supply. An offsetting increase in olefin results increased EBITDA by 8% as ethylene margins increased by approximately $75 per ton primarily due to lower feedstock costs partially offset by a lower propylene price. The segment recognized LCM charges of $25 million in 2019 primarily due to a decline in domestic polyethylene prices.

Planned maintenance during the first and second quarters of 2020 is expected to reduce EBITDA by approximately $25 million and $30 million, respectively. In addition, we expect additional capacity from our Hyperzone polyethylene plant in 2020.

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Olefins and Polyolefins–Europe, Asia, International Segment

Overview*—*EBITDA declined in 2019 compared to 2018 mainly as a result of lower combined polyolefin results, lower income from equity investments and unfavorable foreign exchange impacts, partially offset by higher olefin 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 is a major building block of our olefins and polyolefins and as such, ethylene sales volumes and prices and our internal cost of ethylene production are included in management’s assessment of the segment’s performance.

Ethylene Raw Materials—In Europe, heavy liquids are the primary raw materials for our ethylene production. In 2019 and 2018, we continued to benefit by sourcing advantaged NGLs as market opportunities arose.

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	2019				2018
Sales and other operating revenues	$	9,504			$	10,838
Income from equity investments	172				225
EBITDA	1,062				1,163

Revenues—Revenues in 2019 decreased by $1,334 million, or 12%, compared to 2018. Average sales prices in 2019 were lower across most products as sales prices generally correlate with crude oil prices, which on average, decreased compared to 2018. These lower average sales prices were responsible for revenue decreases of 10%. Higher sales volumes in 2019 resulted in 2% higher revenue driven by an absence of planned maintenance compared to 2018. Foreign exchange impacts, on average, were unfavorable and led to a revenue decrease of 4% in 2019.

EBITDA—EBITDA decreased by $101 million, or 9%, in 2019 compared to 2018. Decreased polyethylene results led to a 5% decrease in EBITDA largely due to a decline in margins attributed to lower price spreads over ethylene of $35 per ton. A decline in polypropylene results decreased EBITDA by 4% as price spreads over propylene decreased $48 per ton. Joint venture equity income decreased largely due to reduced polyolefin spreads resulting in a 5% decrease in EBITDA. These decreases were partially offset by higher olefins results which led to a 5% increase of EBITDA. This increase was primarily due to increased volumes driven by improved reliability with planned and unplanned maintenance impacting 2018 results. In addition, unfavorable foreign exchange impacts reduced EBITDA by 5% in 2019.

Fourth quarter 2019 results decreased $147 million, or 51%, versus the third quarter 2019. This change was primarily driven by a decline in olefin results as ethylene margins decreased due to higher feedstock costs and a lower propylene price.

Planned maintenance during the third and fourth quarters of 2020 is expected to reduce EBITDA by approximately $15 million in each of the two quarters.

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Intermediates and Derivatives Segment

**Overview—**EBITDA for our I&D segment was lower in 2019 compared to 2018, largely driven by margin and volume decreases primarily in our intermediate chemicals business.

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	2019				2018
Sales and other operating revenues	$	7,834			$	9,588
Income from equity investments	7				6
EBITDA	1,557				2,011

Revenues—Revenues for 2019 decreased by $1,754 million, or 18%, compared to 2018. Lower average sales prices in 2019 for most products, which reflect the impacts of lower feedstock and energy costs, were responsible for a revenue decrease of 12% compared to 2018 which benefited from an elevated level of planned and unplanned industry outages. Lower sales volumes resulted in a 4% decrease in revenues in 2019. Foreign exchange impacts, on average, were unfavorable and led to a revenue decrease of 2%.

EBITDA—EBITDA decreased by $454 million, or 23%, in 2019 compared to 2018. Decreased Intermediate Chemicals results led to an EBITDA decrease of 25%. This decrease was a result of lower margins across most businesses, in particular styrene, as demand weakened in 2019. Lower Propylene Oxide and Derivatives results decreased EBITDA by 5% largely due to lower volumes as demand declined. These declines in EBITDA were partially offset by higher Oxyfuels and Related Products results mainly due to improved margins driven by price improvements and low-cost butane, resulting in a 8% increase in EBITDA. Unfavorable foreign exchange impacts also reduced EBITDA by an additional 2% in 2019.

In 2020, we have planned maintenance that is expected to reduce EBITDA by approximately $10 million in each of the first and second quarters and $25 million in each of the third and fourth quarters.

