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, 2018, 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, 2019, which was filed with the Securities and Exchange Commission on February 20, 2020 , of which Item 7 is incorporated herein by reference.

OVERVIEW

During 2020, we demonstrated financial and operational resilience against the challenging backdrop of a global pandemic, the associated recession, volatile oil prices and significant capacity additions in our industry.

Early in 2020, as the virus became more widespread, our leadership team established three principles to guide our actions in the short term. These were to (i) protect our employees, both from the virus in the workplace and also from widespread layoffs; (ii) prioritize cash flow and keep our commitments to our shareholders; and (iii) take action to strengthen the company for the future.

Our manufacturing operations have been designated as an essential industry to support society’s needs during the pandemic in the majority of the regions in which we operate. Our performance was supported by consumer-driven demand for many of our products and the recovery in demand for durable goods during the second half of the year. Our Refining and Oxyfuels & Related Products businesses suffered from the unprecedented decline in demand for transportation fuels that began during March 2020 due to the pandemic. During the year, we advanced our growth agenda through the formation of joint ventures in China and on the U.S. Gulf Coast.

Our strengths in operational excellence, cost management and capital discipline served us well as we quickly adapted to dynamic conditions by minimizing working capital and bolstering liquidity by rapidly accessing capital markets and efficiently generating cash. We honored commitments to maintain an investment grade credit rating and continued to fund dividends and capital investments with cash from operations.

Significant items that affected results in 2020 relative to 2019 include:

• Olefins and Polyolefins—Americas (“O&P—Americas”) and Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”) segment results declined primarily due to lower olefin and polyolefins margins;

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

• Refining segment results declined due to lower refining margins and a $582 million non-cash impairment charge which was recognized during the third quarter of 2020.

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Other noteworthy items include the following:

• Launched production at our U.S. Gulf Coast high-density polyethylene plant using LyondellBasell's next-generation Hyperzone technology during the first quarter of 2020;

• In April 2020, issued $2,000 million of Guaranteed Notes to bolster liquidity. Net proceeds from the sale of the notes totaled $1,974 million;

• In April 2020, repaid $500 million outstanding under our Senior Revolving Credit Facility and $500 million outstanding under our U.S. Receivables Facility, which were borrowed in March 2020;

• In August 2020, invested $472 million in our new 50 percent owned joint venture polyolefin complex in China with Liaoning Bora Enterprise Group using our polyolefin technologies;

• In October 2020, issued $3,900 million of Guaranteed Notes to be used to repay certain outstanding borrowings and fund a portion of the Louisiana Integrated PolyEthylene JV LLC (“Louisiana Joint Venture”) purchase. Net proceeds from the sale of the notes totaled $3,848 million;

• In the fourth quarter of 2020, repaid $500 million outstanding under our Term Loan due 2022 and all amounts outstanding on our Senior Notes due 2021 and Guaranteed Notes due 2022;

• In December 2020, invested $2 billion to purchase a 50 percent interest in the newly formed Louisiana Joint Venture with Sasol Chemicals (USA) LLC;

• In January 2021, signed an agreement to form a 50 percent owned joint venture with the China Petroleum & Chemical Corporation (“Sinopec”) which will construct a new PO and SM unit in China; and

• In January 2021, repaid an additional $500 million outstanding under our Term Loan due 2022.

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

						Year Ended December 31,
Millions of dollars						2020						2019
Sales and other operating revenues						$	27,753					$	34,727
Cost of sales						24,359						29,301
Impairment of long-lived assets						582						—
Selling, general and administrative expenses						1,140						1,199
Research and development expenses						113						111
Operating income						1,559						4,116
Interest expense						(526)						(347)
Interest income						12						19
Other income, net						85						39
Income from equity investments						256						225
Income from continuing operations before income taxes						1,386						4,052
(Benefit from) provision for income taxes						(43)						648
Income from continuing operations						1,429						3,404
Loss from discontinued operations, net of tax						(2)						(7)
Net income						$	1,427					$	3,397

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RESULTS OF OPERATIONS

Revenues—Revenues decreased $6,974 million, or 20%, in 2020 compared to 2019. Average sales prices in 2020 were lower for most of our products as sales prices generally correlate with crude oil prices, which decreased relative to 2019. These lower prices led to a 19% decrease in revenue in 2020. Lower sales volumes resulted in a revenue decrease of 2% relative to 2019. Favorable foreign exchange impacts resulted in a revenue increase of 1% during 2020.

