Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

65K characters. Original on sec.gov · Markdown

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements, and the accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).

Effective January 1, 2023, our Catalloy and polybutene-1 products were moved from our Advanced Polymer Solutions (“APS”) segment and reintegrated into our Olefins and Polyolefins-Americas (“O&P-Americas”) and Olefins and Polyolefins-Europe, Asia, International (“O&P-EAI”) segments. Segment information provided herein has been revised for all periods presented to reflect these changes.

OVERVIEW

During the first quarter of 2023, margins in our O&P-Americas and O&P-EAI segments increased driven by lower ethane cost in the U.S., lower energy costs and moderately improving global demand. We increased global operating rates to align with market conditions. Steady demand for fuels continued to support margins in our Intermediates and Derivatives and Refining segments.

During the first quarter of 2023, we generated $482 million in cash from operating activities. We remain committed to a disciplined approach to capital allocation. During the first quarter of 2023, we reinvested $352 million in the businesses through capital expenditures and we paid dividends of $389 million to shareholders and repurchased $70 million worth of our shares. In the first quarter of 2023 we successfully started up the world's largest PO/TBA plant.

In March 2023, we announced the decision to explore strategic options for our U.S. Gulf Coast-based ethylene oxide & derivatives (“EO&D”) business as it is not a business where we seek a leading long-term position.

Table of Contents

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

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$10,247$10,206$13,157
Cost of sales8,8649,35611,136
Impairment252——
Selling, general and administrative expenses385334328
Research and development expenses332932
Operating income7134871,661
Interest expense(116)(85)(74)
Interest income23162
Other income (expense), net5(9)19
Income (loss) from equity investments17(20)29
Income from continuing operations before income taxes6423891,637
Provision for income taxes16734316
Income from continuing operations4753551,321
Loss from discontinued operations, net of tax(1)(2)(1)
Net income4743531,320
Other comprehensive income (loss), net of tax –
Financial derivatives4(5)88
Defined benefit pension and other postretirement benefit plans22125
Foreign currency translations59232(25)
Total other comprehensive income, net of tax6543968
Comprehensive income$539$792$1,388

Table of Contents

RESULTS OF OPERATIONS

Revenues—Revenues remained relatively unchanged in the first quarter of 2023 compared to the fourth quarter of 2022. Lower volumes driven by lower demand resulted in a 2% decrease in revenues. Favorable foreign exchange impacts resulted in a 2% increase in revenues.

Revenues decreased by $2,910 million, or 22%, in the first quarter of 2023 compared to the first quarter of 2022. Average sales prices were lower for many of our products as sales prices generally correlate with crude oil prices, which decreased relative to the first quarter of 2022. These lower prices led to a 13% decrease in revenue. Lower volumes driven by lower demand resulted in a 7% decrease in revenues. Unfavorable foreign exchange impacts resulted in a 2% decrease in revenues.

Cost of Sales—Cost of sales decreased by $492 million, or 5%, in the first quarter of 2023 compared to the fourth quarter of 2022 and by $2,272 million, or 20%, in the first quarter of 2023 compared to the first quarter of 2022. These decreases were primarily driven by lower feedstock and energy costs.

Impairment—During the first quarter of 2023 we recognized a non-cash goodwill impairment charge of $252 million in our APS segment after the effect of moving our Catalloy and polybutene-1 products from our APS segment and reintegrating into our O&P-Americas and O&P-EAI segments. See Note 12 to our Consolidated Financial Statements for additional information.

Operating Income—Operating income increased by $226 million, or 46%, in the first quarter of 2023 compared to the fourth quarter of 2022. Operating income in our O&P-EAI, O&P-Americas, I&D, and Technology segments increased by $177 million, $154 million, $109 million, and $11 million, respectively. These increases were partially offset by decreases in our APS and Refining segments of $197 million and $35 million, respectively.