Advanced Polymer Solutions Segment

**Overview—**EBITDA for our APS segment increased in 2019 compared to 2018, primarily due to the contribution of EBITDA stemming from the August 2018 acquisition of A. Schulman, partly offset by integration costs and lower volumes across most products.

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

	Year Ended December 31,
Millions of dollars	2019				2018
Sales and other operating revenues	$	4,850			$	4,024
EBITDA	424				400

Revenues—Revenues increased in 2019 by $826 million, or 21%, compared to 2018. Excluding the impacts of the August 2018 acquisition of A. Schulman, sales volumes declined in 2019 stemming from lower market demand for advanced polymer products, including lower automotive and roofing demand, which led to a 7% decrease in revenue in 2019. Lower average sales prices, as well as unfavorable foreign exchange impacts, each resulted in a 4% decrease in revenue. These declines were offset by $1,304 million of additional revenues in the APS segment due to a full year of operating the A. Schulman assets in 2019 compared to a partial year in 2018 following the acquisition in August 2018.

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EBITDA—EBITDA increased in 2019 by $24 million, or 6%, compared to 2018. Compounding and Solutions results improved resulting in a 27% increase of EBITDA. This increase was largely due to an additional $108 million of EBITDA contributed by the operations of A. Schulman in 2019. Advanced Polymers results reduced EBITDA by 9% largely due to lower volumes driven by reduced automotive and roofing demand. Further, transaction and integration costs related to the acquisition of A. Schulman were $47 million higher in 2019 which reduced EBITDA by 12% relative to 2018. Unfavorable foreign exchange impacts also reduced EBITDA by an additional 3% in 2019.

Refining Segment

Overview—EBITDA for our Refining segment decreased due to lower industry margins driven by a compressed Maya differential, lower gasoline crack spreads and lower byproduct margins compared to 2018.

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. Light Louisiana Sweet “LLS” is a light crude oil, while “Maya” is a heavy crude oil.

	Year Ended December 31,
Millions of dollars	2019				2018
Sales and other operating revenues	$	8,251			$	9,157
EBITDA	(65		)		167
Thousands of barrels per day
Heavy crude oil processing rates	263				231
Market margins, dollars per barrel
Light crude oil—2-1-1	$	12.44			$	12.35
Light crude oil—Maya differential	5.14				7.50
Total Maya 2-1-1	$	17.58			$	19.85

Revenues—Revenues decreased by $906 million, or 10%, in 2019 compared to 2018. Lower product prices led to a revenue decrease of 7% relative to 2018, due to an average crude oil price decrease of approximately $6 per barrel in 2019. Although heavy crude oil processing rates increased during 2019, overall sales volumes decreased, driven by reduced rates on conversion units, due to crude selection and the optimization of refinery operations. This reduction in conversion rates resulted in a further revenue decrease of 3% during 2019.

EBITDA—EBITDA decreased by $232 million, or 139%, in 2019 compared to 2018. Lower refining margins resulted in a 200% decrease in EBITDA relative to 2018. Unusually low discounts for heavy sour crude oils on the U.S. Gulf Coast led to a lower light-to-heavy crude price differential and compression in the benchmark Maya 2-1-1 market margin. This compression, combined with the Houston refinery’s configuration which limits the amount of light sweet crude that can be processed, created a challenging market for our Refining segment. Margins were further compressed by a negative byproduct impact largely driven by weakness in Naphtha and refinery grade propylene. This margin-driven decrease in EBITDA was partly offset by a 61% increase associated with the rise in heavy crude oil processing rates due to the completion of planned maintenance in 2018.

Fourth quarter 2019 EBITDA improved $106 million, or 126%, representing a significant improvement compared to the fourth quarter 2018, which experienced a loss of $84 million. Margin improvements resulted in a 76% increase in EBITDA as the Maya 2-1-1 crack spread increased by $8.55 per barrel to $19.44 per barrel. Heavy crude oil processing rates increased by 83 thousand barrels per day in the fourth quarter of 2019 due to the completion of planned maintenance in the second half of 2018. This volume driven improvement resulted in a 50% increase in EBITDA in the fourth quarter of 2019.

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We anticipate improvements in our refining results in 2020 associated with the global adoption of International Maritime Organization (“IMO”) 2020.

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 2019 and 2018, our Technology segment incurred approximately 50% and 55%, respectively, of all R&D costs. EBITDA for our Technology segment improved in 2019 compared to 2018 largely due to higher licensing revenues.