Cost of Sales—Cost of sales decreased $4,942 million, or 17%, in 2020 compared to 2019. This decrease primarily related to lower feedstock and energy costs. Costs for crude oil, heavy liquid feedstocks and natural gas liquids (“NGLs”) and other feedstocks were lower in 2020 relative to 2019. 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 70% to 80% of cost of sales, other variable costs account for approximately 10% of cost of sales on an annual basis and fixed operating costs, consisting primarily of expenses associated with employee compensation, depreciation and amortization, and maintenance, range from approximately 10% to 20% in each annual period.

Impairment of Long-Lived Assets—In the third quarter of 2020, our Refining segment recognized a non-cash impairment charge of $582 million related to our Houston refinery driven by the expectation of a prolonged reduction of travel and associated transportation fuels consumption resulting from the pandemic which created an oversupply in global fuel markets that will pressure refining profitability for an extended period of time.

SG&A Expense—Selling, general and administrative (“SG&A”) expense decreased $59 million, or 5% in 2020 compared to 2019 primarily due to lower integration costs related to the acquisition of A. Schulman. Integration activities related to our acquisition of A. Schulman were substantially completed by the third quarter of 2020.

Operating Income—Operating income decreased by $2,557 million or 62% in 2020 compared to 2019. Operating income includes the effect of the non-cash long-lived asset impairment charge in our Refining segment as noted above.

In 2020, Operating income declined across all of our segments by $784 million, $748 million, $607 million, $261 million, $87 million and $64 million for our Refining, I&D, O&P—Americas, O&P—EAI, Technology and APS segments, respectively, as compared to 2019.

Interest Expense—Interest expense increased $179 million or 52% in 2020 compared to 2019 primarily due to an increase in long-term debt and the recognition of $69 million in charges related to the redemption of certain long-term notes in 2020. See Note 11 to the Consolidated Financial Statements for additional details.

**Income Taxes—**Our effective income tax rates of -3.1% in 2020 and 16.0% in 2019 resulted in a tax benefit of $43 million and a tax provision of $648 million, respectively.

Our effective income tax rate fluctuates based on, among other factors, changes in pre-tax income in countries with varying statutory tax rates, changes in valuation allowances, changes in foreign exchange gains/losses, the amount of exempt income, changes in unrecognized tax benefits associated with uncertain tax positions and changes in tax laws. We continue to maintain valuation allowances in various jurisdictions totaling $132 million as of 2020, which could impact our effective income tax rate in the future.

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act, also known as the “CARES Act,” which contains numerous income tax provisions and other stimulus measures. In 2020 we recorded an overall tax benefit in relation to the CARES Act of approximately $300 million which reflects the impact of our expected 2020 U.S. tax losses which we intend to carryback to tax years with a higher tax rate and a cash refund of approximately $900 million. For additional information, see Note 16 to our Consolidated Financial Statements.

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

The 2019 effective income tax rate of 16%, 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.

**Comprehensive Income—**We had comprehensive income of $1,268 million in 2020 and $2,976 million in 2019. Comprehensive income decreased by $1,708 million in 2020 compared to 2019, primarily due to lower net income and net unfavorable impacts of financial derivative instruments primarily driven by periodic changes in benchmark interest rates. These decreases were partially offset by net favorable impacts of unrealized changes in foreign currency translation adjustments and improved changes in defined pension and other postretirement benefits.

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 2020 resulting in net gains as reflected in the Consolidated Statements of Comprehensive Income. The gains related to unrealized changes in foreign currency translation impacts were partially offset by pre-tax losses of $166 million in 2020, which represent the effective portion of our net investment hedges.

In 2020, the cumulative after-tax effect of our derivatives designated as cash flow hedges was a net loss of $226 million. The strengthening of the euro against the U.S. dollar in 2020 and periodic changes in benchmark interest rates resulted in a pre-tax loss of $129 million related to our cross-currency swaps. A $170 million pre-tax gain related to our cross-currency swaps was reclassified to Other income, net in 2020. In 2020, a pre-tax loss of $347 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 $51 million and $361 million in 2020 and 2019, respectively, 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 14 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 20 to our Consolidated Financial Statements.

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

						Year Ended December 31,
Millions of dollars						2020						2019
Sales and other operating revenues:
O&P–Americas						$	7,275					$	8,435
O&P–EAI						8,367						9,504
I&D						6,269						7,834
APS						3,913						4,850
Refining						4,727						8,251
Technology						659						663
Other, including segment eliminations						(3,457)						(4,810)
Total						$	27,753					$	34,727
Operating income (loss):
O&P–Americas						$	1,170					$	1,777
O&P–EAI						412						673
I&D						501						1,249
APS						226						290
Refining						(1,024)						(240)
Technology						287						374
Other, including segment eliminations						(13)						(7)
Total						$	1,559					$	4,116
Depreciation and amortization:
O&P–Americas						$	525					$	470
O&P–EAI						214						208
I&D						305						295
APS						152						133
Refining						152						169
Technology						37						37
Total						$	1,385					$	1,312
Income (loss) from equity investments:
O&P—Americas						$	45					$	46
O&P—EAI						186						172
I&D						26						7
APS						(1)						—
Total						$	256					$	225