Operating income decreased by $948 million, or 57%, in the first quarter of 2023 compared to the first quarter of 2022. Operating income in our O&P-Americas, APS, I&D, O&P-EAI and Technology segments decreased by $383 million, $285 million, $148 million, $142 million and $32 million, respectively. These decreases were partially offset by an increase in our Refining segment of $38 million.

Results for each of our business segments are discussed further in the Segment Analysis section below.

Income Taxes—Our effective income tax rate for the first quarter of 2023 was 26.0% compared with 9.0% for the fourth quarter of 2022. The higher effective tax rate for the first quarter of 2023 was primarily attributable to fluctuations in uncertain tax positions of 18.3%, coupled with the first quarter 2023 goodwill impairment, for which there is no tax benefit, of 6.6%. These increases were partially offset by changes in foreign exchange gains or losses of 6.4%.

Our effective income tax rate for the first quarter of 2023 was 26.0% compared with 19.3% for the first quarter of 2022. The higher effective tax rate for the first quarter of 2023 was primarily due to the first quarter 2023 goodwill impairment, for which there is no tax benefit, of 6.6%.

Our income tax results are discussed further in Note 8 to the Consolidated Financial Statements.

Table of Contents

Comprehensive Income—Comprehensive income decreased by $253 million in the first quarter of 2023 compared to the fourth quarter of 2022, primarily due to the decreases in defined pension and other postretirement benefit plans and foreign currency translations gains, offset by an increase in net income. Comprehensive income decreased by $849 million in the first quarter of 2023 compared to the first quarter of 2022, primarily due to the decline in net income. The activities from the remaining components of Comprehensive income are discussed below.

Financial derivatives designated as cash flow hedges, primarily our forward-starting interest rate swaps, remained relatively unchanged in the first quarter of 2023 compared to the fourth quarter of 2022. Financial derivatives designated as cash flow hedges, primarily our forward-starting interest rate swaps, led to a decrease in Comprehensive income of $84 million in the first quarter of 2023 compared to the first quarter of 2022 due to periodic changes in the benchmark interest rates, combined with lower notional amounts outstanding during the first quarter of 2023.

Defined pension and other postretirement benefit plans led to a decrease in Comprehensive income of $210 million in the first quarter of 2023 compared to the fourth quarter of 2022, as the fourth quarter of 2022 reflected annual changes in actuarial assumptions. Defined pension and postretirement benefit plans remained relatively unchanged in the first quarter of 2023 compared to the first quarter of 2022.

Foreign currency translation gains in Comprehensive income decreased by $173 million in the first quarter of 2023 compared to the fourth quarter of 2022, primarily due to the weakening of the U.S. dollar relative to the euro, offset by the effective portion of our net investment hedges. Foreign currency translation gains in Comprehensive income increased by $84 million in the first quarter of 2023 compared to the first quarter of 2022, primarily due to the strengthening of the U.S. dollar relative to the euro.

See Notes 7 and 10 to our Consolidated Financial Statements for further discussions.

Table of Contents

Segment Analysis

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of and allocate resources to our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other postretirement benefits other than service costs 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 12 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.

Revenues and the components of EBITDA for the periods presented are reflected in the table below:

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues:
O&P-Americas segment$2,808$2,818$3,734
O&P-EAI segment2,8922,5233,926
I&D segment2,6822,5623,339
APS segment9979011,136
Refining segment2,1902,6332,720
Technology segment139145181
Other, including intersegment eliminations(1,461)(1,376)(1,879)
Total$10,247$10,206$13,157
Operating income (loss):
O&P-Americas segment$371$217$754
O&P-EAI segment21(156)163
I&D segment320211468
APS segment(247)(50)38
Refining segment186221148
Technology segment615093
Other, including intersegment eliminations1(6)(3)
Total$713$487$1,661
Depreciation and amortization:
O&P-Americas segment$144$149$144
O&P-EAI segment483547
I&D segment1108781
APS segment222429
Refining segment6128—
Technology segment111110
Total$396$334$311