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

	Year Ended December 31,
Millions of dollars	2019				2018
Sales and other operating revenues	$	663			$	583
EBITDA	411				328

Revenues—Revenues increased by $80 million, or 14%, in 2019 compared to 2018. Higher licensing revenues resulted in an increase of 18% in 2019 compared to 2018. Increases in average catalyst sales prices resulted in revenue increases of 4% in 2019. Lower catalyst sales volumes, driven by the timing of customer orders, resulted in a 3% decrease in revenue in 2019. Foreign exchange impacts that, on average, were unfavorable led to a revenue decrease of 5%.

EBITDA—EBITDA in 2019 increased by $83 million, or 25%, compared to 2018. This increase was mainly driven by higher licensing revenues as several licensing agreements signed in 2018, primarily in China, were recognized in revenue during 2019.

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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	2019				2018
Source (use) of cash:
Operating activities	$	4,961			$	5,471
Investing activities	(1,635		)		(3,559		)
Financing activities	(2,835		)		(3,008		)

Operating Activities—Cash of $4,961 million generated by operating activities in 2019 reflected earnings adjusted for non-cash items, payments for employee bonuses, income taxes, and cash consumed by the main components of working capital–Accounts receivable, Inventories and Accounts payable. A $113 million non-cash reduction in unrecognized tax benefits is reflected in Other operating activities in 2019. For additional information on this matter, see Note 18 to the Consolidated Financial Statements.

In 2019, the main components of working capital consumed $13 million of cash driven by a decrease in Accounts payable and an increase in Inventories, partially offset by a decrease in Accounts receivable. The decrease in Accounts payable was primarily driven by weaker demand in our APS segment and a decrease in certain raw material costs in our I&D segment. The increase in Inventories was a result of inventory builds as a result of planned and unplanned maintenance in our O&P—EAI segment. The decrease in Accounts receivable was driven by decreases in our APS, I&D and O&P—Americas segments as a result of unfavorable market conditions.

Cash of $5,471 million generated by operating activities in 2018 reflected earnings adjusted for non-cash items and net cash provided by the main components of working capital. A $358 million non-cash reduction in unrecognized tax benefits is reflected in Other operating activities in 2018. For additional information on this matter, see Note 18 to the Consolidated Financial Statements.

In 2018, the main components of working capital provided $93 million of cash. Lower Accounts receivable due primarily to lower sales volumes in our O&P—Americas, O&P—EAI and I&D segments at year end and higher Accounts payable due to higher feedstock prices were partially offset by an increase in Inventories primarily due to the lower sales volumes at year end.

Investing Activities—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.

We received proceeds of $511 million and $423 million in 2019 and 2018, respectively, upon the sale and maturity of certain of our available-for-sale debt securities. Additionally, in 2019 and 2018, we received proceeds of $332 million and $97 million, respectively, on the sale of our investments in equity securities. In 2019, we received proceeds of $527 million upon the maturity of certain of our repurchase agreements.

In 2019 and 2018 we invested $108 million and $50 million, respectively, in debt securities that are deemed available-for-sale. We also invested $33 million and $64 million in equity securities in 2019 and 2018, respectively. Our investments in available-for-sale debt securities and equity securities are classified as Short-term investments.

Upon expiration in 2018, we settled foreign currency contracts with notional values totaling €925 million 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 inflow of $30 million.

In August 2018, we acquired A. Schulman for $1,776 million, which is net of $81 million of cash acquired and a liability deemed as a component of the purchase price.

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In October 2018, we received net cash proceeds of $37 million for the sale of our carbon black subsidiary in France.

Capital Expenditures—The following table summarizes capital expenditures for the periods presented:

	Year Ended December 31,
Millions of dollars	2019				2018
Capital expenditures by segment:
O&P—Americas	$	1,099			$	1,079
O&P—EAI	213				248
I&D	1,064				409
APS	59				62
Refining	149				250
Technology	94				48
Other	16				9
Consolidated capital expenditures of continuing operations	$	2,694			$	2,105

In 2019 and 2018, our capital expenditures included construction related to our PO/TBA plant at our Channelview, Texas facility and our Hyperzone polyethylene plant at our La Porte, Texas facility, turnaround activities at several sites and other plant improvement projects. The higher level of capital expenditures for our I&D segment in 2019 compared to 2018 is largely due to the construction of our PO/TBA plant.

In 2020, we expect to spend approximately $2.4 billion for capital expenditures and investment in our U.S. and European PO joint ventures. The lower level of expected capital expenditures in 2020 relative to 2019 is primarily due to the reduction in spend related to our Hyperzone polyethylene plant. We will complete construction of our Hyperzone project in early 2020. See Note 9 to the Consolidated Financial Statements for additional information regarding our U.S. and European PO joint ventures.