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						Year Ended December 31,
Millions of dollars						2020						2019
Other income (loss), net:
O&P—Americas						$	70					$	9
O&P—EAI						14						9
I&D						1						6
APS						1						1
Refining						1						6
Other, including intersegment eliminations						(2)						8
Total						$	85					$	39
EBITDA:
O&P—Americas						$	1,810					$	2,302
O&P—EAI						826						1,062
I&D						833						1,557
APS						378						424
Refining						(871)						(65)
Technology						324						411
Other, including intersegment eliminations						(15)						1
Total						$	3,285					$	5,692

Olefins and Polyolefins–Americas Segment

Overview—EBITDA declined in 2020 relative to 2019 primarily due to lower margins in challenging market conditions arising from a low oil price environment and the impact of COVID-19.

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

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

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

• crude oil-based liquids (“liquids” or “heavy liquids”), including naphtha, condensates and gas oils, the prices of which are generally related to crude oil prices.

We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. In 2020 and 2019, approximately 55-60% of the raw materials used in our North American crackers was ethane.

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

						Year Ended December 31,
Millions of dollars						2020						2019
Sales and other operating revenues						$	7,275					$	8,435
Income from equity investments						45						46
EBITDA						1,810						2,302

Revenues—Revenues decreased by $1,160 million, or 14%, in 2020 compared to 2019. Average sales prices were lower in 2020 compared to 2019 due to the lower oil price environment and other impacts of COVID-19. These lower sales prices were responsible for a revenue decrease of 18% in 2020. Volume increases resulted in a revenue increase of 4% in 2020, primarily due to high demand for polyethylene.

EBITDA—EBITDA decreased by $492 million, or 21%, in 2020 compared to 2019. Lower olefin results led to a 10% decline in EBITDA in 2020, primarily due to lower co-product prices outpacing reduced feedstock costs. Polyethylene results declined resulting in a 5% decrease in EBITDA in 2020. This decrease was driven by a $77 per ton reduction in price spreads over ethylene in 2020. Polypropylene results led to a 4% decrease in EBITDA in 2020, largely due to a decline in margins attributed to lower price spreads over propylene of $84 per ton in 2020.

Olefins and Polyolefins–Europe, Asia, International Segment

Overview*—*EBITDA decreased in 2020 compared to 2019 mainly as a result of lower olefin and polypropylene margins.

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

Ethylene Raw Materials—In Europe, heavy liquids are the primary raw materials for our ethylene production. In 2020 and 2019, we continued to benefit from 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			2020						2019
Sales and other operating revenues			$	8,367					$	9,504
Income from equity investments			186						172
EBITDA			826						1,062

Revenues—Revenues in 2020 decreased by $1,137 million, or 12%, compared to 2019. Average sales prices in 2020 were lower across most products as sales prices generally correlate with crude oil prices, which on average, decreased compared to 2019. These lower average sales prices were responsible for revenue decreases of 19% in 2020. Volume improvements resulted in revenue increases of 6% in 2020 driven by strong polymer demand in Europe and Asia. Foreign exchange impacts, which on average, were favorable resulted in a revenue increase of 1% in 2020.

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EBITDA—EBITDA decreased by $236 million, or 22%, in 2020 compared to 2019. Lower olefins results led to a 13% decrease in EBITDA in 2020, primarily driven by lower margins driven by a decline in ethylene prices outpacing lower feedstock costs. Polypropylene results led to a 10% decrease in EBITDA in 2020, largely due to a decline in margins attributed to a reduction in price spreads over propylene by $29 per ton in 2020. Favorable foreign exchange impacts resulted in an EBITDA benefit of 2%. Planned maintenance in 2021 is expected to reduce EBITDA by approximately $25 million.

Intermediates and Derivatives Segment

**Overview—**EBITDA for our I&D segment was lower in 2020 compared to 2019, largely driven by margin erosion due to the impacts of COVID-19.

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			2020						2019
Sales and other operating revenues			$	6,269					$	7,834
Income from equity investments			26						7
EBITDA			833						1,557

Revenues—Revenues decreased by $1,565 million, or 20%, in 2020 compared to 2019. Lower average sales prices in 2020 for most products, which reflect the impacts of lower feedstock and energy costs, were responsible for a revenue decrease of 21%. Favorable foreign exchange impacts increased revenue by 1% in 2020.