Table of Contents

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Income (loss) from equity investments:
O&P-Americas segment$23$17$33
O&P-EAI segment1(29)1
I&D segment(6)(8)(5)
APS segment(1)——
Total$17$(20)$29
Other income (expense), net:
O&P-Americas segment$3$1$8
O&P-EAI segment723
I&D segment212
APS segment——4
Refining segment(1)——
Technology segment1(2)—
Other, including intersegment eliminations(7)(11)2
Total$5$(9)$19
EBITDA:
O&P-Americas segment$541$384$939
O&P-EAI segment77(148)214
I&D segment426291546
APS segment(226)(26)71
Refining segment246249148
Technology segment7359103
Other, including intersegment eliminations(6)(17)(1)
Total$1,131$792$2,020

Olefins and Polyolefin-Americas Segment

Overview—EBITDA in the first quarter of 2023 increased compared to the fourth quarter of 2022 driven by improvements in olefins and polyethylene margins. EBITDA decreased in the first quarter of 2023 relative to the first quarter of 2022 primarily driven by lower margins across most businesses.

*Ethylene Raw Materials—*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 the first quarter of 2023, and the first and fourth quarters of 2022, approximately 65% to 70% of the raw materials used in our North American crackers was ethane.

Table of Contents

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:

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$2,808$2,818$3,734
Income from equity investments231733
EBITDA541384939

Revenue—Revenues for our O&P-Americas segment remained relatively unchanged in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $926 million, or 25%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Revenue decreased by 6% as a result of lower co-product sales volumes. Higher average sales prices resulted in a revenue increase of 6% primarily driven by improving demand and lower industry supply due to outages.

First quarter of 2023 versus first quarter of 2022—Lower average sales prices across all products resulted in a 27% decrease in revenue primarily driven by increased market supply. Higher sales volumes resulted in a revenue increase of 2% as a result of higher co-products sales.

EBITDA—EBITDA increased by $157 million, or 41%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $398 million, or 42%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Higher olefins results led to a 40% increase in EBITDA driven by higher margins as a result of lower feedstock and energy cost. Higher polyethylene results led to a 12% increase in EBITDA due to higher margins driven by higher average sales prices. Lower polypropylene results led to a 14% decrease in EBITDA driven by a decrease in spreads resulting from increased industry supply and weak demand for durable goods.

First quarter of 2023 versus first quarter of 2022—Lower polyethylene results led to a 15% decrease in EBITDA primarily driven by lower margins as a result of lower average sales prices. Lower olefins results led to a 13% decrease in EBITDA due to lower margins driven by a decline in the average sales price of ethylene partially offset by lower feedstock costs. Lower polypropylene results led to a 13% decrease in EBITDA driven by a decrease in margin as a result of lower spreads due to increased industry supply and lower demand.

Olefins and Polyolefin-Europe, Asia, International Segment

Overview—EBITDA increased in the first quarter of 2023 compared to the fourth quarter of 2022 primarily due to improved olefins margins, increased polymer volumes, and higher income from equity investments. EBITDA decreased in the first quarter of 2023 relative to the first quarter of 2022 primarily as a result of lower polymers margins.

Ethylene Raw Materials—In Europe, naphtha is the primary raw material for our ethylene production and represented approximately 70% of the raw materials used in the first quarter of 2023 and 65% and 75% used in the first and fourth quarters of 2022, respectively.

Table of Contents

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:

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$2,892$2,523$3,926
(Loss) income from equity investments1(29)1
EBITDA77(148)214

Revenue—Revenues increased by $369 million, or 15%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $1,034 million, or 26%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Higher volumes resulted in a revenue increase of 14% primarily due to higher demand. Favorable foreign exchange impacts resulted in a revenue increase of 5%. Lower average sales prices resulted in a 4% decrease in revenue as sales prices generally correlate with crude oil prices, which on average, decreased compared to the fourth quarter of 2022.