Financing Activities—In 2019 and 2018, we made payments of $3,752 million and $1,854 million to acquire approximately 42.7 million and 19.2 million, respectively, of our outstanding ordinary shares. We also made dividend payments totaling $1,462 million and $1,554 million in 2019 and 2018, respectively. For additional information related to our share repurchases and dividend payments, see Note 20 to the Consolidated Financial Statements.

In September 2018, we repaid the $375 million 6.875% Senior Notes due June 2023 assumed in the acquisition of A. Schulman for a price of 105.156% of par.

In February 2019, LYB Americas Finance Company LLC (“LYB Americas Finance”), a wholly owned subsidiary of LyondellBasell N.V., entered into a 364-day, $2,000 million senior unsecured term loan credit agreement and borrowed the entire amount. The proceeds of this term loan, which is fully and unconditionally guaranteed by LyondellBasell N.V. were used for general corporate purposes and to redeem the remaining $1,000 million outstanding of our 5% Senior Notes due 2019 at par.

In March 2019, LYB Americas Finance, a wholly owned subsidiary of LyondellBasell N.V., entered into a three-year $4,000 million senior unsecured delayed draw term loan credit facility that matures in March 2022 (“Term Loan due 2022”). Proceeds under this credit agreement, which is fully and unconditionally guaranteed by LyondellBasell N.V., were used for general corporate purposes. In July 2019, we borrowed $1,000 million under this facility along with $500 million from our U.S. Receivables Facility to partially fund the share repurchase price paid pursuant to a modified Dutch Auction tender offer (“tender offer”). In December 2019, we borrowed $1,950 million from our Term Loan due 2022 to repay amounts outstanding under our commercial paper program and $500 million outstanding under our U.S. Receivables Facility.

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In September 2019, LYB International Finance II B.V. (“LYB Finance II”), a wholly owned finance subsidiary of LyondellBasell N.V., issued €500 million of 0.875% guaranteed notes due 2026 (the “2026 Notes”) at a discounted price of 99.642% and €500 million of 1.625% guaranteed notes due 2031 (the “2031 Notes”) at a discounted price of 98.924%. We used the net proceeds from the 2026 Notes and the 2031 Notes to repay $1,000 million outstanding under our Term Loan due 2022, and a portion of borrowings from our commercial paper program.

In October 2019, LYB International Finance III LLC (“LYB Finance III”), a wholly owned finance subsidiary of LyondellBasell N.V., issued $1,000 million of 4.2% guaranteed notes due 2049 (the “2049 Notes”) at a discounted price of 98.488%. Net proceeds from the sale of the notes of $974 million, along with commercial paper and operating cash, was used to repay $2,000 million of the indebtedness outstanding under our Term Loan due 2020.

Through the issuance and repurchase of commercial paper instruments under our commercial paper program, we made net repayments of $549 million in 2019 and received net proceeds of $810 million in 2018.

Additional information related to commercial paper and debt activity can be found in the Liquidity and Capital Resources section below and in Note 13 to the Consolidated Financial Statements.

In February 2019, we purchased the non-controlling interest in our subsidiary that holds our La Porte, Texas methanol facility for $63 million.

In January 2020, we amended the terms of certain forward-starting interest rate swaps to extend their maturities. Concurrently with the amendment of the swaps, we posted collateral of $238 million related to the liability position held with our counterparties as of the amendment date. For additional information see Note 15 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Overview

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, cash from operating activities, proceeds from the issuance of debt, or a combination thereof, may be used to fund the purchase of shares under our share repurchase authorization.

We 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.

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.

Cash and Liquid Investments

As of December 31, 2019, we had $1,054 million of unrestricted cash and cash equivalents as well as marketable securities classified as Short-term investments. At December 31, 2019, we held $363 million of cash in jurisdictions outside of the U.S., principally in the United Kingdom and China. 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, 2019, we had total debt, including current maturities, of $12,062 million, and $200 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities.

We had total unused availability under our credit facilities of $2,919 million at December 31, 2019, which included the following:

•

$2,229 million under our $2,500 million senior revolving credit facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. A small portion of our availability under this facility is impacted by changes in the euro/U.S. dollar exchange rate. At December 31, 2019, we had $262 million of outstanding commercial paper, net of discount, no outstanding letters of credit and no outstanding borrowings under the facility; and

•	$690 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. This facility had no outstanding borrowings or letters of credit at December 31, 2019.