EBITDA—EBITDA decreased $724 million, or 46%, in 2020 compared to 2019 primarily driven by lower margins across most businesses. Oxyfuels and related products results declined, resulting in a 30% decrease in EBITDA in 2020. The decline was a result of a significant decrease in margins driven by lower gasoline prices and octane premiums. Declines in intermediate chemicals results led to an EBITDA decrease of 11% in 2020. This decrease was a result of lower margins as demand weakened due to the impacts of COVID-19 and additional market supply derived from competitors in 2020. Planned maintenance in 2021 is expected to reduce EBITDA by approximately $145 million.

Advanced Polymer Solutions Segment

**Overview—**EBITDA for our APS segment decreased in 2020 compared to 2019, primarily due to lower compounding and solutions volumes.

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

			Year Ended December 31,
Millions of dollars			2020						2019
Sales and other operating revenues			$	3,913					$	4,850
Loss from equity investments			(1)						—
EBITDA			378						424

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Revenues—Revenues decreased in 2020 by $937 million, or 19%, compared to 2019. Sales volumes declined in 2020 stemming from lower market demand for compounding and solutions, including lower automotive and appliance demand, which led to a 15% decrease in revenue in 2020. Lower average sales prices resulted in a 6% decrease in revenue. Favorable foreign exchange impacts increased revenue by 2% in 2020.

EBITDA—EBITDA decreased in 2020 by $46 million, or 11%, compared to 2019. Compounding and solutions results declined resulting in a 18% decrease of EBITDA. This decrease was attributable to lower volumes driven by reduced demand for our products utilized in the automotive and appliance sectors which were impacted by COVID-19. Advanced Polymers results reduced EBITDA by 8% largely due to lower margins driven by reduced construction market demand. This decrease was offset by an increase in EBITDA of approximately $80 million, or 19%, in 2020 due to lower integration costs related to the acquisition of A. Schulman. Integration activities related to our 2018 acquisition of A. Schulman Inc. were substantially completed by the third quarter of 2020.

Refining Segment

Overview—EBITDA for our Refining segment decreased in 2020 relative to 2019 primarily due to lower margins and a non-cash impairment charge of $582 million recognized during the third quarter of 2020.

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

			Year Ended December 31,
Millions of dollars			2020						2019
Sales and other operating revenues			$	4,727					$	8,251
EBITDA			(871)						(65)
Thousands of barrels per day
Heavy crude oil processing rates			223						263
Market margins, dollars per barrel
Brent - 2-1-1			$	5.74					$	10.94
Brent - Maya differential			6.89						6.58
Total Maya 2-1-1			$	12.63					$	17.52

Revenues—Revenues decreased by $3,524 million, or 43%, in 2020 compared to 2019. Lower product prices led to a revenue decrease of 34% relative to 2019 due to an average crude oil price decrease of approximately $21 per barrel in 2020. Heavy crude oil processing rates decreased during 2020 due to reduced demand for refined products as a result of COVID-19, leading to a decrease in overall sales volumes of 9%. Rates on conversion units were lower due to an unplanned outage at our fluid catalytic cracking unit during the first two quarters of 2020, as well as crude selection and the optimization of refinery operations.

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EBITDA—EBITDA decreased by $806 million in 2020 compared to 2019. During the third quarter of 2020, we recognized a non-cash impairment charge of $582 million relating to our Houston refinery’s asset group as a result of an expected prolonged period of reduced demand and compressed margins that will decrease profitability for transportation fuels produced by our Houston refinery. The lower profitability is primarily a result of the impacts of COVID-19 and associated reductions in mobility affecting the global economy. In addition, the refinery is expected to continue to be adversely affected by lower discounts for the heavy crude oil feedstocks that we utilize. Of the remaining decrease, approximately two-thirds relates to a decline in margins, which reflect a 28% decrease in the Maya 2-1-1 market margin in 2020 relative to 2019, driven primarily by lower refined product cracks, and one-third relates to lower heavy crude oil processing rates driven by lower demand for refined products.

In efforts to manage costs within the segment we deferred non-safety related discretionary activities and reduced the employee workforce by approximately 10% through early retirements and worker re-deployments to our other facilities. We plan to continue to operate the refinery at approximately 80% of nameplate capacity during the first quarter of 2021 and continue to evaluate options with regard to procuring crude oil and optimizing production from the asset.

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 2020 and 2019, our Technology segment incurred approximately half of all R&D costs. EBITDA for our Technology segment decreased in 2020 compared to 2019 largely due to lower licensing revenues.