First quarter of 2023 versus first quarter of 2022—Lower average sales prices resulted in a 16% decrease in revenue as sales prices generally correlate with crude oil prices, which on average, decreased compared to the first quarter of 2022. Lower volumes resulted in a revenue decrease of 6% primarily due to lower demand. Unfavorable foreign exchange impacts resulted in a revenue decrease of 4%.

EBITDA—EBITDA increased by $225 million, or 152%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $137 million, or 64%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Higher olefins results led to a 61% increase in EBITDA primarily driven by higher margins as a result of lower energy costs. Higher polyolefins results led to a 28% increase in EBITDA primarily driven by higher volumes due to increased demand. Improved income from our equity investments led to an increase in EBITDA of 20% mainly attributable to a gain on sale of asset recognized by one of our joint ventures in Europe. During the fourth quarter of 2022 we recognized last-in, first out (“LIFO”) inventory valuation charges of $56 million. The absence of similar charges in the first quarter of 2023 resulted in a 38% increase in EBITDA.

First quarter of 2023 versus first quarter of 2022—Lower polymer results led to an 84% decrease in EBITDA primarily driven by decreased margins resulting from lower polyolefins spreads reflecting weak demand. Higher olefins results led to a 21% increase in EBITDA, which was primarily driven by higher margins resulting from lower feedstock costs which outpaced decreased ethylene prices.

Table of Contents

Intermediates and Derivatives Segment

Overview—EBITDA increased in the first quarter of 2023 compared to the fourth quarter of 2022, primarily driven by improved margins for oxyfuels and related products. EBITDA decreased in the first quarter of 2023 compared to the first quarter of 2022, primarily driven by a decrease in margins for propylene oxide and derivatives and intermediate chemicals, partially offset by margin improvements for oxyfuels and related products.

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

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$2,682$2,562$3,339
Loss from equity investments(6)(8)(5)
EBITDA426291546

Revenue—Revenues increased by $120 million, or 5%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $657 million, or 20%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Higher average sales prices resulted in a 2% increase in revenue. Favorable foreign exchange impacts resulted in a 2% increase in revenue. Sales volumes improved resulting in a 1% increase in revenue.

First quarter of 2023 versus first quarter of 2022—Lower average sales prices resulted in a 9% decrease in revenue driven by lower pricing in PO derivatives, acetyls and styrene as a result of higher market supply. Sales volumes decreased resulting in a 9% reduction in revenue due to lower demand. Unfavorable foreign exchange impacts resulted in a revenue decrease of 2%.

EBITDA—EBITDA increased by $135 million, or 46%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $120 million, or 22%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—EBITDA improved 25% as a result of higher oxyfuels and related products results driven by increased margins as a result of higher blend premiums and a tight gasoline market. During the fourth quarter of 2022 we recognized a $26 million LIFO inventory valuation charge. The absence of a similar charge in the first quarter of 2023 resulted in a 9% increase in EBITDA. Propylene oxide and derivatives results drove a 3% increase in EBITDA primarily as a result of increased volumes. Favorable foreign exchange impacts resulted in a 2% increase in EBITDA.

First quarter of 2023 versus first quarter of 2022—Propylene oxide and derivatives results drove a 31% decrease in EBITDA as margins declined due to lower demand. Intermediate chemicals results declined, resulting in a 20% decrease in EBITDA, primarily driven by lower margins due to lower average sales prices from higher market supply. Oxyfuels and related products results led to an EBITDA increase of 26% driven by margin improvements resulting from higher blend premiums and strong gasoline crack spreads.

Table of Contents

Advanced Polymer Solutions Segment

Overview—EBITDA decreased in the first quarter of 2023 relative to the fourth quarter of 2022 and the first quarter of 2022 primarily due to the recognition of a non-cash goodwill impairment charge in the first quarter of 2023. See Note 12 to our Consolidated Financial Statements for additional information.