Our $2,500 million senior revolving credit facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.

The U.S. Receivables Facility is subject to customary warranties and covenants, including limits and reserves and the maintenance of specified financial ratios. We are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters. Performance obligations under the facility are guaranteed by LyondellBasell N.V.

In March 2019, we entered into the Term Loan due 2022. Borrowings under the credit agreement bear interest at either a base rate or LIBOR rate, as defined, plus in each case, an applicable margin determined by reference to LyondellBasell N.V.’s current credit ratings. The credit agreement contains customary representations and warranties and contains certain restrictive covenants regarding, among other things, secured indebtedness, subsidiary indebtedness, mergers and sales of assets. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.

In September 2019, we issued the 2026 Notes and the 2031 Notes. The 2026 Notes and 2031 Notes may be redeemed before the date that is three months prior to the scheduled maturity date at a redemption price equal to the greater of 100% of the principal amount of the notes redeemed and the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable comparable government bond rate plus 30 basis points in the case of the 2026 Notes and plus 35 basis points in the case of the 2031 Notes) on the notes to be redeemed. The notes may also be redeemed on or after the date that is three months prior to the scheduled maturity date of the notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest. The notes are also redeemable upon certain tax events.

In October 2019, we issued the 2049 Notes. The 2049 Notes may be redeemed before the date that is six months prior to the scheduled maturity date at a redemption price equal to the greater of 100% of the principal amount of the notes redeemed and the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable treasury yield plus 35 basis points) on the notes to be redeemed. The notes may also be redeemed on or after the date that is six months prior to the final maturity date of the notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest. The notes are also redeemable upon certain tax events.

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

For additional information, see Note 13 to our Consolidated Financial Statements.

Share Repurchases

Upon completion of the tender offer in July 2019, we repurchased 35.1 million ordinary shares at a tender offer price of $88.00 per share for a total of $3,099 million, including $6 million of fees and expenses related to the tender offer. In conjunction with the tender offer, we financed the share repurchase by borrowing $1,000 million from our Term Loan due 2022, $500 million from our U.S. Receivables Facility, and $1,280 million from our commercial paper program, with the remainder funded by operating cash.

In September 2019, our shareholders approved a proposal to authorize us to repurchase up to 33.3 million of our ordinary shares through March 12, 2021, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In 2019, we purchased approximately 42.7 million shares under our share repurchase authorizations for approximately $3,728 million.

As of February 18, 2020, we had approximately 33.3 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased 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 authorization, see Note 20 to the Consolidated Financial Statements.

Capital Budget

In 2020, we expect to spend approximately $2.4 billion in our capital budget, which includes approximately $75 million for investments in our U.S. and European PO joint ventures. Our capital budget includes investment to build our world-scale PO/TBA plant in Channelview, Texas which will have the capacity to produce 470 thousand tons of PO and 1.0 million tons of tertiary butyl alcohol. We broke ground on this project in August 2018 and anticipate the project will be completed in late 2021. See Note 9 to the Consolidated Financial Statements for additional information regarding our U.S. and European PO joint ventures.

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Contractual and Other Obligations—The following table summarizes, as of December 31, 2019, our future minimum payments for long-term debt, including current maturities, short-term debt, and contractual and other obligations:

	Total				Payments Due By Period
Millions of dollars	Less than 1 Year				1-3 Years				3-5 Years				More than 5 Years
Total debt	$	12,167			$	448			$	3,795			$	1,751			$	6,173
Interest on total debt	6,306				468				841				616				4,381
Contract liabilities	124				103				18				—				3
Other	1,801				1,235				115				33				418
Deferred income taxes	2,015				371				279				250				1,115
Other obligations:
Purchase obligations:
Take-or-pay contracts	26,004				3,019				5,568				5,434				11,983
Other contracts	22,065				6,650				6,260				2,727				6,428
Operating leases	2,422				479				549				423				971
Total	$	72,904			$	12,773			$	17,425			$	11,234			$	31,472

Total Debt—Our debt includes unsecured senior notes, guaranteed notes and various other U.S. and non-U.S. loans. See Note 13 to the Consolidated Financial Statements for a discussion of covenant requirements under our 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 or variable rate of interest over the term of the debt. Interest on variable rate debt is calculated based on the rate in effect as of December 31, 2019.