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

			Year Ended December 31,
Millions of dollars			2020						2019
Sales and other operating revenues			$	659					$	663
EBITDA			324						411

Revenues—Revenues decreased by $4 million, or 1%, in 2020 compared to 2019. Lower licensing revenues resulted in a revenue decrease of 9% in 2020 compared to 2019. Higher catalyst volumes resulted in a 2% increase in revenue in 2020 driven by increased orders as customers were likely securing inventory during the pandemic. Increases in average catalyst sales prices resulted in revenue increases of 4% in 2020 driven by the growth of high yield catalyst. Foreign exchange impacts, which on average, were favorable led to a revenue increase of 2% in 2020.

EBITDA—EBITDA in 2020 decreased by $87 million, or 21%, compared to 2019. This decrease was primarily driven by lower licensing revenues due to lower average contract values in 2020 compared to 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			2020						2019
Source (use) of cash:
Operating activities			$	3,404					$	4,961
Investing activities			(4,906)						(1,635)
Financing activities			2,271						(2,835)

Operating Activities—Cash of $3,404 million generated by operating activities in 2020 reflected earnings adjusted for non-cash items, payments for employee related expenses, income taxes, and cash provided by the main components of working capital–Accounts receivable, Inventories and Accounts payable.

In 2020, the main components of working capital provided $311 million of cash driven by a decrease in Inventories and an increase in Accounts payable, partially offset by an increase in Accounts receivable. The decrease in Inventory was primarily driven by company-wide inventory reduction initiatives to maximize liquidity. The increase in Accounts payable was primarily driven by increased raw material purchases during the fourth quarter of 2020. The increase in Accounts receivable was driven by higher sales in the fourth quarter 2020 for our O&P—Americas, O&P—EAI, and I&D segments resulting from demand recovery.

Other operating activities in 2020 includes the effects of changes in tax accruals, primarily driven by a tax refund of $900 million. For additional information see Note 16 to our Consolidated Financial Statements.

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. A

$113 million non-cash reduction in unrecognized tax benefits is reflected in Other operating activities in 2019.

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.

Investing Activities

Acquisition of Equity Method Investments—In 2020, we invested $2,440 million in cash for 50% equity interests in the Bora LyondellBasell Petrochemical Co. Ltd joint venture and the Louisiana Joint Venture. For additional information related to our Equity investments, see Note 8 to the Consolidated Financial Statements.

Investments—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 $114 million and $511 million in 2020 and 2019, respectively, upon the sale and maturity of certain of our available-for-sale debt securities. Additionally, in 2020 and 2019, we received proceeds of $313 million and $332 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.

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In 2020 and 2019 we invested $270 million and $108 million, respectively, in debt securities that are deemed available-for-sale. We also invested $608 million and $33 million in equity securities in 2020 and 2019, respectively. Our investments in available-for-sale debt securities and equity securities are classified as Short-term investments.

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

			Year Ended December 31,
Millions of dollars			2020						2019
Capital expenditures by segment:
O&P—Americas			$	543					$	1,099
O&P—EAI			166						213
I&D			880						1,064
APS			63						59
Refining			63						149
Technology			111						94
Other			121						16
Consolidated capital expenditures of continuing operations			$	1,947					$	2,694

As a result of COVID-19 and current market conditions, during 2020 the Company postponed select growth projects and planned maintenance, including slowing certain construction activities, allowing us to prevent the spread of the virus at the construction site and conserve capital as we prepared for an uncertain economic environment caused by the pandemic. These actions resulted in a $500 million, or 20% reduction in our 2020 capital expenditures compared to what was forecasted at the beginning of year.

Capital expenditures decreased by $747 million, or 28%, in 2020 compared to 2019. The decrease was primarily due to lower spending within our O&P—Americas segment which resulted in a decline of 21% primarily due to the completed construction of our Hyperzone polyethylene plant in La Porte, Texas and postponement of maintenance projects. Additionally, lower spending within our I&D segment resulted in a 7% decline primarily as a result of the slowed construction activities at our PO/TBA plant at our Houston, Texas facility.

Financing Activities—In 2020 and 2019, we made payments of $4 million and $3,752 million to acquire approximately 0.1 million and 42.7 million, respectively, of our outstanding ordinary shares. We also made dividend payments totaling $1,405 million and $1,462 million in 2020 and 2019, respectively. For additional information related to our share repurchases and dividend payments, see Note 18 to the Consolidated Financial Statements.

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.

In May 2020, we terminated and cash settled $2,000 million in notional value of our cross-currency interest rate swaps, designated as cash flows hedges, maturing in 2021 and 2024. Upon termination of the swaps, we received $346 million from our counterparties.

In November 2020, we paid $882 million to our counterparties and received €750 million ($887 million at the expiry spot rate) from our counterparties upon expiration and settlement of the foreign currency contracts entered to economically hedge the redemption of €750 million aggregate principal amount of our 1.875% guaranteed notes originally due in 2022.

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

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During 2019 and 2020 we entered into various financing transactions. See Note 11 to the Consolidated Financial Statements.

In 2020 and 2019, we made payments of $30 million and $63 million related to the acquisition of additional non-controlling interests in our POSM II Limited Partnership joint venture and our subsidiary that holds our La Porte, Texas methanol facility, respectively.

Liquidity and Capital Resources

Overview

As a result of COVID-19, we continue to take actions to manage our financial risk. In 2020, we increased our liquidity through the issuance of guaranteed notes and we continue to focus on cost savings while minimizing working capital. In April 2020, we announced that we reduced our budgeted 2020 capital expenditures by $500 million, to improve liquidity. 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 remain committed to funding our dividends while maintaining a strong investment grade balance sheet. In the near term, we are prioritizing debt reduction on our balance sheet.

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. 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. Further, we believe the current economic environment will not have an adverse effect on our ability to be in compliance with our debt covenants.

Cash and Liquid Investments

As of December 31, 2020, we had Cash and cash equivalents and marketable securities classified as Short-term investments totaling $2,465 million, which included $1,329 million of cash in jurisdictions outside of the U.S., principally in the United Kingdom. There are currently no legal or economic restrictions that would materially impede our transfers of cash.

Credit Arrangements

At December 31, 2020, we had total debt, including current maturities, of $15,957 million, and $205 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 $2,777 million at December 31, 2020, which included the following:

• $2,020 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, 2020, we had $500 million of outstanding commercial paper, net of discount, no borrowings or letters of credit outstanding under this facility; and

• $757 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. At December 31, 2020 we had no borrowings or letters of credit outstanding under this facility.

In October 2020, we amended some of our credit agreements. See Note 11 to the Consolidated Financial Statements.

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In January 2021, we repaid $500 million outstanding under our Term Loan due 2022.

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, 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.

Share Repurchases

In May 2020, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million of our ordinary shares through November 29, 2021, which superseded our prior repurchase authorization. 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 2020, we purchased approximately 0.1 million shares under our share repurchase authorizations for approximately $4 million.

As of February 23, 2021, we had approximately 34.0 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased, if any, will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. In addition, 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. In the near term, we are prioritizing debt reduction over share repurchases. For additional information related to our share repurchase authorization, see Note 18 to the Consolidated Financial Statements.

Capital Budget

In 2021, we expect our capital budget spend to remain flat at approximately $2 billion, which includes approximately $63 million for investments in our U.S. and European PO joint ventures. Approximately half of the 2021 budget is planned for profit-generating growth projects, primarily our PO/TBA plant, with the remaining budget supporting sustaining maintenance. We expect a similar level of capital expenditures for 2022 followed by a modest reduction in 2023, after completion of the PO/TBA facility.

Once completed, our world-scale PO/TBA plant in Houston, Texas will have the capacity to produce 470 thousand tons of PO and 1.0 million tons of tertiary butyl alcohol. Earlier in 2020, we slowed construction activities on our PO/TBA plant to ensure worksite safety and preserve liquidity during the pandemic. During the fourth quarter we resumed activity. The project is approximately 50% complete and expected to be completed in the fourth quarter of 2022, approximately one year later than originally estimated. The delayed timing of the startup should provide benefits from a more fully recovered global economy as well as another year of global demand growth for the products. Higher costs arising from the delayed project execution due to COVID-19, more extensive civil construction and unexpected tariffs on materials are expected to add approximately 40 to 50% to our original cost estimate of $2.4 billion.

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Equity Investment

On January 25, 2021 we signed an agreement with China Petroleum & Chemical Corporation to form Ningbo ZRCC LyondellBasell New Material Company Limited, a 50/50 joint venture. The joint venture will construct a new PO/SM unit in Zhenhai Ningbo, China. The unit will use LyondellBasell's leading PO/SM technology and will have the capacity to produce 275 thousand tons of PO and 600 thousand tons of SM per year. Products produced by the joint venture will be marketed equally by both partners, expanding our respective participation in the Chinese market. The formation of the joint venture is subject to approvals by relevant government authorities, including antitrust review by the State Administration for Market Regulation. We expect to make an equity contribution of approximately $100 million to the joint venture during the first half of 2021 and startup is expected at the end of 2021. The joint venture will be included within our I&D segment.

Contractual and Other Obligations—The following table summarizes, as of December 31, 2020, 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			$	16,063					$	671					$	2,861					$	2,009					$	10,522
Interest on total debt			9,712						538						1,041						866						7,267
Contract liabilities			194						157						37						—						—
Other			2,313						1,243						248						304						518
Deferred income taxes			2,332						552						408						367						1,005
Purchase obligations:
Take-or-pay contracts			22,304						2,273						4,571						4,648						10,812
Other contracts			15,318						5,171						3,215						1,363						5,569
Operating leases			2,506						534						599						429						944
Total			$	70,742					$	11,139					$	12,980					$	9,986					$	36,637

Total Debt—Our debt includes unsecured senior notes, guaranteed notes and various other U.S. and non-U.S. loans. See Note 11 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, semi-annual, and 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, 2020.

Pension and other Postretirement Benefits—We maintain several defined benefit pension plans, as described in Note 14 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 2021 are not expected to be materially different than the expected 2021 contributions disclosed in Note 14 to the Consolidated Financial Statements. At December 31, 2020, the projected benefit obligation for our pension plans exceeded the fair value of plan assets by $1,482 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 $1,482 million in future years. We contributed $74 million and $97 million to our pension plans in 2020 and 2019, respectively. We provide other postretirement

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benefits, primarily medical benefits to eligible participants, as described in Note 14 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. The long-term portion of such advances totaled $37 million as of December 31, 2020.

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

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 16 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, 2020.

Operating Leases—We lease various facilities and equipment under noncancelable lease arrangements for various periods. See Note 12 to the Consolidated Financial Statements for related lease disclosures.

CURRENT BUSINESS OUTLOOK

Improving trends seen in the closing weeks of December 2020 are continuing into the first quarter of 2021 and providing a bridge to the seasonal upticks typically seen in our businesses during the second and third quarters. Elevated export demand to China and Latin America combined with tight markets are supporting strong margins for our Olefins and Polyolefins businesses. In early 2021 we expect increased demand from automotive and construction markets to benefit our Advanced Polymer Solutions segment. With wider deployment of coronavirus vaccines, we anticipate that increasing mobility and transportation fuel demand could provide upside for our oxyfuels and refining businesses during the latter half of 2021. In February 2021, unusually cold temperatures and associated electrical power outages led to shutdowns of the majority of the petrochemical and refining capacity along the United States Gulf Coast, including LyondellBasell’s facilities in the region. The majority of our capacity in the region was down for at least one week. At this time, we are continuing to assess the impact of the weather event and develop timelines for the restart of each of our affected facilities.

In the near term, we are prioritizing debt reduction on our balance sheet.

RELATED PARTY TRANSACTIONS

We have related party transactions with our joint venture partners. We believe that such transactions are effected on terms substantially no more or less favorable than those that would have been agreed upon by unrelated parties on an arm’s length basis. See Note 4 to the Consolidated Financial Statements for additional related party disclosures.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management applies those accounting policies that it believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the U.S., see Note 2 to the Consolidated Financial Statements. Inherent in such policies are certain key assumptions and estimates made by management and updated periodically based on its latest assessment of the current and projected business and general economic environment.

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

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

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

Since our inventory consists of manufactured products derived from crude oil, natural gas, natural gas liquids and correlated materials, as well as the associated feedstocks and intermediate chemicals, our inventory market values are generally influenced by changes in the benchmark of crude oil and heavy liquid values and prices for manufactured finished goods. The degree of influence of a particular benchmark may vary from period to period, as the composition of the dollar value LIFO pools change. 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. 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 2020, commodity price volatility resulted in a large LCM inventory charge during the first quarter which was substantially reversed by the end of the year, resulting in an LCM inventory valuation charges of $16 million for the year.

In the first quarter of 2020, we recognized LCM inventory valuation charges of $419 million which was driven by a decline in pricing for many of our raw material and finished goods inventories. During the second, third and fourth quarters of 2020, we recognized an LCM inventory valuation benefit of $96 million, $160 million and $147 million, respectively, as market prices began to recover subsequent to the first quarter of 2020.

Market price volatility for crude oil, heavy liquids and ethylene were the primary contributors to the LCM inventory valuation charges, and representative prices used to determine the LCM inventory valuation charges recognized during the year ranged from $12.14 to $41.75 per barrel for crude oil, $13.50 to $51.07 per barrel for heavy liquids and $205 to $767 per ton for ethylene.

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Currently, four out of our eleven LIFO inventory pools are “at-risk” for further adjustment as each impacted LIFO pool has been reduced to, or close to, the calculated market value at the last balance sheet measurement date. “At-risk” inventory accounts for $1.5 billion of our total inventory carrying value as of December 31, 2020. Sustained price declines in our finished goods and raw materials could result in future LCM inventory valuation charges, the extent to which further adjustment may occur is dependent on the pool specific product prices and composition within each individual dollar value LIFO pool at the balance sheet date.

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

Fair value calculated for the purpose of testing our long-lived assets for impairment is estimated using a discounted cash flow model and comparative market prices when appropriate. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted financial information prepared using significant assumptions which may include, among other things, projected changes in supply and demand fundamentals (including industry-wide capacity, our planned utilization rate and end-user demand), new technological developments, capital expenditures, new competitors with significant raw material or other cost advantages, changes associated with world economies, the cyclical nature of the chemical and refining industries, uncertainties associated with governmental actions and other economic conditions. Such estimates are consistent with those used in our planning and capital investment and business performance reviews.

The cash flows are discounted using a rate that is based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. This discount rate is also compared to recent observable market transactions, if possible.

Houston Refinery Impairment—During the third quarter of 2020, we identified impairment triggers relating to our Houston refinery’s asset group which resulted in a $582 million impairment charge recognized during the third quarter of 2020. Refer to Note 7 to our Consolidated Financial Statements.

The estimates of the Houston refinery’s undiscounted pre-tax cash flows and estimated fair value utilized significant assumptions including management’s best estimates of the expected future cash flows, the estimated useful lives of the asset group, and the residual value of the refinery. These estimates required considerable judgment and are sensitive to changes in underlying assumptions such as future commodity prices, margins on refined products, operating rates and capital expenditures including repairs and maintenance. As a result, there can be no assurance that the estimates and assumptions made for purposes of our impairment determination will prove to be an accurate prediction of the future. Should our estimates and assumptions significantly change in future periods, it is possible that we may determine future impairment charges. In addition, assumptions about the effects of COVID-19 and the macroeconomic environment are inherently subjective and contingent upon the duration of the pandemic and its impact on the macroeconomic environment, which is difficult to forecast. We base our fair value estimates on projected financial information which we believe to be reasonable. However, actual results may differ from these projections.

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

Equity Method Investments Impairment—Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount.

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

Goodwill—As of December 31, 2020, we have goodwill of $1,953 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, 2020, primarily represents the tax effect of the differences between the tax and book basis of our assets and liabilities resulting from the revaluation of those assets and liabilities to fair value in connection with the Company’s emergence from bankruptcy and fresh-start accounting in 2010. Additional information on the amount of goodwill allocated to our reporting units appears in Note 7 and Note 20 to the Consolidated Financial Statements.

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

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

For 2020 and 2019, 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 including goodwill. Accordingly, a quantitative goodwill impairment test was not required, and no goodwill impairment was recognized in 2020 or 2019.

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, 2020, we used a weighted average discount rate of 2.54% 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, 2020, was 0.99%, reflecting market interest rates. The discount rates in effect at December 31, 2020 will be used to measure net periodic benefit cost during 2021.

The benefit obligation and the net periodic benefit 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, 2020, the assumed rate of increase for our U.S. plans was 6.5%, decreasing to 4.5% in 2029 and thereafter.

The net periodic benefit cost of pension benefits included in expense is affected by the expected long-term rate of return on plan assets assumption. Investment returns that are recognized currently in net income represent the expected long-term rate of return on plan assets applied to a market-related value of plan assets, which is defined as the market value of assets. The expected rate of return on plan assets is a longer-term rate and is expected to change less frequently than the current assumed discount rate, reflecting long-term market expectations, rather than current fluctuations in market conditions.

The weighted average expected long-term rate of return on assets in our U.S. plans of 7.25% is based on the average level of earnings that our independent pension investment advisor advised could be expected to be earned over time. The weighted average expected long-term rate of return on assets in our non-U.S. plans of 1.79% is based on expectations and asset allocations that vary by region. The asset allocations are summarized in Note 14 to the Consolidated Financial Statements.

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

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

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

			Effects on Benefit Obligations in 2020												Effects on Net Periodic Pension Costs in 2021
Millions of dollars			U.S.						Non-U.S.						U.S.						Non-U.S.
Projected benefit obligations at December 31, 2020			$	2,039					$	2,159					$	—					$	—
Projected net periodic pension costs in 2021			—						—						29						68
Discount rate increases by 100 basis points			(185)						(292)						(7)						(5)
Discount rate decreases by 100 basis points			220						381						8						24

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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 2020												Effects on Net Periodic Benefit Costs in 2021
Millions of dollars			U.S.						Non-U.S.						U.S.						Non-U.S.
Projected benefit obligations at December 31, 2020			$	211					$	86					$	—					$	—
Projected net periodic benefit costs in 2021			—						—						(1)						5
Discount rate increases by 100 basis points			(19)						—						(1)						—
Discount rate decreases by 100 basis points			20						—						2						—

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

Accruals for Taxes Based on Income—The determination of our provision for income taxes and the calculation of our tax benefits and liabilities is subject to management’s estimates and judgments due to the complexity of the tax laws and regulations in the tax jurisdictions in which we operate. Uncertainties exist with respect to interpretation of these complex laws and regulations.

Deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

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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