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

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$997$901$1,136
Loss from equity investments(1)——
EBITDA(226)(26)71

Revenue—Revenues increased by $96 million, or 11%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $139 million, or 12%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Sales volumes increased resulting in a 10% increase in revenue stemming from higher demand. Foreign exchange impacts resulted in a revenue increase of 2%. Average sales price decreased resulting in a 1% decrease in revenue.

First quarter of 2023 versus first quarter of 2022—Sales volumes decreased resulting in a 5% decrease in revenue stemming from lower demand. Average sales price decreased resulting in a 5% decrease in revenue. Unfavorable foreign exchange impacts resulted in a revenue decrease of 2%.

EBITDA—EBITDA decreased by $200 million in the first quarter of 2023 compared to the fourth quarter of 2022 and by $297 million in the first quarter of 2023 compared to the first quarter of 2022.

During the first quarter of 2023 we recognized a non-cash goodwill impairment charge of $252 million after the effect of moving our Catalloy and polybutene-1 products from our APS segment and reintegrating into our O&P-Americas and O&P-EAI segments. See Note 12 to our Consolidated Financial Statements for additional information.

First quarter of 2023 versus fourth quarter of 2022—Margins in the first quarter of 2023 improved compared to the fourth quarter of 2022, due to higher sales prices resulting in an EBITDA improvement of 100%. During the fourth quarter of 2022 we recognized a $21 million LIFO inventory valuation charge. The absence of a similar charge in the first quarter of 2023 resulted in an 81% increase in EBITDA compared to the fourth quarter of 2022. The remaining change was primarily due to the recognition of the non-cash goodwill impairment charge in the first quarter of 2023, discussed above.

First quarter of 2023 versus first quarter of 2022— Margins in the first quarter of 2023 decreased compared to the first quarter of 2022, primarily due to higher production and raw material costs resulting a 31% decrease in EBITDA. Lower volumes resulted in a 24% decrease in EBITDA as a result of a decrease in demand. The remaining change was primarily due to the recognition of the non-cash goodwill impairment charge in the first quarter of 2023, discussed above.

Table of Contents

Refining Segment

Overview—EBITDA remained relatively unchanged in the first quarter of 2023 relative to the fourth quarter of 2022 primarily due to the absence of a LIFO inventory valuation benefit recognized in the fourth quarter of 2022 offset by higher margins. EBITDA increased in the first quarter of 2023 compared to the first quarter of 2022 due to higher margins.

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

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$2,190$2,633$2,720
EBITDA246249148
Thousands of barrels per day
Heavy crude oil processing rates226229255
Market margins, dollars per barrel
Brent - 2-1-1$29.44$31.11$22.31
Brent - Maya differential19.3917.018.51
Total Maya 2-1-1$48.83$48.12$30.82

Revenue—Revenues decreased by $443 million, or 17%, in the first quarter of 2023 compared to the fourth quarter of 2022 and by $530 million, or 19%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Sales volumes declined resulting in a 10% decrease in revenue due to unplanned downtime. Lower product prices led to a revenue decrease of 7% due to an average Brent crude oil price decrease of approximately $6.38 per barrel.

First quarter of 2023 versus first quarter of 2022—Sales volumes decreased resulting in a 14% decrease in revenue due to unplanned downtime. Lower product prices led to a revenue decrease of 5% due to an average Brent crude oil price decrease of approximately $15.16 per barrel.

EBITDA—EBITDA decreased by $3 million, or 1%, in the first quarter of 2023 compared to the fourth quarter of 2022 and increased by $98 million, or 66%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—During the fourth quarter of 2022 we recognized a LIFO inventory benefit of $40 million. The absence of a similar benefit in the first quarter of 2023 resulted in a 16% decrease in EBITDA. Lower volumes as a result of unplanned downtime resulted in a 6% decrease in EBITDA. Increased margins primarily driven by higher by-product crack spreads resulted in a 19% increase in EBITDA.