Pension and other Postretirement Benefits—We maintain several defined benefit pension plans, as described in Note 16 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 2020 are not expected to be materially different than the expected 2020 contributions disclosed in Note 16 to the Consolidated Financial Statements. At December 31, 2019, the projected benefit obligation for our pension plans exceeded the fair value of plan assets by $1,287 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 $1,287 million in future years. We contributed $97 million and $100 million to our pension plans in 2019 and 2018, respectively. We provide other postretirement benefits, primarily medical benefits to eligible participants, as described in Note 16 to the Consolidated Financial Statements. We pay other unfunded postretirement benefits as incurred.

Contract Liabilities—We are obligated to deliver products or services in connection with sales agreements under which customer payments were received before transfer of control to the customers occurs. These contract liabilities will be recognized in earnings when control of the product or service is transferred to the customer, which range from 1 to 20 years. The long-term portion of such advances totaled $21 million as of December 31, 2019.

Other—Other primarily consists of accruals for taxes and employee-related expenses.

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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 18 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 ensure 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, 2019.

Operating Leases—We lease various facilities and equipment under noncancelable lease arrangements for various periods. See Note 14 to the Consolidated Financial Statements for related lease disclosures.

CURRENT BUSINESS OUTLOOK

Our foundations of operational excellence, cost management and disciplined capital allocation continue to serve us well in the current challenging environment. We anticipate typical seasonal improvements for our businesses as we progress through the second and third quarters of 2020. Favorable resolution of trade policies and a rebound in industrial demand could provide significant upside for our industry. We expect benefits from the IMO 2020 regulations for our Houston Refinery and the completion of our new Hyperzone project in 2020.

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

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 inventories, 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.

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. Due to natural inventory composition changes, variation in pricing from period to period does not necessarily result in a linear lower of cost or market (“LCM”) impact.

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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 the fourth quarter of 2019, EBITDA for our O&P—Americas segment and APS segment results include a non-cash, LCM inventory valuation charges of $25 million and $8 million, respectively, primarily due to a decline in domestic polyethylene prices.

Goodwill—As of December 31, 2019, we have goodwill of $1,891 million. Of this amount, $1,357 million is related to the acquisition of A. Schulman in 2018, which is included in our APS segment, and is mainly attributed to acquired workforce and expected synergies. The remaining goodwill at December 31, 2019, primarily 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 fresh-start accounting in 2010. Additional information on the amount of goodwill allocated to our reporting units appears in Note 8 and Note 22 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 2019 and 2018, management performed a qualitative impairment assessment of our reporting units, which indicated that the fair value of our reporting units was more likely than not greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required, and no goodwill impairment was recognized in 2019 or 2018.

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 and to review those assumptions periodically to reflect changes in economic or other factors.

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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, 2019, we used a weighted average discount rate of 3.16% 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, 2019, was 1.03%, reflecting market interest rates. The discount rates in effect at December 31, 2019, will be used to measure net periodic benefit cost during 2020.

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, 2019, the assumed rate of increase for our U.S. plans was 6.1%, decreasing to 4.5% in 2038 and thereafter. However, changing the assumed health care cost trend rates by one percentage point in each year would increase or decrease the accumulated other postretirement benefit liability as of December 31, 2019, by $24 million and $15 million, respectively, for non-U.S. plans and by less than $1 million for U.S. plans. A one percentage point change would not have a material effect on the aggregate service and interest cost components of the net periodic other postretirement benefit cost for the year then ended.

The net periodic 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 7.50% 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 2.79% is based on expectations and asset allocations that vary by region. The asset allocations are summarized in Note 16 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 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 2019								Effects on Net Periodic Pension Costs in 2020
Millions of dollars	U.S.				Non-U.S.				U.S.				Non-U.S.
Projected benefit obligations at December 31, 2019	$	1,965			$	2,017			$	—			$	—
Projected net periodic pension costs in 2020	—				—				29				73
Discount rate increases by 100 basis points	(180		)		(286		)		(6		)		(8		)
Discount rate decreases by 100 basis points	219				353				7				23

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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 2019								Effects on Net Periodic Benefit Costs in 2020
Millions of dollars	U.S.				Non-U.S.				U.S.				Non-U.S.
Projected benefit obligations at December 31, 2019	$	251			$	79			$	—			$	—
Projected net periodic benefit costs in 2020	—				—				6				7
Discount rate increases by 100 basis points	(22		)		—				(2		)		—
Discount rate decreases by 100 basis points	26				—				1				—

Additional information on the key assumptions underlying these benefit costs appears in Note 16 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.

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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