First quarter of 2023 versus first quarter of 2022—Margin improvement drove a 135% increase in EBITDA primarily due to an increase in the Maya 2-1-1 market margin. EBITDA decreased 22% as a result of a decrease in volumes driven by unplanned downtime. Additionally, higher costs incurred related to our planned exit from the refining business in the first quarter of 2023 resulted in a 47% decrease in EBITDA compared to the first quarter of 2022. See Note 12 to the Consolidated Financial Statements for additional information regarding our planned exit of the refining business.

Table of Contents

Technology Segment

Overview—EBITDA increased in the first quarter of 2023 compared to the fourth quarter of 2022 primarily due to the absence of a LIFO inventory valuation charge recognized in the fourth quarter of 2022. EBITDA decreased in the first quarter of 2023 relative to the first quarter of 2022 primarily driven by lower catalyst volumes.

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

Three Months Ended
March 31,December 31,March 31,
Millions of dollars202320222022
Sales and other operating revenues$139$145$181
EBITDA7359103

Revenue—Revenues decreased by $6 million, or 4%, in the first quarter of 2023 compared to the fourth quarter of 2022 and by $42 million, or 23%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022— Licensing revenues decreased by 7% as fewer contracts reached significant milestones during the quarter. Changes in average catalyst sales price resulted in a revenue decrease of 2%. A favorable foreign exchange impact increased revenue by 5%.

First quarter of 2023 versus first quarter of 2022— Lower catalyst volumes resulted in a 18% decrease in revenue primarily driven by weaker demand. Changes in average catalyst sales price resulted in a 2% decrease in revenue. Unfavorable foreign exchange impacts resulted in a 2% decrease in revenue. Lower licensing revenues resulting from fewer contracts reaching significant milestones drove a 1% decrease in revenue.

EBITDA—EBITDA increased by $14 million, or 24%, in the first quarter of 2023 compared to the fourth quarter of 2022 and decreased by $30 million, or 29%, in the first quarter of 2023 compared to the first quarter of 2022.

First quarter of 2023 versus fourth quarter of 2022—Higher catalyst margins and favorable foreign exchange impacts resulted in a 12% and 10% increase in EBITDA, respectively, compared to the fourth quarter of 2022. Lower licensing revenues resulting from fewer contracts reaching significant milestones led to a 20% decrease in EBITDA. The remaining change was due to the fourth quarter of 2022 LIFO inventory valuation charge.

First quarter of 2023 versus first quarter of 2022— Lower catalyst volumes driven by lower demand resulted in an EBITDA decrease of 26%. Unfavorable foreign exchange impacts resulted in an EBITDA decrease of 3%.

Table of Contents

FINANCIAL CONDITION

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

Three Months Ended March 31,
Millions of dollars20232022
Cash provided by (used in):
Operating activities$482$1,502
Investing activities(371)(456)
Financing activities(477)(713)

Operating Activities—Cash provided by operating activities of $482 million in the first quarter of 2023 primarily reflected earnings adjusted for non-cash items and by the main components of working capital—Accounts receivable, Inventories, and Accounts payable.

In the first quarter of 2023, the main components of working capital used $558 million of cash driven primarily by increases in Accounts receivable and Inventories. The increase in Accounts receivable was primarily driven by higher volumes and average sales prices in our O&P-EAI, I&D and APS segments. The increase in Inventories was primarily due to inventory build associated with the timing of the start-up of our PO/TBA plant in Houston, TX as well as planned and unplanned outages.

Cash provided by operating activities of $1,502 million in the first quarter of 2022 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital.

In the first quarter of 2022, the main components of working capital used $22 million of cash driven primarily by an increase in Inventories and Accounts receivable, partially offset by an increase in Accounts payable. The increase in Inventories was primarily due to an increase in raw material costs coupled with an increase in inventory in anticipation of turnaround activity in the I&D segment. The increase in Accounts receivable was driven by higher revenues across several of our businesses primarily driven by higher volumes and higher average sales prices. The increase in Accounts payable was primarily driven by increases in our Refining and O&P-Americas segments as a result of increased raw material and energy costs.

Investing Activities—Capital expenditures in the first quarter of 2023 totaled $352 million compared to $446 million in the first quarter of 2022. Approximately 45% and 40% of our capital expenditures in the first quarter of 2023 and 2022, respectively, was for profit-generating growth projects, primarily our PO/TBA plant, with the remaining expenditures supporting sustaining maintenance. See Note 12 to the Consolidated Financial Statements for additional information regarding capital expenditures by segment.

Financing Activities—We made dividend payments totaling $389 million and $371 million in the first quarter of 2023 and 2022, respectively. Additionally, in the first quarter of 2023 and 2022, we made payments of $70 million and $217 million to repurchase outstanding ordinary shares, respectively.

In the first quarter of 2022, we made net repayments of $169 million related to the issuance and repurchase of commercial paper instruments under our commercial paper program.

In the first quarter of 2022, we received a return of collateral of $51 million, related to the positions held with our counterparties for certain forward-starting interest rate swaps.

Table of Contents

Liquidity and Capital Resources

Overview

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

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

Cash and Liquid Investments

As of March 31, 2023, we had Cash and cash equivalents totaling $1,790 million, which includes $734 million in jurisdictions outside of the U.S., the majority of which is held within the European Union and the United Kingdom. There are currently no legal or economic restrictions that would materially impede our transfers of cash.

Credit Arrangements

At March 31, 2023, we had total debt, including current maturities, of $11,376 million. Additionally, we had $198 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities to support trade payables and other obligations.

We had total unused availability under our credit facilities of $3,950 million at March 31, 2023, which included the following:

  • $3,050 million under our $3,250 million Senior Revolving Credit Facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. At March 31, 2023, we had $200 million of outstanding commercial paper, net of discount, and no borrowings or letters of credit outstanding under this facility; and

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

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

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

Table of Contents

Share Repurchases

In May 2022, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 27, 2023, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In the first quarter of 2023, we purchased approximately 0.8 million shares under our share repurchase authorizations for $74 million.

As of April 26, 2023, we had approximately 30.7 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased, if any, will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. For additional information related to our share repurchase authorizations, see Note 10 to the Consolidated Financial Statements.

CURRENT BUSINESS OUTLOOK

In the near-term, we expect typical seasonal trends to drive modest improvement in global demand. Increased summer demand for transportation fuels should provide support for oxyfuels and refining margins. Delays in the start of North American polyethylene capacity additions across the industry are expected to reduce new market supply and support polyethylene margins. During the second quarter, we expect to operate our I&D segment assets at 80% and modestly increase our O&P-Americas and O&P-EAI operating rates to approximately 85%. We remain watchful for the effects of changes in global monetary policies and improving economic conditions in China on petrochemical markets during the second half of 2023.

In March 2023, we launched a new strategy which is focused on growing sustainable value and encompasses three key elements which include growing and upgrading our core businesses, building a profitable circular and low carbon solutions business and stepping up performance and culture.

CRITICAL ACCOUNTING POLICIES

Goodwill Impairment—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.

Effective January 1, 2023, our Catalloy and polybutene-1 products were moved from our APS segment and reintegrated into our O&P-Americas and O&P-EAI segments. When moved, a portion of the APS reporting unit’s goodwill was allocated to the O&P-Americas and O&P-EAI segments based on the product’s relative fair values compared to the reportable segment.

In the first quarter of 2023, we evaluated goodwill for impairment immediately before and after the transfer of these products. Our evaluation resulted in the recognition of a non-cash goodwill impairment of $252 million recognized in our APS segment. Refer to Note 12 to our Consolidated Financial Statements.

Fair values were determined utilizing a discounted cash flow method under the income approach and assumptions including management’s view on long-term growth rates in our industry, discount rates and other assumptions based on a market participant perspective, which are inherently subjective. Discount rates utilized in our cash flow model were based on a variety of factors, including market and economic conditions, the risk and nature of the cash flows and the rate of return required by market participants. We believe our fair value estimates of projected financial information are reasonable and consistent with those used in our planning, capital investment and business performance reviews. 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, which could materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

Table of Contents

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.

Table of Contents

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.

We based forward-looking statements on our current expectations, estimates and projections of our business and the industries in which we operate. We caution you that these statements are not guarantees of future performance. They involve assumptions about future events that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. Our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

  • the cost of raw materials represents a substantial portion of our operating expenses, and energy costs generally follow price trends of crude oil, natural gas liquids and/or natural gas; price volatility can significantly affect our results of operations and we may be unable to pass raw material and energy cost increases on to our customers due to the significant competition that we face, the commodity nature of our products and the time required to implement pricing changes;

  • our operations in the United States (“U.S.”) have benefited from low-cost natural gas and natural gas liquids; decreased availability of these materials (for example, from their export or regulations impacting hydraulic fracturing in the U.S.) could reduce the current benefits we receive;

  • if crude oil prices are low relative to U.S. natural gas prices, we could see less benefit from low-cost natural gas and natural gas liquids and it could have a negative effect on our results of operations;

  • industry production capacities and operating rates may lead to periods of oversupply and low profitability;

  • we may face unplanned operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failures, unscheduled downtime, supplier disruptions, labor shortages, strikes, work stoppages or other labor difficulties, transportation interruptions, spills and releases and other environmental incidents) at any of our facilities, which would negatively impact our operating results;

  • changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate could increase our costs, restrict our operations and reduce our operating results;

  • our ability to execute our organic growth plans may be negatively affected by our ability to complete projects on time and on budget;

  • our ability to acquire or dispose of product lines or businesses could disrupt our business and harm our financial condition;

  • our ability to successfully implement initiatives identified pursuant to our value enhancement program and generate anticipated earnings;

  • uncertainties associated with worldwide economies could create reductions in demand and pricing, as well as increased counterparty risks, which could reduce liquidity or cause financial losses resulting from counterparty default;

  • uncertainties related to the extent of the COVID-19 pandemic due to local or regional spread of the virus;

  • the negative outcome of any legal, tax and environmental proceedings or changes in laws or regulations regarding legal, tax and environmental matters may increase our costs, reduce demand for our products, or otherwise limit our ability to achieve savings under current regulations;

Table of Contents

  • any loss or non-renewal of favorable tax treatment under tax agreements or tax treaties, or changes in tax laws, regulations or treaties, may substantially increase our tax liabilities;

  • we may be required to reduce production or idle certain facilities because of the cyclical and volatile nature of the supply-demand balance in the chemical and refining industries, which would negatively affect our operating results;

  • we rely on continuing technological innovation, and an inability to protect our technology, or others’ technological developments could negatively impact our competitive position;

  • we may be unable to shut down the Houston refinery within the expected timeframe or incur additional charges or expenses;

  • we have significant international operations, and fluctuations in exchange rates, valuations of currencies and our possible inability to access cash from operations in certain jurisdictions on a tax-efficient basis, if at all, could negatively affect our liquidity and our results of operations;

  • we are subject to the risks of doing business at a global level, including wars, terrorist activities, political and economic instability and disruptions and changes in governmental policies, which could cause increased expenses, decreased demand or prices for our products and/or disruptions in operations, all of which could reduce our operating results;

  • if we are unable to achieve our emission reduction, circularity, or other sustainability targets, it could result in reputational harm, changing investor sentiment regarding investment in our stock or a negative impact on our access to and cost of capital;

  • if we are unable to comply with the terms of our credit facilities, indebtedness and other financing arrangements, those obligations could be accelerated, which we may not be able to repay; and

  • we may be unable to incur additional indebtedness or obtain financing on terms that we deem acceptable, including for refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.

Any of these factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Our management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements.

Previous: Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) · Next: Item 3. . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK