Edgar Filing: LyondellBasell Industries N.V.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34726

LyondellBasell Industries N.V.

(Exact name of registrant as specified in its charter)


The Netherlands		98-0646235
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Stationsplein 45

3013 AK Rotterdam

The Netherlands

(Address of principal executive offices) (Zip Code)

31 30 275 5500

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange On Which Registered
Ordinary Shares, €0.04 Par Value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes þ No

The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of $40.27, was $12.9 billion. For purposes of this disclosure, in addition to the registrant’s executive officers and members of its Supervisory Board, the registrant has included Access Industries, LLC and Apollo Management Holdings, L.P. and their affiliates as “affiliates.”

The registrant had 575,304,233 shares outstanding at February 8, 2013 (excluding 3,119,558 treasury shares).

Documents incorporated by reference:

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2013 (Part III)


PART I
1 and 2. Business and Properties			3
Overview			3
Segments			3
Industry Dynamics / Competition			4
Olefins and Polyolefins Segments Generally			4
Olefins and Polyolefins Americas Segment			6
Olefins and Polyolefins Europe, Asia and International Segment			8
Intermediates and Derivatives Segment			9
Refining Segment			13
Technology Segment			14
General			14
Intellectual Property			14
Environmental			15
Employee Relations			16
Description of Properties			16
Website Access to SEC Reports			18
Corporate Structure			18
1A. Risk Factors			18
1B. Unresolved Staff Comments			29
3. Legal Proceedings			29
4. Mine Safety Disclosures			29

PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			30
6. Selected Financial Data			34
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
7A. Quantitative and Qualitative Disclosures About Market Risk			61
8. Financial Statements and Supplementary Data			64
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			140
9A. Controls and Procedures			140
9B. Other Information			140

PART III
10. Directors, Executive Officers and Corporate Governance			141
11. Executive Compensation			141
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			141
13. Certain Relationships and Related Transactions, and Director Independence			141
14. Principal Accounting Fees and Services			141
15. Exhibits, Financial Statement Schedules			141
Signatures			142

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

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (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 the forward-looking statements on our current expectations, estimates and projections about ourselves and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, 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 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;

•

our U.S. operations 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;

•

industry production capacities and operating rates may lead to periods of oversupply and low profitability; for example, there has been substantial capacity expansion announced in the U.S. olefins industry;

•

we may face operating interruptions at any of our facilities, which would negatively impact our operating results; for example, because the Houston refinery is our only refining operation, we would not have the ability to increase production elsewhere to mitigate the impact of any outage at that facility;

•

regulations may negatively impact our business by, among other things, restricting our operations, increasing costs of operations or requiring significant capital expenditures;

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we face significant competition due to the commodity nature of many of our products and may not be able to protect our market position or otherwise pass on cost increases to our customers;

•

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 implement business strategies may be negatively affected or restricted by, among other things, governmental regulations or policies;

•

uncertainties associated with worldwide economies, especially in Europe and the recent slowdown in Asia, 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;

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the negative outcome of any legal, tax and environmental proceedings may increase our costs;

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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;

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

•

we have substantial international operations, and continued economic uncertainties, fluctuations in exchange rates, valuations of currencies and our ability 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 comply with the terms of our credit facilities 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 (including those of our joint ventures) and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of future performance, and our actual results and future developments (including those of our joint ventures) may differ materially from those projected in 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, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this report. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the “Risk Factors” section of this report on page 18.

PART I

Items 1 and 2. Business and Properties

OVERVIEW

LyondellBasell Industries N.V. is a global, independent chemical company and was incorporated under Dutch law on October 15, 2009. Unless otherwise indicated, the “Company,” “we,” “our,” “us” and “LyondellBasell” are used in this report to refer to the businesses of LyondellBasell Industries N.V. and its consolidated subsidiaries. We believe we are one of the world’s top five independent chemical companies based on revenues. We participate globally across the petrochemical value chain and are an industry leader in many of our product lines. Our chemicals businesses consist primarily of large processing plants that convert large volumes of liquid and gaseous hydrocarbon feedstock into plastic resins and other chemicals. Our chemical products tend to be basic building blocks for other chemicals and plastics, while our plastic products are typically used in large volume applications. Our customers use our plastics and chemicals to manufacture a wide range of products that people use in their everyday lives including food packaging, home furnishings, automotive components, paints and coatings. Our refining business consists of our Houston refinery, which processes crude oil into fuels such as gasoline, diesel and jet fuel.

Our financial performance is influenced in general by the supply and demand for the products that we produce, the cost and availability of feedstocks, global and regional competitor capacity, our operational efficiency and our ability to control costs. As a producer of large volume commodities, we have a strong operational focus and continuously strive to differentiate ourselves through safe, reliable and low-cost operations in all our businesses. During recent years the cost of natural gas-derived raw materials in the U.S. versus the global cost of crude oil-derived raw materials has had a significant influence on the profitability of our North American operations. To a lesser extent, our differentiated assets and technology also influence our performance as compared to our peers and competitors. These include our propylene oxide and polypropylene technologies; flexible feedstock olefins plants in the U.S.; joint venture olefins and polyolefins plants with access to low-cost feedstock, particularly in Saudi Arabia; and our Houston refinery which is capable of processing heavy, high-sulfur crude.

SEGMENTS

We operate in five business segments. Our reportable segments are:

•

Olefins and Polyolefins—Americas (“O&P—Americas”). Our O&P—Americas segment produces and markets olefins, including ethylene and ethylene co-products, and polyolefins.

•

Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”). Our O&P—EAI segment produces and markets olefins, including ethylene and ethylene co-products, polyolefins and polypropylene compounds.

•

Intermediates and Derivatives (“I&D”). Our I&D segment produces and markets propylene oxide and its co-products and derivatives, acetyls, ethanol, ethylene oxide and its derivatives, and oxyfuels.

•

Refining. Our Refining segment refines heavy, high-sulfur crude oil on the U.S. Gulf Coast.

•

Technology. Our Technology segment develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts.

The marketing of our oxyfuels products previously was aligned with the sale of our products from our refining business, particularly our Berre refinery. We moved the management responsibility for business decisions relating to oxyfuels to our I&D business with the closure of the Berre refinery because profits generated by oxyfuels products are related to sourcing decisions regarding certain co-products of propylene oxide production. Accordingly, results for our oxyfuels business, which were previously included in our Refining segment results, have been reflected in our I&D segment since the second quarter of 2012. All comparable periods presented have been revised to reflect this change.

Financial information about our business segments and geographical areas can be found in Note 22, Segment and Related Information, to the Consolidated Financial Statements. Information about the locations where we produce our primary products can be found under “Description of Properties.”

Industry Dynamics / Competition

We predominantly compete in regional markets impacted by global pricing mechanisms. Success in these markets is determined by competitive pricing, low cost production, product quality, reliability of product delivery and supply volumes, and customer service. Profitability is affected by regional raw material costs and price competition among producers. Historically, the chemical and refining industries have operated in competitive environments and those environments are expected to continue.

In addition to other chemical and refining companies, we compete with the chemical and refining divisions of major national and international oil companies both in the United States and abroad.

Our products and raw materials are transported by barge, ocean going vessel, pipeline, rail car, bulk truck and tank truck.

In 2012, 2011 and 2010, no single customer accounted for 10% or more of our total revenues.

Olefins and Polyolefins Segments Generally

We are a leading worldwide producer of olefins, including ethylene and propylene. We are also a leading producer of polyolefins, including polyethylene (“PE”), and the world’s largest producer of polypropylene (“PP”) and PP compounds. We manage our olefin and polyolefin business in two reportable segments, O&P—Americas and O&P—EAI.

Olefins–Ethylene is the most significant petrochemical in terms of worldwide production volume and is the key building block for PE and a large number of other chemicals, plastics and synthetics. The production of ethylene results in co-products such as propylene, butadiene and aromatics. Ethylene and its co-products are fundamental to many parts of the economy, including the production of consumer products, packaging, housing and automotive components and other durable and nondurable goods.

Polyolefins–Polyolefins are thermoplastics and comprise approximately two-thirds of worldwide thermoplastics demand. Since their industrial commercialization, thermoplastics have been used in wide-ranging applications and products that improve safety and comfort and enhance the everyday quality of life. Our products are used in consumer, automotive and industrial applications ranging from food and beverage packaging to housewares and construction materials. We produce high density polyethylene (“HDPE”), low density polyethylene (“LDPE”) and linear low density polyethylene (“LLDPE”). We produce homopolymer, impact copolymer, random copolymer and metallocene PP.

We produce and market several specialty product lines including PP compounds, Catalloy process resins and polybutene-1 (“PB-1”), focusing on unique polyolefins and compounds that offer a wide range of performance characteristics. Typical properties of such specialty polyolefins and compounds include impact-stiffness balance, scratch resistance, soft touch and heat sealability. End uses include automotive and industrial products and materials. PP compounds are produced from blends of polyolefins and additives and are sold mainly to the automotive and home appliances industries. We are the only manufacturer of Catalloy process resins, which are our proprietary products and are used primarily in roofing, packaging and automotive applications.

Sales of PE (HDPE, LDPE and LLDPE, collectively) accounted for 15% of our total revenues in 2012 and 2011 and 16% in 2010. Sales of PP, including Catalloy, accounted for approximately 19% of our total revenues in 2012 and 2011 and 18% in 2010.

The following table outlines the primary products of our O&P segments, annual processing capacity as of December 31, 2012, and the primary uses for those products. Capacities, which are presented in pounds unless otherwise indicated, include 100% of the capacity of our joint venture facilities. The joint ventures’ proportional share of capacity is shown in the footnotes to the table, below.


Product	Annual Capacity(1)			Primary Uses
	Americas	EAI	Total
Olefins:
Ethylene	9.8 billion	6.5 billion	16.2 billion	Ethylene is used as a raw material to manufacture polyethylene, ethylene oxide, ethanol, ethylene dichloride, styrene, vinyl acetate monomer (“VAM”) and other products

Propylene	5.5 billion	6.0 billion	11.5 billion	Propylene is used to produce PP, acrylonitrile, propylene oxide (“PO”) and other products

Butadiene	1.1 billion	550 million	1.6 billion	Butadiene is used to manufacture styrene-butadiene rubber and polybutadiene rubber, which are used in the manufacture of tires, hoses, gaskets and other rubber products. Butadiene is also used in the production of paints, adhesives, nylon clothing, carpets, paper coatings and engineered plastics

Polyolefins:
HDPE	3.3 billion	4.5 billion	7.8 billion	HDPE is used to manufacture grocery, merchandise and trash bags; food containers for items from frozen desserts to margarine; plastic caps and closures; liners for boxes of cereal and crackers; plastic drink cups and toys; dairy crates; bread trays; pails for items from paint to fresh fruits and vegetables; safety equipment, such as hard hats; house wrap for insulation; bottles for household and industrial chemicals and motor oil; milk, water, and juice bottles; large tanks for storing liquids such as agricultural and lawn care chemicals; and pipe

LDPE	1.3 billion	2.8 billion	4.1 billion	LDPE is used to manufacture food packaging films; plastic bottles for packaging food and personal care items; dry cleaning bags; ice bags; pallet shrink wrap; heavy-duty bags for mulch and potting soil; boil-in-bags ; coatings on flexible packaging products; and coatings on paper board such as milk cartons.

LLDPE	1.3 billion		1.3 billion	LLDPE is used to manufacture garbage and lawn-leaf bags; industrial can liners; housewares; lids for coffee cans and margarine tubs; dishpans, home plastic storage containers, and kitchen trash containers; large toys like outdoor gym sets; drip irrigation tubing; insulating resins and compounds used to insulate copper and fiber optic wiring; shrink wrap for multi-packaging canned food, bag-in-box bags, produce bags, and pallet stretch wrap


Product	Annual Capacity(1)			Primary Uses
	Americas	EAI	Total
PP	4.4 billion	13.0 billion	17.4 billion	PP is primarily used to manufacture fibers for carpets, rugs and upholstery; housewares; medical products; automotive interior trim, fascia, running boards, battery cases, and bumpers; toys and sporting goods; fishing tackle boxes; and bottle caps and closures

Specialty Polyolefins:
PP compounds		2.6 billion	2.6 billion	PP compounds are used to manufacture automotive interior and exterior trims, dashboards, bumpers and under-hood applications; base material for products and parts used in appliances; anti-corrosion coatings for steel piping, wire and cable

Catalloy process resins	600 million	600 million	1.2 billion	Catalloy process resins are used primarily in modifying polymer properties in film applications and molded products; for specialty films, geomembrane liners, and roofing materials; in bitumen modification for roofing and asphalt applications; and for automotive bumpers

PB-1 resins		110 million	110 million	PB-1 resins are used in flexible pipes, resins for seal-peel film, film modification, hot melt applications, consumer packaging and adhesives

Aromatics:
Benzene (in gallons)	195 million		195 million	Benzene is used to produce styrene, phenol and cyclohexane. These products are used in the production of nylon, plastics, synthetic rubber and polystyrene. Polystyrene is used in insulation, packaging and drink cups

(1)

Represents total annual name plate capacity, which includes 1,654 million pounds of ethylene; 2,507 million pounds of propylene; 1,014 pounds of HDPE; 783 million pounds of LDPE; 669 million pounds (Americas) and 4,962 million pounds (EAI) of PP; and 199 million pounds of PP compounds of name plate capacity owned by third parties either through joint venture arrangements or other contractual relationships. In some situations, the Company and the third parties may have access to the other’s capacity through certain arrangements.

Olefins and Polyolefins—Americas Segment

Overview

Our O&P—Americas segment produces and markets olefins, polyolefins, aromatics, specialty products and ethylene co-products. Based on published data, we are the largest producer of light olefins (ethylene and propylene) and PP and the third largest producer of PE in North America. In addition, we produce specialty products including Catalloy and Plexar resins.

Sales & Marketing / Customers

Our ethylene production is consumed internally as a raw material in the production of polymers and other derivatives with the balance sold to third party customers. We are a net purchaser of propylene, a raw material

used in the production of PO, PP and other derivatives. Our butadiene production is sold to the external market under multi-year contracts. All of our internal production of benzene is used as a raw material in the production of styrene by our I&D segment, and we purchase additional benzene to meet our needs.

In addition to purchases of propylene and benzene, at times we purchase ethylene and butadiene for resale, when necessary, to satisfy customer demand above our own production levels. Volumes of any of these products purchased for resale can vary significantly from period to period. However, purchased volumes have not historically had a significant impact on profits.

Our PP and PE production is typically sold to an extensive base of established customers servicing both the domestic and export markets either under annual contracts or on a spot basis. Export sales are generally to customers in Central and South America. We also sell PP into our PP compounds business, which is managed worldwide by our O&P—EAI segment.

Joint Venture Relationships

We participate in a joint venture arrangement in Mexico, which provides us with capacity for 643 million pounds of PP production. The capacity is based on our percentage ownership of the joint ventures’ total capacity. We do not hold a majority interest in or have operational control of this joint venture.

Raw Materials

Raw material cost is the largest component of the total cost for the production of ethylene and its co-products. The primary raw materials used are heavy liquids and domestically sourced and currently cost advantaged natural gas liquids (“NGLs”) mainly from regional producers via a mix of contractual and spot arrangements. Heavy liquids include crude oil-based naphtha and gas oil, as well as condensate, a very light crude oil resulting from natural gas production (collectively referred to as “heavy liquids”). NGLs include ethane, propane and butane. The use of heavy liquid raw materials results in the production of a significant amount of co-products such as propylene, butadiene and benzene, as well as gasoline blending components, while the use of NGLs results in the production of a smaller amount of co-products.

Historically, facilities using heavy liquids as feedstock have generated higher margins than those using ethane. However, in recent years ethane has had a cost advantage over heavy liquids due to the recent technological advances for extracting shale gas. A plant’s flexibility to consume a wide range of raw materials generally will provide an advantage over plants that are restricted in their processing capabilities. We can process significant quantities of either heavy liquids or NGLs. We estimate that in the U.S. we can process up to 85% NGLs. Changes in the raw material feedstock utilized in the production process will result in variances in production capacities among products. We believe our raw material flexibility in the U.S. is a key advantage in our production of ethylene and its co-products over time.

In North America, we also purchase large amounts of natural gas to be used primarily as an energy source in our business via market-based contractual arrangements from numerous suppliers.

Industry Dynamics / Competition

Based on published data, we believe we were, as of December 31, 2012:

•

the second largest producer of ethylene in North America, with ethylene rated capacity of approximately 9.8 billion pounds per year, or approximately 13% of total North American ethylene production capacity;

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the third largest producer of PE in North America with 5.9 billion pounds per year of capacity, or approximately 13% of North American capacity; and

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the largest producer of PP in North America, including our share of our Indelpro joint venture capacity, with 3.3 billion pounds, or approximately 18% of the North American capacity.

Olefins and Polyolefins—Europe, Asia, International Segment

Overview

Our O&P—EAI segment produces and markets olefins (ethylene and ethylene co-products) and polyolefins. Based on published data, we are the largest producer of PP in Europe and the largest worldwide producer of PP compounds. We also produce significant quantities of other differentiated products such as Catalloy process resins and PB-1. Our O&P—EAI segment manages our worldwide PP compound business (including our facilities in North and South America), our worldwide PB-1 business, and our Catalloy process resins produced in Europe.

PP compounds consist of specialty products produced from blends of polyolefins and additives and are sold mainly to the automotive and durable goods industries. The Catalloy process is proprietary technology that is not licensed to third parties, and as a result, we are the only manufacturer of Catalloy process resins. We believe that we are the largest worldwide producer of PB-1, a family of butene-based polymers. A majority of the current PB-1 we produce is used in pipe applications and for under-floor heating and thermo sanitary systems.

Sales & Marketing / Customers

Our ethylene production is generally consumed internally as a raw material in the production of polymers. Our propylene production is used as a raw material in the production of PO and PP and we purchase propylene as our internal needs exceed our internal production. European ethylene and propylene production is generally fully integrated with our downstream facilities in Europe.

We produce and sell butadiene to external customers under multi-year contracts and on a spot basis.

With respect to PP and PE, our production is typically sold to an extensive base of established customers under annual contracts or on a spot basis. We believe that, over a business cycle, average sales prices and profit margins for specialty polymers tend to be higher than average sales prices and profit margins for higher-volume commodity polyolefins or polymers.

Our regional sales offices are in various locations, including The Netherlands, Hong Kong, China, India and United Arab Emirates. We also operate through a worldwide network of local sales and representative offices in Europe, Asia and Africa. Our joint ventures typically manage their domestic sales and marketing efforts independently, and we typically operate as their agent/distributor for all or a portion of their exports.

Joint Venture Relationships

We participate in several manufacturing joint ventures in Saudi Arabia, Thailand, Poland, Australia, Japan and South Korea. We do not hold majority interests in any of the joint venture relationships, nor do we have operational control. These ventures provide us with additional production capacity of 2,630 million pounds of PP, 810 million pounds of propylene, 550 million pounds of ethylene, 570 million pounds of HDPE, 340 million pounds of LDPE and 160 million pounds of PP compounding. These capacities are based on our percentage ownership interest in the joint ventures’ total capacities.

We generally license our polyolefin process technologies and supply catalysts to our joint ventures through our Technology segment. Some of our joint ventures source cost advantaged raw materials from their local shareholders.

Raw Materials

Raw material cost is the largest component of the total cost for the production of ethylene and its co-products. The primary raw materials used in our European olefin facilities are heavy liquids and, for our Saudi joint venture facilities, locally sourced and cost advantaged NGLs, including ethane, propane and butane. The principal raw materials used by our polyolefin and Catalloy process resin businesses are propylene and ethylene. In Europe, we have the capacity to produce approximately 50% of the propylene requirements of our European PP business and approximately 90% of the ethylene requirements of our European PE business. Propylene and ethylene requirements that are not produced internally generally are acquired via spot purchases or pursuant to long-term contracts with third-party suppliers.

Our PP compounding facilities generally receive their PP and other polymers from one of our wholly owned or joint venture facilities. PB-1 raw materials are sourced solely from external supply. Some of our joint ventures receive propylene and ethylene from their local shareholders under long-term contracts.

Industry Dynamics / Competition

Based on published data and including our proportionate share of our joint ventures, we believe we were, as of December 31, 2012:

•

the sixth largest producer of ethylene in Europe with an ethylene rated capacity in Europe of approximately 4.3 billion pounds per year, or approximately 8% of total European ethylene capacity;

•

the largest producer of PP in Europe with 5.2 billion pounds per year of capacity, or approximately 22% of European PP capacity;

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the largest producer of PE in Europe with 5.0 billion pounds per year of capacity, or approximately 22% of HDPE and 13% of LDPE European capacity; and

•

the largest PP compounds producer in the world with 2.4 billion pounds per year of capacity, with approximately 54% of that capacity in Europe, 21% in North America, and 24% in the rest of the world.

Intermediates and Derivatives Segment

Overview

Our I&D segment produces and markets PO and its co-products and derivatives; acetyls; ethylene oxide and its derivatives; and oxyfuels (methyl tertiary butyl ether (“MTBE”) and ethyl tertiary butyl ether (“ETBE”)). PO co-products include styrene monomer (“SM”) and C4 chemicals (tertiary butyl alcohol (“TBA”), most of which is used to make oxyfuels, isobutylene and tertiary butyl hydro peroxide (“TBHP”)). PO derivatives include propylene glycol (“PG”), propylene glycol ethers (“PGE”) and butanediol (“BDO”). We believe that our proprietary PO and acetyls production process technologies provide us with a cost advantaged position for these products and their derivatives.

We produce PO through two distinct technologies based on indirect oxidation processes, one of which yields TBA as the co-product and the other of which yields SM as the co-product. The two technologies are mutually exclusive, meaning that a manufacturing facility must be dedicated either to PO/TBA or to PO/SM. We believe that we are the largest producer of MTBE/ETBE worldwide.

Capacities, which are presented in pounds unless otherwise indicated, include 100% of the capacity of joint venture facilities.


Product	Annual Capacity(1)	Primary Uses
Propylene Oxide (“PO”)	5.2 billion	PO is a key component of polyols, PG, PGE and BDO
PO Co-Products:
Styrene Monomer (“SM”)	6.4 billion	SM is used to produce plastics, such as expandable polystyrene for packaging, foam cups and containers, insulation products and durables and engineering resins

Isobutylene	1.4 billion	Isobutylene is a derivative of TBA used in the manufacture of synthetic rubber as well as fuel and lubricant additives, such as MTBE and ETBE
PO Derivatives:
Propylene Glycol (“PG”)	1.2 billion	PG is used to produce unsaturated polyester resins for bathroom fixtures and boat hulls; antifreeze, coolants and aircraft deicers; and cosmetics and cleaners

Propylene Glycol Ethers (“PGE”)	545 million	PGE are used as solvents for paints, coatings, cleaners and a variety of electronics applications

Butanediol (“BDO”)	395 million	BDO is used in the manufacture of engineering resins, films, personal care products, pharmaceuticals, coatings, solvents and adhesives
Acetyls:
Methanol (in gallons)	190 million	Methanol is a raw material used to produce acetic acid, MTBE, formaldehyde and several other products

Acetic Acid	1.2 billion	Acetic acid is a raw material used to produce VAM, terephthalic acid (used to produce polyester for textiles and plastic bottles), industrial solvents and a variety of other chemicals

Vinyl Acetate Monomer (“VAM”)	700 million	VAM is used to produce a variety of polymers, products used in adhesives, water-based paint, textile coatings and paper coatings
Ethylene Derivatives:
Ethylene Oxide (“EO”)	800 million EO equivalents; 400 million as pure EO	EO is used to produce surfactants, industrial cleaners, cosmetics, emulsifiers, paint, heat transfer fluids and ethylene glycol

Ethylene Glycol (“EG”)	650 million	EG is used to produce polyester fibers and film, polyethylene terephthalate resin, heat transfer fluids and automobile antifreeze


Product	Annual Capacity(1)	Primary Uses
Ethylene Glycol Ethers	225 million	Ethylene glycol ethers are used to produce paint and coatings, polishes, solvents and chemical intermediates

Ethanol (in gallons)	50 million	Ethanol is used as a fuel and a fuel additive and in the production of solvents as well as household, medicinal and personal care products
Gasoline Blending Components:
Methyl Tertiary Butyl Ether (“MTBE”) / Ethyl Tertiary Butyl Ether (“ETBE”) (in barrels per day)	75,000	MTBE is a high octane gasoline blending component; ETBE is an alternative gasoline blending component based on agriculturally produced ethanol

(1)	The annual capacities include 2,516 million pounds of PO; 2,894 million pounds of SM; 132 million pounds of PG; and 29 million gallons of methanol production owned by third parties through joint venture or other contractual relationships.

Sales & Marketing / Customers

We produce and deliver our PO and its co-products and derivatives through sales agreements, processing agreements and spot sales as well as product exchanges. We have a number of multi-year processing (or tolling) and sales agreements. We sell most of our SM production into the North American and European merchant markets and to Asian and South American export markets through long-term sales contracts and processing agreements. We purchase SM for resale, when necessary, to satisfy customer demand that exceeds our production levels. Volumes of SM purchases made for resale can vary significantly from period to period. However, purchased volumes have not historically had a significant impact on profits.

Our I&D segment converts most of its TBA, which is produced as a co-product of the PO process, to isobutylene. Over half of the isobutylene is reacted with methanol or ethanol to produce MTBE and ETBE. The remaining isobutylene is sold into the external market as high purity and purity grade isobutylene.

We sell our MTBE and ETBE production under market-based sales agreements and in the spot market. Substantially all refiners and blenders have discontinued the use of MTBE in the U.S., partly as a result of governmental initiatives to increase use of bio-ethanol in gasoline and to reduce or effectively ban the use of MTBE. However, MTBE/ETBE demand for gasoline blending remains strong within most of the remaining worldwide market. Accordingly, we market MTBE and ETBE produced in the U.S. for use outside of the U.S. Japan has opted to use ETBE as a means of meeting its carbon dioxide reduction commitments under the Kyoto Protocol, and we source a significant portion of Japan’s bio-fuels needs. Some of our plants have the flexibility to produce either MTBE or ETBE to accommodate market needs.

Sales of MTBE, ETBE, acetyls, PO and PO co-products and derivatives are made by our marketing and sales personnel, and also through distributors and independent agents in the Americas, Europe, the Middle East, Africa and the Asia Pacific region.

Acetyls, including acetic acid and VAM, are consumed internally and sold worldwide under multi-year contracts and on a spot basis. Our acetyls business uses methanol, which we produce internally, as a raw material for the production of acetic acid and also sells the methanol under annual contracts and on a spot basis to large U.S. customers.

EO and EG typically are sold under multi-year contracts and on a spot basis, with market-based pricing. Glycol ethers are sold primarily into the solvent and distributor markets at market prices. The vast majority of the ethylene derivative products are sold in North America and Asia, primarily through our sales organizations.

Joint Venture Relationships

Our U.S. PO joint venture, in which Bayer Corporation has an interest, operates four of our U.S. operating units. Bayer’s interest represents ownership of an in-kind portion of the PO production of 1.5 billion pounds per year. We take, in-kind, the remaining PO production and all co-product (SM and TBA) production. We do not share marketing or product sales with Bayer under the U.S. PO joint venture. The parties’ rights in the joint venture are based on off take volumes as opposed to ownership percentages. Bayer also has the right to 50% of the PO and SM production of our European PO joint venture. Our proportional additional production capacity provided through this venture is 345 million pounds of PO and 740 million pounds of SM.

We also have joint venture manufacturing relationships in Japan and China. These ventures provide us with additional production capacity of 314 million pounds of PO, 680 million pounds of SM and 88 million pounds of PG. These capacities are based on our ownership percentage of the joint ventures’ total capacities.

Raw Materials

The primary raw materials used for the production of PO and its co-products and derivatives are propylene, isobutane, mixed butane, ethylene and benzene. The market prices of these raw materials historically have been related to the price of crude oil, NGLs and natural gas, as well as supply and demand for the raw materials.

In the U.S., we obtain a large portion of our propylene, benzene and ethylene raw materials needed for the production of PO and its co-products and derivatives internally from our O&P–Americas segment. Raw materials for the non-U.S. production of PO and its co-products and derivatives are obtained internally and also from third parties. We consume a significant portion of our internally-produced PO in the production of PO derivatives.

The cost of raw materials generally is the largest component of total production cost for PO and its co-products and derivatives. The raw material requirements for these businesses are purchased at market-based prices from numerous suppliers in the U.S. and Europe with which we have established contractual relationships, as well as in the spot market.

We purchase our ethanol requirements for the production of ETBE from third parties; the methanol for our MTBE production comes from internal production and third parties. The primary raw materials required for the production of acetic acid are carbon monoxide and methanol. We purchase carbon monoxide pursuant to a long-term contract under which pricing is based primarily on the cost of production. All methanol required for acetyls production is internally sourced. Natural gas is the primary raw material required for the production of methanol.

In addition to ethylene, acetic acid is a primary raw material for the production of VAM. For the production of VAM, we obtain our entire requirements for acetic acid and ethylene from our internal production. Historically we have used a large percentage of our acetic acid production to produce VAM.

Industry Dynamics / Competition

Based on published data regarding PO capacity, we believe that, excluding our partners’ shares of joint venture capacity, we are the second largest producer of PO worldwide, with approximately 13% of the total worldwide capacity for PO. Based on published data regarding SM capacity, we believe that we are one of the largest producers of SM worldwide, with approximately 5% of the total worldwide capacity for SM as of December 31, 2012. We believe that we are the ninth and eighth largest producer of acetic acid and VAM, respectively, each with approximately 3% and 4% of the total worldwide capacity as of December 31, 2012.

Refining

Overview

Our Houston refinery, which is located on the Houston Ship Channel in Houston, Texas, has a heavy, high-sulfur crude oil processing capacity of approximately 268,000 barrels per day on a calendar day basis (normal operating basis), or approximately 292,000 barrels per day on a stream day basis (maximum achievable over a 24 hour period). The Houston refinery has a Nelson Complexity Index of 12.5. The Houston refinery is a full conversion refinery designed to refine heavy, high-sulfur crude oil. This crude oil is more viscous and dense than traditional crude oil and contains higher concentrations of sulfur and heavy metals, making it more difficult to refine into gasoline and other high-value fuel products. However, this crude oil has historically been less costly to purchase than light, low-sulfur crude oil such as Brent. Recently, certain crudes such as West Texas Intermediate (WTI) and West Texas Sour (WTS) have been priced lower than normal trends due to transportation constraints.

On January 4, 2012, we ceased refinery operations at our Berre refinery in France. The cessation of operations was in accordance with an agreement executed in the fourth quarter of 2011 by certain of our French subsidiaries and union representatives. Additional information about the cessation of operations can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following table outlines the primary products of our Refining segment capacity as of December 31, 2012, unless otherwise noted and the primary uses for those products.


Product	Capacity	Primary Uses
Gasoline and components	120,000 barrels per day	Automotive fuel

Ultra Low Sulfur Diesel	95,000 barrels per day	Diesel fuel for cars and trucks

Jet Fuel	25,000 barrels per day	Aviation fuel

Lube Oils	4,000 barrels per day	Industrial lube oils, railroad engine additives and white oils for food-grade applications

Aromatics	7,000 barrels per day	Intermediate chemicals

Sales & Marketing / Customers

Gasoline sales accounted for 10% of our total revenues in 2012, 7% in 2011 and 9% in 2010. The Houston refinery’s products primarily are sold in bulk to other refiners, marketers, distributors and wholesalers at market-related prices. Most of the Houston refinery’s products are sold under contracts with a term of one year or less or are sold in the spot market. The Houston refinery’s products generally are transported to customers via pipelines and terminals owned and operated by other parties.

Raw Materials

We purchase the crude oil used as a raw material for the Houston refinery on the open market on a spot basis and under a number of supply agreements with regional producers.

Industry Dynamics / Competition

Based on published data, as of January 2012, there were 144 operable crude oil refineries in the U.S., and total U.S. refinery capacity was approximately 17.3 million barrels per day. During 2012, the Houston refinery processed an average of approximately 255,000 barrels per day of crude oil, representing approximately 1.5% of all U.S. crude processing capacity.

A crack spread is a benchmark indication of refining margins based on the processing of a specific type of crude oil into an assumed selection of refined products. The Houston refinery generally tracks the Maya 2-1-1 crack spread, which represents the difference between the first month futures price of two barrels of Maya crude oil as set by Pemex and one barrel each of U.S. Gulf Coast 87 Octane Conventional Gasoline and U.S. Gulf Coast No. 2 Heating Oil (high-sulfur diesel). While these benchmark refining spreads are generally indicative of the level of profitability at the Houston refinery and the refining industry generally, there are many other factors specific to each refinery that influence operating results.

Technology Segment

Overview

Our Technology segment develops and licenses chemical, polyolefin and other process technologies and provides associated engineering and other services. Our Technology segment also develops, manufactures and sells polyolefin catalysts. We market our process technologies and our polyolefin catalysts to external customers and also use them in our own manufacturing operations.

Our polyolefin process licenses are structured to provide a standard core technology, with individual customer needs met by adding customized modules that provide the required capabilities to produce the defined production grade slate and plant capacity. In addition to the basic license agreement, a range of services can also be provided, including project assistance; training; start-up assistance of the plant; and ongoing technical support after start-up. We may also offer marketing and sales services. In addition, licensees may continue to purchase polyolefin catalysts that are consumed in the production process, generally under long-term catalyst supply agreements with us.

Process Technology Licensing

We are a leading licensor of polyolefin process technologies. In addition, we license a selective portfolio of chemical process technologies in the fields of olefin recovery, olefin conversion, aromatics extraction and acetyls.

Polyolefin Catalysts

Under the Avant brand, we are a leading manufacturer and supplier of polyolefin catalysts. As a large polyolefin producer, approximately 25% of catalyst sales are inter-company.

Research and Development

Our research and development activities are designed to improve our existing products and processes, and discover and commercialize new materials, catalysts and processes. These activities focus on product and application development, process development, catalyst development and fundamental polyolefin focused research.

In 2012, 2011 and 2010, our research and development expenditures were $172 million, $196 million and $154 million, respectively. A portion of these expenses are related to technical support and customer service and are allocated to the other business segments.

GENERAL

Intellectual Property

We maintain an extensive patent portfolio and continue to file new patent applications in the U.S. and other countries. As of December 31, 2012, we owned approximately 5,000 patents and patent applications worldwide. Our patents and trade secrets cover our processes, products and catalysts and are significant to our competitive

position, particularly with regard to PO, intermediate chemicals, petrochemicals, polymers and our process technologies. We own globally registered and unregistered trademarks including the “LyondellBasell,” “Lyondell” and “Equistar” trade names. While we believe that our intellectual property provides competitive advantages, we do not regard our businesses as being materially dependent upon any single patent, trade secret or trademark. Some of our heritage production capacity operates under licenses from third parties.

Environmental

Regulation

We are subject to extensive international, national, state, local and environmental laws, regulations, directives, rules and ordinances and are required to have permits and licenses concerning emissions to the air, discharges onto land or waters and the generation, handling, storage, transportation, treatment, disposal and remediation of hazardous substances and waste materials.

Under the European Union Integrated Pollution Prevention and Control Directive (“IPPC”), EU Member State governments are to adopt rules and implement an environmental permitting program relating to air, water and waste for individual facilities. The EU countries are at varying stages in their respective implementation of the IPPC permit program. We do not know with certainty what future IPPC permits will require, or the future costs of compliance with the IPPC permit program. The EU also has passed legislation governing the registration, evaluation and authorization of chemicals, known as REACh, pursuant to which we are required to register chemicals and gain authorization for the use of certain substances. As an importer of chemicals and materials from outside the EU, we are subject to additional registration obligations.

We also are subject to environmental laws that may have a significant effect on the nature and scope of cleanup of contamination at current and former operating facilities and at other sites at which hazardous substances generated by our current or former subsidiaries were disposed. Such laws may also have a significant effect on the costs of transportation and storage of raw materials and finished products, and the costs of the storage and disposal of wastewater. In the U.S., the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended and also known as Superfund (“CERCLA”), imposes joint and several liability for the costs of remedial investigations and cleanup actions, as well as damages to natural resources, on entities that generated hazardous substances, arranged for disposal of the hazardous substances, transported to or selected the disposal sites and the past and present owners and operators of such sites. All such responsible parties (or any one of them) can be required to bear all of such costs regardless of fault, the legality of the original disposal or ownership of the disposal site. We are subject to potential liability under CERCLA as an owner or operator of facilities at which hazardous substances have been disposed or as a generator or transporter of hazardous substances disposed at other locations.

Under the EU Environmental Liability Directive, EU Member States can require the remediation of soil and groundwater contamination in certain circumstances, under the “polluter pays principle.” The scope of events and circumstances that could trigger remediation requirements and the level of remediation required vary from Member State to Member State.

Under the U.S. Resource Conservation and Recovery Act of 1976, various U.S. state and non-U.S. government regulations regulate the handling, transporting and disposal of hazardous and non-hazardous waste. Our manufacturing sites have, and may in the future, handle on-site waste disposal, subjecting us to these laws and regulations.

Capital Expenditures

In some cases, compliance with environmental, health and safety laws and regulations can only be achieved by capital expenditures. Regulatory-related capital expenditures at our facilities were $159 million in 2012, and we estimate such expenditures to be approximately $157 million in 2013 and $194 million in 2014.

Our regulatory-related capital expenditures in 2012 primarily relate to projects designed to reduce and control emissions from our plant operations in both the U.S. and Europe.

Stricter environmental, safety and health laws, regulations and enforcement policies could result in increased environmental capital expenditures by us above current estimates.

Employee Relations

As of December 31, 2012, we had approximately 13,500 full-time and part-time employees. Of these, approximately 5,800 were in North America, approximately 6,600 were in Europe and approximately 1,100 were in other locations.

As of December 31, 2012, approximately 800 of our employees in North America were represented by labor unions. The vast majority of our employees in Europe and South America are subject to staff council or works council coverage or collective bargaining agreements.

In addition to our own employees, we use the services of contractors in the routine conduct of our businesses.

We believe our relations with our employees are satisfactory.

Description of Properties

Our principal manufacturing facilities as of December 31, 2012 are set forth below, and are identified by the principal segment or segments using the facility. All of the facilities are wholly owned, except as otherwise noted.


Location	Segment	Principal Products
Americas
Bayport (Pasadena), Texas	I&D	Ethylene Oxide, Ethylene Glycol and other Ethylene Oxide derivatives

Bayport (Pasadena), Texas(1)	I&D	PO, PG, PGE, TBA and Isobutylene

Bayport (Pasadena), Texas	O&P—Americas	PP and Catalloy process resins

Channelview, Texas(2)	O&P—Americas	Ethylene, Propylene, Butadiene, Benzene and Toluene

	Refining	Alkylate

Channelview, Texas(1)(2)(3)	I&D	IPA, PO, BDO, SM, Isobutylene, ETBE and MTBE

Chocolate Bayou, Texas	O&P—Americas	PE (HDPE)

Clinton, Iowa	O&P—Americas	Ethylene and Propylene PE (LDPE and HDPE)

Corpus Christi, Texas	O&P—Americas	Ethylene, Propylene, Butadiene and Benzene

Ensenada, Argentina	O&P—Americas	PP

Ensenada, Argentina	O&P—EAI	PP compounds


Location	Segment	Principal Products

Houston, Texas	Refining	Gasoline, Diesel, Jet Fuel and Lube Oils

La Porte, Texas(4)	O&P—Americas	Ethylene and Propylene PE (LDPE and LLDPE)

La Porte, Texas(4)(5)	I&D	VAM, acetic acid and methanol

Lake Charles, Louisiana	O&P—Americas	PP and Catalloy process resins

Matagorda, Texas	O&P—Americas	PE (HDPE)

Morris, Illinois	O&P—Americas	PE (LDPE and LLDPE)

Victoria, Texas†	O&P—Americas	PE (HDPE)
Europe
Bayreuth, Germany	O&P—EAI	PP compounds

Berre l’Etang, France	O&P—EAI	Butadiene, PP and PE (HDPE and LDPE)

Botlek, Rotterdam, The Netherlands†	I&D	PO, PG, PGE, TBA, Isobutylene, BDO, MTBE and ETBE

Brindisi, Italy	O&P—EAI	PP

Ferrara, Italy	O&P—EAI Technology	PP and Catalloy process resins Polyolefin catalysts

Fos-sur-Mer, France†	I&D	PO, PG, TBA, MTBE and ETBE

Frankfurt, Germany†	O&P—EAI Technology	PE (HDPE) Polyolefin catalysts

Knapsack, Germany†	O&P—EAI	PP and PP compounds

Ludwigshafen, Germany†	Technology	Polyolefin catalysts

Maasvlakte (near Rotterdam), The Netherlands(6)	I&D	PO and SM

Moerdijk, The Netherlands†	O&P—EAI	Catalloy process resins and PB-1

Münchsmünster, Germany†	O&P—EAI	Ethylene, Propylene, PE (HDPE)

Tarragona, Spain(7)	O&P—EAI	PP and PP compounds

Wesseling, Germany	O&P—EAI	Ethylene, Propylene and Butadiene PP and PE (HDPE and LDPE)
Asia Pacific
Geelong, Australia	O&P—EAI	PP

†	The facility is located on leased land.

(1)	The Bayport PO/TBA plants and the Channelview PO/SM I plant are held by the U.S. PO joint venture between Bayer and Lyondell Chemical. These plants are located on land leased by the U.S. PO joint venture.

(2)	Equistar Chemicals, LP operates a styrene maleic anhydride unit and a polybutadiene unit, which are owned by an unrelated party and are located within the Channelview facility on property leased from Equistar Chemicals, LP.

(3)	Unrelated equity investors hold a minority interest in the PO/SM II plant at the Channelview facility.

(4)	The La Porte facilities are on contiguous property.

(5)	The La Porte methanol facility is owned by La Porte Methanol Company, a partnership owned 85% by us.

(6)	The Maasvlakte plant is owned by the European PO joint venture and is located on land leased by the European PO joint venture.

(7)	The Tarragona PP facility is located on leased land; the compounds facility is located on co-owned land.

Other Locations and Properties

Our corporate seat is in Rotterdam, The Netherlands. We have administrative offices in Rotterdam, The Netherlands and Houston, Texas. We maintain research facilities in Lansing, Michigan; Channelview, Texas; Cincinnati, Ohio; Ferrara, Italy and Frankfurt, Germany. Our Asia Pacific headquarters are in Hong Kong. We also have technical support centers in Bayreuth, Germany; Geelong, Australia; and Tarragona, Spain. We have various sales facilities worldwide.

Website Access to SEC Reports

Our Internet website address is http://www.lyondellbasell.com. Information contained on our Internet website is not part of this report on Form 10-K.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with, or furnished to, the U.S. Securities and Exchange Commission. Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov.

Corporate Structure

The Company was formed to serve as the new parent holding company for certain subsidiaries of LyondellBasell Industries AF S.C.A. (“LyondellBasell AF”). LyondellBasell AF was the parent company of the combination of Lyondell Chemical Company and Basell AF S.C.A. in December 2007, which created one of the world’s largest private petrochemical companies. From January 2009 through April 2010, LyondellBasell AF and 93 of its subsidiaries were debtors in jointly administered bankruptcy cases in U.S. Bankruptcy Court for the Southern District of New York. As of April 30, 2010, the date of emergence from bankruptcy proceedings, LyondellBasell AF’s equity interests in its indirect subsidiaries terminated and LyondellBasell Industries N.V. now owns and operates, directly and indirectly, substantially the same business as LyondellBasell AF owned and operated prior to emergence from the bankruptcy cases, including subsidiaries of LyondellBasell AF that were not involved in the bankruptcy cases.

Item 1A. Risk Factors.

You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock.

Our business, including our results of operations and reputation, could be adversely affected by process safety or product liability issues.

Failure to appropriately manage safety, human health, product liability and environmental risks associated with our products, product life cycles and production processes could adversely impact employees, communities, stakeholders, our reputation and our results of operations. Public perception of the risks associated with our products and production processes could impact product acceptance and influence the regulatory environment in which we operate. While we have procedures and controls to manage process safety risks, issues could be created by events outside of our control including natural disasters, severe weather events and acts of sabotage.

Our operations are subject to risks inherent in chemical and refining businesses, and we could be subject to liabilities for which we are not fully insured or that are not otherwise mitigated.

We maintain property, business interruption, product, general liability, casualty and other types of insurance, including pollution and legal liability, that we believe are in accordance with customary industry practices. However, we are not fully insured against all potential hazards incident to our business, including losses resulting from natural disasters, wars or terrorist acts. Changes in insurance market conditions have caused, and may in the future cause, premiums and deductibles for certain insurance policies to increase substantially and, in some instances, for certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms acceptable to us or at all, and might be obligated to divert a significant portion of our cash flow from normal business operations.

Further, because a part of our business involves licensing polyolefin process technology, our licensees are exposed to similar risks involved in the manufacture and marketing of polyolefins. Hazardous incidents involving our licensees, if they do result or are perceived to result from use of our technologies, may harm our reputation, threaten our relationships with other licensees and/or lead to customer attrition and financial losses. Our policy of covering these risks through contractual limitations of liability and indemnities and through insurance may not always be effective. As a result, our financial condition and results of operation would be adversely affected, and other companies with competing technologies may have the opportunity to secure a competitive advantage.

Our ability to source raw materials, including crude oil, may be adversely affected by political instability, civil disturbances or other governmental actions.

We obtain a substantial portion of our principal raw materials from sources in North Africa, the Middle East, and South America that may be less politically stable than other areas in which we conduct business, such as Europe or the U.S. Political instability, civil disturbances and actions by governments in these areas are likely to substantially increase the price and decrease the supply of raw materials necessary for our operations, which will have a material adverse effect on our results of operations.

Recently, increased incidents of civil unrest, including terrorist attacks and demonstrations which have been marked by violence, have occurred in some countries in North Africa and the Middle East. Some political regimes in these countries are threatened or have changed as a result of such unrest. Political instability and civil unrest could continue to spread in the region and involve other areas. Such unrest, if it continues to spread or grow in intensity, could lead to civil wars, regional conflict, or regime changes resulting in governments that are hostile to countries in which we conduct substantial business, such as Europe, the U.S., or their respective allies.

Costs and limitations on supply of raw materials and energy may result in increased operating expenses.

The costs of raw materials and energy represent a substantial portion of our operating expenses. Energy costs generally follow price trends of crude oil and natural gas. These price trends may be highly volatile and cyclical. In the past, raw material and energy costs have experienced significant fluctuations that adversely affected our business segments’ results of operations. For example, we continue to benefit from the favorable ratio of U.S. natural gas prices to crude oil prices. However, if the price of crude oil decreases relative to U.S. natural gas prices or if the demand for natural gas and NGLs increases, this may have a negative result on our results of operations. Additionally, the export of NGLs from the U.S. and or greater restrictions on hydraulic fracturing could restrict the availability of our raw materials thereby increasing our costs.

We are not always able to pass raw material and energy cost increases on to our customers. When we do have the ability to pass on the cost increases, we are not always able to do so quickly enough to avoid adverse impacts on our results of operations.

Cost increases for raw materials also may increase working capital needs, which could reduce our liquidity and cash flow. Even if we increase our sales prices to reflect rising raw material and energy costs, demand for products may decrease as customers reduce their consumption or use substitute products, which may have an adverse impact on our results of operations. In addition, producers in natural gas cost-advantaged regions, such as the Middle East and North America, benefit from the lower prices of natural gas and NGLs. Competition from producers in these regions may cause us to reduce exports from Europe and elsewhere. Any such reductions may increase competition for product sales within Europe and other markets, which can result in lower margins in those regions. Additionally, there are a limited number of suppliers for some of our raw materials and utilities and, in some cases, the supplies are specific to the particular geographic region in which a facility is located.

It is also common in the chemical and refining industries for a facility to have a sole, dedicated source for its utilities, such as steam, electricity and gas. Having a sole or limited number of suppliers may limit our negotiating power, particularly in the case of rising raw material costs. Any new supply agreements we enter into may not have terms as favorable as those contained in our current supply agreements.

Additionally, there is growing concern over the reliability of water sources, including around the Texas Gulf Coast where several of our facilities are located. The decreased availability or less favorable pricing for water as a result of population growth, drought or regulation could negatively impact our operations.

If our raw material or utility supplies were disrupted, our businesses may incur increased costs to procure alternative supplies or incur excessive downtime, which would have a direct negative impact on plant operations. Disruptions of supplies may occur as a result of transportation issues including, but not limited to, as a result of natural disasters and water levels that can affect the ability of vessels, barges, rails, trucks and pipeline traffic. These risks are particularly prevalent in the U.S. Gulf Coast area.

With increased volatility in raw material costs, our suppliers could impose more onerous terms on us, resulting in shorter payment cycles and increasing our working capital requirements.

The economic crisis in Europe could have a material adverse effect on our business, prospects, operating results, financial condition and cash flows.

The recent European economic crisis resulted in reduced consumer confidence and spending in many countries in Europe, particularly southern Europe. A significant portion of our revenues and earnings are derived from our business in Europe, including southern Europe. In addition, most of our European transactions and assets, including cash reserves and receivables, are denominated in euros.

If the European economic crisis continues or further deteriorates, there will likely be a continued negative effect on our European business, as well as the businesses of our European customers, suppliers and partners. In addition, if the crisis ultimately leads to the break-up of the European economic and monetary union or a significant devaluation of the euro, the value of our financial assets that are denominated in euros would be significantly reduced when translated to U.S. dollars for financial reporting purposes. Any of these conditions could ultimately harm our overall business, prospects, operating results, financial condition and cash flows.

Economic downturns and disruptions in financial markets can adversely affect our business and results of operations.

Our results of operations can be materially affected by adverse conditions in the financial markets and depressed economic conditions generally. Economic downturns in the businesses and geographic areas in which we sell our products substantially reduce demand for our products and result in decreased sales volumes. Recessionary environments adversely affect our business because demand for our products is reduced, particularly from our customers in industrial markets generally and the automotive and housing industries specifically.

The cyclicality and volatility of the industries in which we participate may cause significant fluctuations in our operating results.

Our business operations are subject to the cyclical and volatile nature of the supply-demand balance in the chemical and refining industries. Our future operating results are expected to continue to be affected by this cyclicality and volatility. The chemical and refining industries historically have experienced alternating periods of capacity shortages, causing prices and profit margins to increase, followed by periods of excess capacity, resulting in oversupply, declining capacity utilization rates and declining prices and profit margins.

In addition to changes in the supply and demand for products, changes in energy prices and other worldwide economic conditions can cause volatility. These factors result in significant fluctuations in profits and cash flow from period to period and over business cycles.

In addition, new capacity additions in Asia, the Middle East and North America may lead to periods of oversupply and lower profitability. A sizable number of expansions have recently been announced in North America. The timing and extent of any changes to currently prevailing market conditions are uncertain and supply and demand may be unbalanced at any time. As a consequence, we are unable to accurately predict the extent or duration of future industry cycles or their effect on our business, financial condition or results of operations. We can give no assurances as to any predictions we may make with respect to the timing, extent or duration of future industry cycles.

We sell products in highly competitive global markets and face significant price pressures.

We sell our products in highly competitive global markets. Due to the commodity nature of many of our products, competition in these markets is based primarily on price and, to a lesser extent, on product performance, product quality, product deliverability, reliability of supply and customer service. Generally, we are not able to protect our market position for these products by product differentiation and may not be able to pass on cost increases to our customers.

In addition, we face increased competition from companies that may have greater financial resources and different cost structures or strategic goals than us. These include large integrated oil companies (some of which also have chemical businesses), government-owned businesses, and companies that receive subsidies or other government incentives to produce certain products in a specified geographic region. Increased competition from these companies, especially in our olefin and refining businesses, could limit our ability to increase product sales prices in response to raw material and other cost increases, or could cause us to reduce product sales prices to compete effectively, which could reduce our profitability. Competitors that have greater financial resources than us may be able to invest significant capital into their businesses, including expenditures for research and development.

In addition, specialty products we produce may become commoditized over time. Increased competition could result in lower prices or lower sales volumes, which would have a negative impact on our results of operations.

Interruptions of operations at our facilities may result in liabilities or lower operating results.

We own and operate large-scale facilities. Our operating results are dependent on the continued operation of our various production facilities and the ability to complete construction and maintenance projects on schedule. Interruptions at our facilities may materially reduce the productivity and profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational difficulties. In the past, we had to shut down plants on the U.S. Gulf Coast, including the temporary shutdown of our Houston refinery, as a result of hurricanes striking the Texas coast.

In addition, because the Houston refinery is our only refining operation, an outage at the refinery could have a particularly negative impact on our operating results. Unlike our chemical and polymer production facilities, which may have sufficient excess capacity to mitigate the negative impact of lost production at other facilities, we do not have the ability to increase refining production elsewhere in the U.S.

Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, our operations are subject to hazards inherent in chemical manufacturing and refining and the related storage and transportation of raw materials, products and wastes. These potential hazards include:

•

pipeline leaks and ruptures;

•

explosions;

•

fires;

•

severe weather and natural disasters;

•

mechanical failure;

•

unscheduled downtimes;

•

supplier disruptions;

•

labor shortages or other labor difficulties;

•

transportation interruptions;

•

increased restrictions on, or the unavailability of, water for use at our manufacturing sites or for the transport of our products or raw materials;

•

remediation complications;

•

chemical and oil spills;

•

discharges or releases of toxic or hazardous substances or gases;

•

storage tank leaks;

•

other environmental risks; and

•

terrorist acts.

Some of these hazards may cause severe damage to or destruction of property and equipment and may result in suspension of operations or the shutdown of affected facilities.

Increased IT security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, products, facilities and services.

Increased global information security threats and more sophisticated, targeted computer crime pose a risk to the confidentiality, availability and integrity of our data, operations and infrastructure. While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, our employees, systems, networks, products, facilities and services remain potentially vulnerable to sophisticated espionage or continual cyber-assault. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.

We operate internationally and are subject to exchange rate fluctuations, exchange controls, political risks and other risks relating to international operations.

We operate internationally and are subject to the risks of doing business on a global level. These risks include fluctuations in currency exchange rates, economic instability and disruptions, restrictions on the transfer of funds and the imposition of duties and tariffs. Additional risks from our multinational business include

transportation delays and interruptions, war, terrorist activities, epidemics, pandemics, political instability, import and export controls, changes in governmental policies, labor unrest and current and changing regulatory environments.

We generate revenues from export sales and operations that may be denominated in currencies other than the relevant functional currency. Exchange rates between these currencies and functional currencies in recent years have fluctuated significantly and may do so in the future. We also could hedge certain revenues and costs using derivative instruments to minimize the impact of changes in the exchange rates of those currencies compared to the respective functional currencies. It is possible that fluctuations in exchange rates will result in reduced operating results. Additionally, we operate with the objective of having our worldwide cash available in the locations where it is needed, including The Netherlands for our parent company’s significant cash obligations as a result of dividend and interest payments. It is possible that we may not always be able to provide cash to other jurisdictions when needed or that such transfers of cash could be subject to additional taxes, including withholding taxes. This particularly is true of transfers of cash outside of the United States, where we currently have significant cash flows from operations.

Our operating results could be negatively affected by the global laws, rules and regulations, as well as political environments in the jurisdictions in which we operate. There could be reduced demand for our products, decreases in the prices at which we can sell our products and disruptions of production or other operations. Additionally, there may be substantial capital and other costs to comply with regulations and/or increased security costs or insurance premiums, any of which could reduce our operating results.

We obtain a substantial portion of our principal raw materials from international sources that are subject to these same risks. Our compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject could be challenged. Furthermore, these laws may be modified, the result of which may be to prevent or limit subsidiaries from transferring cash to us.

Furthermore, we are subject to certain existing, and may be subject to possible future, laws that limit or may limit our activities while some of our competitors may not be subject to such laws, which may adversely affect our competitiveness.

Many of our businesses depend on our intellectual property. Our future success will depend in part on our ability to protect our intellectual property rights, and our inability to do so could reduce our ability to maintain our competitiveness and margins.

We have a significant worldwide patent portfolio of issued and pending patents. These patents, together with proprietary technical know-how, are significant to our competitive position, particularly with regard to propylene oxide, performance chemicals, petrochemicals, and polymers, including process technologies such as Spheripol, Spherizone, Hostalen, Spherilene, Lupotech T and Avant catalyst family technology rights. We rely on the patent, copyright and trade secret laws of the countries in which we operate to protect our investment in research and development, manufacturing and marketing. However, we may be unable to prevent third parties from using our intellectual property without authorization. Proceedings to protect these rights could be costly, and we may not prevail.

The protection afforded by patents varies from country to country and depends upon the type of patent and its scope of coverage. While a presumption of validity exists with respect to patents issued to us, our patents may be challenged, invalidated, circumvented or rendered unenforceable. As patents expire, the products and processes described and claimed under those patents become generally available for use by competitors.

Our continued growth strategy may bring us to regions of the world where intellectual property protection may be limited and difficult to enforce. In addition, patent rights may not prevent our competitors from

developing, using or selling products that are similar or functionally equivalent to our products. Moreover, our competitors or other third parties may obtain patents that restrict or preclude our ability to lawfully produce or sell our products in a competitive manner, which could result in significantly lower revenues, reduced profit margins or loss of market share.

We also rely upon unpatented proprietary know-how and continuing technological innovation and other trade secrets to develop and maintain our competitive position. While it is our policy to enter into confidentiality agreements with our employees and third parties to protect our intellectual property, these confidentiality agreements may be breached, may not provide meaningful protection or adequate remedies may not be available. Additionally, others could obtain knowledge of our trade secrets through independent development or other access by legal or illegal means.

The failure of our patents or confidentiality agreements to protect our processes, apparatuses, technology, trade secrets or proprietary know-how could result in significantly lower revenues, reduced profit margins and cash flows and/or loss of market share. We also may be subject to claims that our technology, patents or other intellectual property infringes on a third party’s intellectual property rights. Unfavorable resolution of these claims could result in restrictions on our ability to deliver the related service or in a settlement that could be material to us.

Shared control or lack of control of joint ventures may delay decisions or actions regarding the joint ventures.

A portion of our operations are conducted through joint ventures, where control may be exercised by or shared with unaffiliated third parties. We cannot control the actions of our joint venture partners, including any nonperformance, default or bankruptcy of joint venture partners. The joint ventures that we do not control may also lack adequate internal controls systems or financial reporting systems to provide adequate and timely information for our reporting purposes.

In the event that any of our joint venture partners do not observe their obligations, it is possible that the affected joint venture would not be able to operate in accordance with our business plans. As a result, we could be required to increase our level of commitment in order to give effect to such plans. Differences in views among the joint venture participants also may result in delayed decisions or in failures to agree on major matters, potentially adversely affecting the business and operations of the joint ventures and in turn our business and operations.

We cannot predict with certainty the extent of future costs under environmental, health and safety and other laws and regulations, and cannot guarantee they will not be material.

We may face liability arising out of the normal course of business, including alleged personal injury or property damage due to exposure to chemicals or other hazardous substances at our current or former facilities or chemicals that we manufacture, handle or own. In addition, because our products are components of a variety of other end-use products, we, along with other members of the chemical industry, are subject to potential claims related to those end-use products. Any substantial increase in the success of these types of claims could negatively affect our operating results.

We (together with the industries in which we operate) are subject to extensive national, regional, state and local environmental laws, regulations, directives, rules and ordinances concerning

•

emissions to the air;

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discharges onto land or surface waters or into groundwater; and

•

the generation, handling, storage, transportation, treatment, disposal and remediation of hazardous substances and waste materials.

Many of these laws and regulations provide for substantial fines and potential criminal sanctions for violations. Some of these laws and regulations are subject to varying and conflicting interpretations. In addition, some of these laws and regulations require us to meet specific financial responsibility requirements. Any substantial liability for environmental damage could have a material adverse effect on our financial condition, results of operations and cash flows.

Although we have compliance programs and other processes intended to ensure compliance with all such regulations, we are subject to the risk that our compliance with such regulations could be challenged. Non-compliance with certain of these regulations could result in the incurrence of additional costs, penalties or assessments that could be material.

Our industry is subject to extensive government regulation, and existing, or future regulations may restrict our operations, increase our costs of operations or require us to make additional capital expenditures.

Compliance with regulatory requirements could result in higher operating costs, such as regulatory requirements relating to emissions, the security of our facilities, and the transportation, export or registration of our products. We generally expect that regulatory controls worldwide will become increasingly more demanding, but cannot accurately predict future developments.

Increasingly strict environmental laws and inspection and enforcement policies, could affect the handling, manufacture, use, emission or disposal of products, other materials or hazardous and non-hazardous waste. Stricter environmental, safety and health laws, regulations and enforcement policies could result in increased operating costs or capital expenditures to comply with such laws and regulations. Additionally, we are required to have permits for our businesses and are subject to licensing regulations. These permits and licenses are subject to renewal, modification and in some circumstances, revocation. Further, the permits and licenses are often difficult, time consuming and costly to obtain and could contain conditions that limit our operations.

We may incur substantial costs to comply with climate change legislation and regulatory initiatives.

There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (“GHG”) reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or may have interests in the future. Laws in this field continue to evolve and, while they are likely to be increasingly widespread and stringent, at this stage it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation. Within the framework of EU emissions trading, we were allocated certain allowances of carbon dioxide per year for the affected plants of our European sites for the 2005 to 2007 period. For the second trading period (2008 to 2012), a number of our plants were included in the Europe-wide trading system. We expect to incur additional costs as a result of the existing emissions trading scheme (including the third trading period starting in 2013) and could incur additional costs in relation to any future carbon or other greenhouse gas emission trading schemes. The costs could be higher to the extent that we decide to sell credits that we need in the future.

In the U.S., the Environmental Protection Agency (the “EPA”) has promulgated federal GHG regulations under the Clean Air Act affecting certain sources. The EPA has issued mandatory GHG reporting requirements, requirements to obtain GHG permits for certain industrial plants and proposals for GHG performance standards for some facilities. The recent EPA action could be a precursor to further federal regulation of carbon dioxide emissions and other greenhouse gases, and may affect the outcome of other climate change lawsuits pending in U.S. federal courts in a manner unfavorable to our industry. In any event, additional regulation may be forthcoming at the U.S. federal or state level with respect to GHG emissions, and such regulation could result in the creation of additional costs in the form of taxes or required acquisition or trading of emission allowances.

Compliance with these or other changes in laws, regulations and obligations that create a GHG emissions trading scheme or GHG reduction policies generally could significantly increase our costs or reduce demand for

products we produce. Additionally, compliance with these regulations may result in increased permitting necessary for the operation of our business or for any of our growth plans. Difficulties in obtaining such permits could have an adverse effect on our future growth. Therefore, any future potential regulations and legislation could result in increased compliance costs, additional operating restrictions or delays in implementing growth projects or other capital investments, and could have a material adverse effect on our business and results of operations.

We may be required to record material charges against our earnings due to any number of events that could cause impairments to our assets.

We may be required to reduce production at or idle facilities for extended periods of time or exit certain businesses as a result of the cyclical nature of our industry. Specifically, oversupplies of or lack of demand for particular products or high raw material prices may cause us to reduce production. We may choose to reduce production at certain facilities because we have off-take arrangements at other facilities, which make any reductions or idling unavailable at those facilities. Any decision to permanently close facilities or exit a business likely would result in impairment and other charges to earnings.

Temporary outages at our facilities can last for several quarters and sometimes longer. These outages could cause us to incur significant costs, including the expenses of maintaining and restarting these facilities. In addition, even though we may reduce production at facilities, we may be required to continue to purchase or pay for utilities or raw materials under take-or-pay supply agreements.

Our business is capital intensive and we rely on cash generated from operations and external financing to fund our growth and ongoing capital needs. Limitations on access to external financing could adversely affect our operating results.

We require significant capital to operate our current business and fund our growth strategy. Moreover, interest payments, dividends and the expansion of our business or other business opportunities may require significant amounts of capital. We believe that our cash from operations currently will be sufficient to meet these needs. However, if we need external financing, our access to credit markets and pricing of our capital is dependent upon maintaining sufficient credit ratings from credit rating agencies and the state of the capital markets generally. There can be no assurances that we would be able to incur indebtedness on terms we deem acceptable, and it is possible that the cost of any financings could increase significantly, thereby increasing our expenses and decreasing our net income. If we are unable to generate sufficient cash flow or raise adequate external financing, including as a result of significant disruptions in the global credit markets, we could be forced to restrict our operations and growth opportunities, which could adversely affect our operating results.

We may use our five-year, $2.0 billion revolving credit facility to meet our cash needs, to the extent available. As of December 31, 2012, we had no borrowings and $48 million of letters of credit issued and supported by the facility, leaving an unused and available credit capacity of $1,949 million. In the event of a default under our credit facility or any of our senior notes, we could be required to immediately repay all outstanding borrowings and make cash deposits as collateral for all obligations the facility supports, which we may not be able to do. Any default under any of our credit arrangements could cause a default under many of our other credit agreements and debt instruments. Without waivers from lenders party to those agreements, any such default could have a material adverse effect on our ability to continue to operate.

Certain activities related to a former project raise compliance issues under U.S. law.

We have identified an agreement related to a former project in Kazakhstan under which a payment was made that raises compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”). We have engaged outside counsel to investigate these activities, under the oversight of the Audit Committee of the Supervisory Board, and to evaluate internal controls and compliance policies and procedures. We made a

voluntary disclosure of these matters to the U.S. Department of Justice and are cooperating fully with that agency. We cannot predict the ultimate outcome of these matters at this time since our investigations are ongoing. In this respect, we may not have conducted business in compliance with the FCPA and may not have had policies and procedures in place adequate to ensure compliance. Therefore, we cannot reasonably estimate a range of liability for any potential penalty resulting from these matters. Violations of these laws could result in criminal and civil liabilities and other forms of penalties or sanctions that could be material to us.

Legislation and regulatory initiatives could lead to a decrease in demand for our products.

New or revised governmental regulations and independent studies relating to the effect of our products on health, safety and the environment may affect demand for our products and the cost of producing our products. Initiatives by governments and private interest groups will potentially require increased toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. For example, in the United States, the National Toxicology Program (“NTP”) is a federal interagency program that seeks to identify and select for study chemicals and other substances to evaluate potential human health hazards. In the European Union, REACh is regulation designed to identify the intrinsic properties of chemical substances, assess hazards and risks of the substances, and identify and implement the risk management measures to protect humans and the environment.

Assessments under NTP, REACh or similar programs or regulations in other jurisdictions may result in heightened concerns about the chemicals we use or produce and may result in additional requirements being placed on the production, handling, labeling or use of those chemicals. Such concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit the use of these products, which could lead to a decrease in demand for these products. Such a decrease in demand could have an adverse impact on our business and results of operations.

A substantial portion of our ordinary shares are owned by a few persons, and their interests in LyondellBasell Industries N.V. may conflict with other stakeholders’ interests.

As of February 1, 2013, two separate groups of affiliated shareholders collectively own approximately 34% of our outstanding ordinary shares. Under Dutch law, there are no quorum requirements for shareholder voting and most matters are approved or adopted by a majority of votes cast. As a result, as long as these shareholders or any other substantial shareholder own, directly or indirectly, a substantial portion of our outstanding shares, they will be able to significantly influence all matters requiring shareholder approval, including amendments to our Articles of Association, the election of directors, significant corporate transactions, dividend payments and other matters. These shareholders may have interests that conflict with other stakeholders, including holders of our notes, and actions may be taken that other stakeholders do not view as beneficial.

Additionally, these shareholders are party to nomination agreements that entitle each of the shareholders to cause our Supervisory Board to nominate for election members to our Supervisory Board for so long as the shareholder owns specified percentages of our ordinary shares.

Our success depends upon our ability to attract and retain key employees and the identification and development of talent to succeed senior management.

Our success depends on our ability to attract and retain key personnel, and we rely heavily on our management team. The inability to recruit and retain key personnel or the unexpected loss of key personnel may adversely affect our operations. In addition, because of the reliance on our management team, our future success depends in part on our ability to identify and develop talent to succeed senior management. The retention of key personnel and appropriate senior management succession planning will continue to be critically important to the successful implementation of our strategies.

We may not be able to fully or successfully implement our ongoing plans to improve and globally integrate our business processes and functions.

We continue to seek ways to drive greater productivity, flexibility and cost savings. In particular, we are working towards the improvement and global integration of our business processes and functions. As part of these efforts, we have been centralizing certain functions, implementing new information technology, and integrating our existing information technology systems.

Our ongoing implementation of organizational improvements is made more difficult by our need to coordinate geographically dispersed operations. Inabilities and delays in implementing improvements can negatively affect our ability to realize projected or expected cost savings. In addition, the process of organizational improvements may cause interruptions of, or loss of momentum in, the activities of our businesses. It may also result in the loss of personnel or other labor issues. These issues, as well as any information technology systems failures, also could impede our ability to timely collect and report financial results in accordance with applicable laws and regulations.

Additionally, from time to time certain aspects of our business processes may be outsourced to third parties. The processes, or the portions thereof, that are outsourced generally will tend to be labor intensive transactional activities. Although we make a diligent effort to ensure that all providers of outsourced services observe proper internal control practices and procedures, we cannot assure that failures will not occur. The failure of such third parties to provide adequate services could adversely affect our results of operations, liquidity, or our ability to provide adequate financial and management reporting.

Significant changes in pension fund investment performance or assumptions relating to pension costs may adversely affect the valuation of pension obligations, the funded status of pension plans, and our pension cost.

Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets may result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change of the expected rate of return on plan assets. Any change in key actuarial assumptions, such as the discount rate, would impact the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following fiscal years.

Certain of our current pension plans have projected benefit obligations that exceed the fair value of the plan assets. As of December 31, 2012, the aggregate deficit was $1,121 million. Any declines in the fair values of the pension plans assets could require additional payments by us in order to maintain specified funding levels.

Our pension plans are subject to legislative and regulatory requirements of applicable jurisdictions, which could include, under certain circumstances, local governmental authority to terminate the plan.

Our operations could be adversely affected by labor relations.

The vast majority of our employees located in Europe and South America are represented by labor unions and works councils. Approximately 800 of our employees located in North America are represented by labor unions.

Our operations have been in the past, and may be in the future, significantly and adversely affected by strikes, work stoppages and other labor disputes.

Item 1B.

Unresolved Staff Comments.

None.

Item 3.

Legal Proceedings.

Environmental Matters

From time to time we and our joint ventures receive notices or inquiries from federal, state or local governmental entities regarding alleged violations of environmental laws and regulations pertaining to, among other things, the disposal, emission and storage of chemical and petroleum substances, including hazardous wastes. Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that we reasonably believe could exceed $100,000. There were no such matters pending as of December 31, 2012.

Litigation and Other Matters

Information regarding our litigation and other legal proceedings can be found in Note 19, Commitments and Contingencies, to the Consolidated Financial Statements.

Item 4.

Mine Safety Disclosures.

Not applicable.

Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act

Certain non-U.S. subsidiaries of our predecessor, LyondellBasell AF, licensed processes to construct and operate manufacturing plants in Iran that produce polyolefin plastic material, which is used in the packaging of household and consumer goods. The subsidiaries also provided engineering support and supplied catalyst products to be used in these manufacturing operations. In 2009, the Company made the decision to suspend the pursuit of any new business dealings in Iran.

As previously disclosed by the Company, in 2010, our management made the further decision to terminate all business by the Company and its direct and indirect subsidiaries with the government, entities and individuals in Iran. The termination was made in accordance with all applicable laws and with the knowledge of U.S. Government authorities. As part of the termination, we entered into negotiations with Iranian counterparties in order to exit our contractual obligations. As described below, two transactions occurred under settlement agreements in early 2012, although the agreements to cease our activities with these counterparties were entered into in 2011. In January 2012, one of our non-U.S. subsidiaries received a final payment of approximately €3.5 million for a shipment of catalyst from an entity that is 50% owned by the National Petrochemical Company of Iran.

Our shipment of the catalyst was in February 2012 as part of the agreement related to our termination and cessation of all business under agreements with the counterparty. In 2012, the gross revenue from this limited activity was approximately, €4.2 million and profit attributable to it was approximately, €2.4 million.

In January and February of 2012, one of the Company’s non-U.S. subsidiaries provided certain engineering documents relating to a polyolefin plastic process to a licensee comprising three Iranian companies, one of which is 20% owned by the National Oil Company of Iran. The provision of documents was the Company’s final act with respect to the termination and cessation of all business under agreements with the counterparties. No gross revenue or profit was attributable to this activity in 2012. The transactions disclosed in this report do not constitute violations of applicable anti-money laundering laws or sanctions laws administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC), and are not the subject of any enforcement actions under the Iran sanction laws.

We have not conducted, and do not intend to conduct, any further business activities in Iran or with Iranian counterparties.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our shares were listed on the NYSE on October 14, 2010 under the symbol “LYB.” The high and low sales prices for our ordinary shares for the two most recent fiscal years are shown in the table below.


	High		Low
2011
First Quarter	$	41.12	$	33.57
Second Quarter		48.12		35.84
Third Quarter		41.93		24.41
Fourth Quarter		36.96		22.90
2012
First Quarter	$	46.39	$	33.11
Second Quarter		46.13		35.97
Third Quarter		53.77		38.44
Fourth Quarter		57.16		44.87

Holders

As of February 8, 2013, there were approximately 5,400 record holders of our shares, including Cede & Co. as nominee of the Depository Trust Company.

Dividends

The Company made the following dividend payments in 2011 and 2012:


	Dividends Paid Per Ordinary Share		Dividend Type
2011
September 7, 2011	$	0.20		Interim
December 16, 2011		0.25		Interim
December 16, 2011		4.50		Special
2012
March 8, 2012	$	0.25		Interim
May 17, 2012		0.40		Interim
August 30, 2012		0.40		Interim
December 11, 2012		0.40		Interim
December 11, 2012		2.75		Special

The payment of dividends or distributions in the future will be subject to the requirements of Dutch law and the discretion of our shareholders (in the case of annual dividends), our Management Board and Supervisory Board. The declaration of any future cash dividends and, if declared, the amount of any such dividends, will depend upon general business conditions, our financial condition, our earnings and cash flow, our capital requirements, financial covenants and other contractual restrictions on the payment of dividends or distributions.

There can be no assurance that any dividends or distributions will be declared or paid in the future.

Dutch Tax Considerations

We are a public company with limited liability (naamloze vennootschap) incorporated under Dutch law. In general, we must withhold tax (dividend tax) from dividends distributed on our ordinary shares at the rate of 15%. Dividends include, without limitation:

•

distributions of profits (including paid-in capital not recognized for dividend tax purposes) in cash or in kind, including deemed and constructive dividends;

•

liquidation distributions and, generally, proceeds realized upon a repurchase of our ordinary shares or upon the transfer of our ordinary shares to our direct or indirect subsidiary, in excess of the average paid-in capital recognized for dividend tax purposes;

•

the par value of ordinary shares issued or any increase in the par value of ordinary shares, except where such increase in the par value of ordinary shares is funded out of our paid-in capital recognized for dividend tax purposes; and

•

repayments of paid-in capital recognized for dividend tax purposes up to the amount of our profits (zuivere winst) unless our general meeting of shareholders has resolved in advance that we shall make such repayments and the par value of the ordinary shares concerned has been reduced by a corresponding amount through an amendment of our articles of association.

A holder of ordinary shares which is, is deemed to be, or, in case the holder is an individual, has elected to be treated as, resident in The Netherlands for the relevant tax purposes is generally entitled to credit the dividend tax withheld against such holder’s tax liability on income and capital gains or, in certain cases, to apply for a full refund of the dividend tax withheld.

A holder of ordinary shares which is not, is not deemed to be, and, in case the holder is an individual, has not elected to be treated as, resident in The Netherlands for the relevant tax purposes may be eligible for a partial or full exemption or refund of the dividend tax under an income tax convention in effect between The Netherlands and the holder’s country of residence or under Dutch domestic rules.

Dividend distributions to a U.S. holder of our ordinary shares (with an interest of less than 10% of the voting rights in our company) are subject to 15% dividend withholding tax, which is equal to the rate such U.S. holder could be entitled to under the current income tax treaty between the Netherlands and the United States (the “Treaty”). As such, there is no need to claim a refund of the excess of the amount withheld over the Treaty rate.

Under the Treaty, dividends paid by us to certain U.S. corporate shareholders holding directly at least 10% of the voting rights in our company are generally eligible for a reduction of the 15% withholding tax to 5%. Under certain circumstances and subject to various conditions, the Treaty provides for a full exemption or refund from dividend tax. Dividends received by exempt pension organizations and exempt organizations, as defined in the Treaty, may also be entitled to a full exemption or refund from dividend tax.

Under the terms of domestic anti-dividend stripping rules, a recipient of dividends distributed on our ordinary shares is not entitled to an exemption from, reduction, refund, or credit of dividend tax if the recipient is not the beneficial owner of such dividends within the meaning of such rules.

Generally, any payments of interest and principal by us on debt have been made free of withholding or deduction for any taxes imposed, levied, withheld or assessed by The Netherlands or any political subdivision or taxing authority thereof or therein.

The issuance or transfer of our ordinary shares, and payments made with respect to our ordinary shares, has not been subject to value added tax in The Netherlands.

The subscription, issue, placement, allotment, delivery, transfer or execution of ordinary shares have not been subject to registration tax, capital tax, customs duty, transfer tax, stamp duty, or any other similar tax or duty in The Netherlands.

Performance Graph

The graph below shows the relative investment performance of LyondellBasell Industries N.V. shares, the S&P 500 Index and the S&P 500 Chemicals Index since April 30, 2010, the first date on which we had issued capital as a publicly traded company. The graph assumes that $100 was invested on April 30, 2010 and any dividends paid were reinvested at the date of payment. The graph is presented pursuant to SEC rules and is not meant to be an indication of our future performance.

LOGO


	4/30/2010		6/30/2010		12/31/2010		6/30/2011		12/31/2011		6/30/2012		12/31/2012
LyondellBasell Industries N.V.	$	100	$	72.42	$	154.26	$	173.13	$	168.22	$	211.83	$	321.94
S&P 500 Index	$	100	$	87.20	$	107.49	$	113.96	$	109.76	$	120.17	$	127.32
S&P 500 Chemicals Index	$	100	$	83.42	$	117.58	$	128.20	$	116.10	$	132.96	$	143.51

Recent Sales of Unregistered Securities

During the quarter ended December 31, 2012, we issued 85,451 shares upon exercise of warrants. The warrants originally were issued on April 30, 2010 with an exercise price of $15.90 per share. Pursuant to the terms of the warrant agreements, the exercise price was adjusted to $13.765 on November 25, 2011 as a result of the payment of a special dividend on December 16, 2011 and further adjusted to $13.055 on November 19, 2012 as a result of the payment of our special dividend on December 11, 2012. Warrants for all 85,451 shares were exercised pursuant to a “cashless exercise” procedure pursuant to which we withhold shares that would otherwise be issued to the warrant holder in payment of the exercise price. As a result, we received no proceeds from these exercises.

The issuance of the warrants and the shares issued upon exercise of the warrants were exempt from the registration requirements of Section 5 of the Securities Act and any other applicable laws pursuant to Section 1145 of the Bankruptcy Code, which generally exempts distributions of securities in connection with plans of reorganization.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering.

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
October 1 – October 31		—		—		—		—
November 1 – November 30		90,358	$	52.78		—		—
December 1 – December 31		94,876	$	54.37		—		—
Total		185,234	$	53.59		—		—

(1)

Pursuant to the terms of our CEO’s restricted stock award agreement, if certain shareholders affect sales of their shares, the CEO will automatically vest in a percentage of his restricted stock. On November 7, 2012 and December 10, 2012 affiliates of Apollo Management Holdings L.P. sold 20 million and 21 million shares, respectively, of the Company. As a result of these sales, our CEO automatically vested in 247,897 and 260,292 shares, respectively, of his restricted stock. Of the shares vested, the Company withheld 90,358 and 94,876 shares, respectively, to satisfy tax withholding obligations. The staff of the SEC takes the position that withholding of restricted stock to pay taxes due upon vesting involves a reacquisition of outstanding shares that must be reported as repurchase of equity securities under this Item.

Item 6.

Selected Financial Data.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of factors that will enhance an understanding of this data.

The following selected financial data of the Company and its predecessor, LyondellBasell AF, should be read in conjunction with the Consolidated Financial Statements and related notes thereto and “— Management’s Discussion and Analysis of Financial Condition and Results of Operations,” below. The selected financial data of the Company and the Predecessor were derived from their consolidated financial statements. Those financial statements were prepared from the books and records of LyondellBasell AF for periods through April 30, 2010 and of the Company upon emergence from bankruptcy after that date. As discussed elsewhere in this annual report on Form 10-K, we became the successor parent holding company of the subsidiaries of LyondellBasell AF and the reporting entity upon completion of the bankruptcy proceedings. Financial information is reported for the Company as the successor on a basis different from financial information of the predecessor, LyondellBasell AF. As a result of the application of fresh-start accounting and restructuring activities pursuant to the Plan of Reorganization, the Successor period is not comparable to the Predecessor period.


	Successor									Predecessor
	Year Ended December 31,						May 1 through December 31,			January 1 through April 30,			Year Ended December 31,
In millions of dollars, except per share data	2012			2011			2010			2010			2009			2008
Results of operations data:
Sales and other operating revenues	$	45,352		$	48,183		$	26,132		$	12,807		$	29,008		$	48,130
Operating income (loss)^(a)		4,676			4,337			2,292			704			487			(5,729	)
Interest expense		(655	)		(1,044	)		(539	)		(711	)		(1,794	)		(2,476	)
Income (loss) from equity investments^(b)		143			216			86			84			(181	)		38
Income (loss) from continuing operations^(c)		2,858			2,472			1,561			8,262			(2,685	)		(7,138	)
Earnings per share from continuing operations:
Basic		5.01			4.34			2.76
Diluted		4.96			4.32			2.75
Income (loss) from discontinued operations, net of tax		(24	)		(332	)		19			242			(186	)		(190	)
Earnings (loss) per share from discontinued operations:
Basic		(0.04	)		(0.58	)		0.03
Diluted		(0.04	)		(0.58	)		0.03
Balance sheet data:
Total assets		24,220			22,839			25,302						27,761			28,651
Short-term debt		95			48			42						6,182			774
Long-term debt^(d)		4,305			3,984			6,040						802			23,195
Cash and cash equivalents		2,732			1,065			4,222						558			858
Accounts receivable		3,904			3,778			3,747						3,287			2,585
Inventories		5,075			5,499			4,824						3,277			3,314
Working capital		5,694			5,863			5,810						4,436			3,237
Liabilities subject to compromise		—			—			—						22,494			—
Cash flow data:
Cash provided by (used in):
Operating activities		4,787			2,860			2,968			(925	)		(787	)		1,090
Investing activities		(1,013	)		(1,021	)		(323	)		(224	)		(611	)		(1,884	)
Expenditures for property, plant and equipment		(1,060	)		(1,050	)		(466	)		(226	)		(779	)		(1,000	)
Financing activities		(2,145	)		(4,955	)		(1,194	)		3,315			1,101			1,083
Dividends paid per share		4.20			5.05

(a)

Operating income for 2012 includes benefits of $100 million associated with insurance settlements related to Hurricane Ike, $28 million related to the reversal of a reserve established at emergence for an unfavorable monomer contract and $24 million for a recovery related to a former employee who plead guilty to fraud. Also included in our 2012 operating income were charges of $53 million related to restructuring activities in Europe and $22 million for the impairment of assets at our Wesseling, Germany site. Operating income for 2011 includes $93 million of corporate restructuring charges and $23 million of impairment charges related to certain in-process research and design projects. Operating income for the eight months ended 2010 includes lower of cost or market charges of $42 million to adjust the value of inventory to market value and a charge of $64 million related to a dispute over an environmental liability. Operating income for the year ended December 31, 2009 includes a $44 million charge for impairment of the carrying value of surplus emission allowances related to highly-reactive volatile organic compounds and an adjustment that increased operating income by $65 million related to the overstatement of a goodwill impairment in 2008. The operating loss for the year ended December 31, 2008 includes charges of $4,982 million for the impairment of goodwill and lower of cost or market charges of $1,256 million to adjust the value of inventory to market value.

(b)	Loss from equity investments for the year ended December 31, 2009 includes pre-tax charges of $228 million for impairment of the carrying value of our investments in certain joint ventures.

(c)

Income from continuing operations for the year ended December 31, 2012 includes after-tax benefits of $64 million, $28 million and $15 million related to insurance settlements for Hurricane Ike damages, reversal of a monomer contract reserve and a legal recovery, respectively. In addition, income from continuing operations in 2012 also includes after-tax charges of $210 million for premiums and charges on the early repayment of debt, $36 million related to restructuring activities in Europe and $15 million for the impairment of assets at our Wesseling, Germany site. Income from continuing operations for the year ended December 31, 2011 includes after-tax premiums and charges on early repayment of debt of $279 million. In addition, income from continuing operations in 2011 includes after-tax corporate restructuring charges of $77 million, after-tax impairment charges of $18 million relating to certain in-process research and design projects, after-tax fair value charges related to our warrants of $37 million, partially offset by a $26 million after-tax gain on the sale of surplus precious metals. Income from continuing operations for the eight months ended December 31, 2010 included an after-tax charge of $15 million related to reorganization items and after-tax fair value charges related to our warrants of $114 million. The four months ended April 30, 2010 included after-tax income of $8,376 million related to reorganization items. Loss from continuing operations for the year ended December 31, 2009 included after-tax charges of $1,925 million related to reorganization items and $148 million for the impairment of the carrying value of our investments in certain joint ventures, partially offset by $78 million of involuntary conversion gains related to insurance proceeds for damages sustained in 2005 at a polymers plant in Münchsmünster, Germany. Loss from continuing operations for the year ended December 31, 2008 included after-tax charges of $4,982 million related to the impairment of goodwill and $816 million to adjust the value of inventory to market value, all of which were partially offset by $51 million of involuntary conversion gains related to insurance proceeds for damages sustained at the Münchsmünster polymers plant.

(d)	Includes current maturities of long-term debt.

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 notes thereto contained elsewhere in this report. When we use the terms “we,” “us,” “our” or similar words in this discussion, unless the context otherwise requires, we are referring to LyondellBasell Industries N.V. and its consolidated subsidiaries. We also refer to the Company as “LyondellBasell N.V.,” the “Successor Company” and the “Successor.”

In addition to comparisons of current operating results with the same period in the prior year, we have included, as additional disclosure, certain “trailing quarter” comparisons of fourth quarter 2012 operating results to third quarter 2012 operating results. Our businesses’ results are impacted by seasonal effects and are highly cyclical. Trailing quarter comparisons may offer important insight into current business direction.

References to industry benchmark prices or costs, including the weighted average cost of ethylene production, are generally to industry prices and costs from third-party consulting data. References to industry benchmarks for refining and oxyfuels market margins are to industry prices reported by Platts, a reporting service of The McGraw-Hill Companies. References to industry benchmark prices for crude oil and natural gas are to Bloomberg.

OVERVIEW

Our performance is driven by, among other things, global economic conditions generally and their impact on demand for our products, raw material and energy prices, and industry-specific issues, such as production capacity. Our businesses are generally subject to the cyclicality and volatility seen in the chemicals and refining industries.

Our ability to maintain strong performance in a volatile economic environment, including continued uncertainties caused by recessionary conditions in Europe and the reduced growth outlook for China, is reflected in our 2012 results of operations. We continue to focus on safe, reliable operations; cost reductions, particularly in Europe; and disciplined growth. We believe this strategy allows us to generate solid results even while facing challenges due to external factors. Significant items that affected 2012 results include:

•

The continued benefit in the U.S. from an abundance of low cost natural gas and natural gas liquids (“NGLs”) supply;

•

Volatile raw materials costs in Europe rose more rapidly than our sales prices in the last half of 2012, reversing the second quarter benefit to olefins margins from falling prices in that region; and

•

A high butane to gasoline spread that led to exceptionally strong oxyfuels results.

Other noteworthy items during 2012 include the following:

•

We increased our interim dividend from $0.25 to $0.40 in the second quarter 2012;

•

We declared a special dividend of $2.75 per share, which was paid on December 11, 2012 to shareholders of record on November 19, 2012 in addition to an aggregate of interim dividends of $1.45 per share throughout the year;

•

LyondellBasell N.V. was included in the Standard & Poor’s 500 Index following the close of market on September 4, 2012;

•

We entered into a $1 billion U. S. accounts receivable securitization facility in September 2012;

•

We completed the refinancing of nearly $3 billion of our debt with new debt issuances of unsecured senior notes bearing interest at lower rates, significantly improving our debt structure and replaced our $2 billion Senior Secured Asset-Based Credit Agreement (“ABL credit facility”) with an unsecured revolving credit facility during the first six months of 2012; and

•

We ceased the under-performing operations at the Berre refinery in early January 2012.

Following the Company’s emergence from bankruptcy, on May 1, 2010 we adopted fresh-start accounting. To ensure a proper analysis of the year over year results, the effects of fresh-start accounting on the Successor period are specifically addressed throughout this discussion. References in the following discussions to the “Company” for periods prior to April 30, 2010, the Emergence Date, are to the Predecessor Company, LyondellBasell AF and, for periods after the Emergence Date, to the Successor Company, LyondellBasell N.V. For additional information on the impact of our reorganization on our results, please see the “Emergence” section below.

Results of operations for the Successor and Predecessor periods discussed in these “Results of Operations” are presented in the table below.


	Successor									Predecessor
Millions of dollars	Year Ended December 31, 2012			Year Ended December 31, 2011			May 1 through December 31, 2010			January 1 through April 30, 2010
Sales and other operating revenues	$	45,352		$	48,183		$	26,132		$	12,807
Cost of sales		39,595			42,732			23,183			11,744
Selling, general and administrative expenses		909			918			558			304
Research and development expenses		172			196			99			55

Operating income		4,676			4,337			2,292			704
Interest expense		(655	)		(1,044	)		(539	)		(711	)
Interest income		15			37			17			5
Other income (expense), net		2			30			(102	)		(259	)
Income from equity investments		143			216			86			84
Reorganization items		4			(45	)		(23	)		7,124
Provision for (benefit from) income taxes		1,327			1,059			170			(1,315	)

Income from continuing operations		2,858			2,472			1,561			8,262
Income (loss) from discontinued operations, net of tax		(24	)		(332	)		19			242

Net income	$	2,834		$	2,140		$	1,580		$	8,504

RESULTS OF OPERATIONS

Revenues—We had revenues of $45,352 million in 2012, $48,183 million in 2011 and $38,939 million in 2010. Revenues decreased $2,831 million, or 6%, in 2012 compared to 2011. Lower sales volumes were responsible for a 2% decrease in revenues in 2012, while lower average product prices contributed 4% to the revenue decrease in 2012. Lower NGL feedstock prices contributed to the lower average sales prices for olefins and polyolefins in the O&P—Americas segment. Sales volumes in 2012 were lower than in 2011, primarily in European olefins and polyethylene and in refining. Weak economic conditions in Europe, turnaround activity at our cracker in Wesseling, Germany, and the resale of crude oil in 2011 to take advantage of favorable crude purchases were the main factors in the reduced level of sales volumes in 2012.

Revenues in 2011 increased $9,244 million, or 24%, compared to 2010. Higher average sales prices, which reflect higher crude oil prices, higher raw material costs and improved supply/demand fundamentals in the O&P—Americas and I&D segments were responsible for a 19% increase in revenues. The effect of higher sales volumes, primarily at the Houston refinery, was responsible for a 5% increase in revenues.

Cost of Sales—Cost of sales were $39,595 million in 2012, $42,732 million in 2011 and $34,927 million in 2010. The $3,137 million decrease in cost of sales in 2012 compared to 2011 was primarily due to lower prices of NGL-based raw materials, particularly ethane, used in North American olefins and the lower prices of ethylene and propylene used in North American polyolefins. Falling raw material costs, including butane,

methanol and ethanol, used in oxyfuels also benefited costs of sales in the I&D segment. These lower costs were partially offset by higher naphtha feedstock costs in the O&P–EAI segment and higher crude oil prices in the Refining segment.

The $7,805 million increase in cost of sales in 2011, compared to 2010, was primarily due to higher raw material costs, which reflect higher prices for crude oil and other hydrocarbons compared to 2010. Cost of sales for 2011 included a benefit from $187 million of lower depreciation and amortization in 2011 compared to 2010, primarily due to the $7,474 million write-down of Property, Plant and Equipment associated with the April 2010 revaluation of our assets in fresh-start accounting. The 2010 Successor period included a $64 million non-cash charge as a change in estimate related to a dispute that arose during the third quarter 2010 over an environmental liability.

Operating Income—The Company had operating income of $4,676 million, $4,337 million and $2,996 million in 2012, 2011 and 2010, respectively. The increase in operating income in 2012 compared to 2011 reflects strong ethylene performance in our O&P—Americas segment and higher oxyfuels margins. Operating results, which increased in 2011 compared to 2010, primarily reflect higher product margins for ethylene, butanediol, EO and derivatives and acetyls as well as higher refining margins at our Houston refinery.

Operating results in 2011 and in the 2010 Successor period also benefited from lower depreciation and amortization expense of $192 million and $651 million, respectively, as a result of the write-down of Property, plant, and equipment associated with the revaluation of our assets in fresh-start accounting in April 2010.

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

Interest Expense—Interest expense was $655 million in 2012, $1,044 million in 2011 and $1,250 million in 2010. The $389 million decrease in interest expense in 2012 compared to 2011 reflects the refinancing of our notes bearing interest rates of 8% and 11% per annum with lower coupon notes. The resulting benefit was offset in part by the payment of $294 million of premiums and the write-off of $18 million of unamortized debt issuance costs related to the refinancing. Additionally, we wrote off $17 million of capitalized debt issuance costs in connection with the termination of our ABL credit facility in May 2012.

The $206 million decrease in interest expense in 2011 compared to 2010 reflects the repayment of $4,288 million principal amount of debt since the beginning of the fourth quarter 2010, partially offset by $443 million of prepayment premiums and unamortized debt issuance cost write-offs related to the 2011 repayments. The prepayment of debt in 2011 included $1,731 million of our 8% senior notes, $1,319 million of our 11% senior notes. Interest expense for 2011 also includes interest on our newly issued 6% senior notes due 2021.

Other Income (Expense), net—The Company had other income, net, of $2 million in 2012 and $30 million in 2011 and other expense, net, of $361 million in 2010.

Other income, net, in 2011 included gains of $41 million related to the sale of excess precious metals, $15 million related to the sale of scrap at one of our plants and $15 million related to a settlement associated with the July 2008 crane incident at our Houston refinery. These gains were partially offset by the negative effect of the $37 million fair value adjustment of the warrants to purchase our shares and $17 million of foreign exchange losses.

Other expense, net, in 2010 included the negative effect of the fair value adjustment of the warrants to purchase our shares of $114 million and foreign exchange losses of $233 million.

Income (Loss) from Equity Investments—The Company had income from equity investments totaling $143 million in 2012, $216 million in 2011 and $170 million in 2010. The $73 million decrease in 2012 compared to 2011 was due to the lower operating results of our joint ventures in the Middle East and Asia, which were driven by lower average sales prices, higher raw material costs and unplanned outages.

The $46 million increase in 2011 compared to 2010 primarily reflects the addition of capacity at our HMC joint venture in late 2010 and the operations of our joint venture in Ningbo, China, which commenced operations in June 2010. The benefit of these joint ventures was partially offset by the lower results of our joint venture located in Poland.

Reorganization Items—The Company had income from reorganization items of $7,101 million in 2010. Gains from reorganization items in the 2010 Predecessor period included gains totaling $13,617 million related to settlement of liabilities subject to compromise, deconsolidation of entities upon emergence, adjustments related to rejected contracts, and a reduction of environmental remediation liabilities. These gains were partially offset by a charge of $6,542 million related to the changes in net assets resulting from the application of fresh-start accounting and by several one-time emergence costs, including the success and other fees earned by certain professionals upon the Company’s emergence from bankruptcy, damages related to the rejection of executory contracts and plant closure costs. Reorganization items expense in the 2010 Successor period is primarily related to professional fees.

Income Tax—Our effective income tax rates of 31.7% and 30.0% in 2012 and 2011, respectively, resulted in tax provisions of $1,327 million and $1,059 million on pre-tax income of $4,185 million and $3,531 million, respectively. In the eight months ended December 31, 2010, the Successor recorded a tax provision of $170 million, representing an effective tax rate of 9.8% on pre-tax income of $1,731 million. In the four months ended April 30, 2010, the Predecessor recorded a tax benefit of $1,315 million, representing a negative effective tax rate of 18.9% on pre-tax income of $6,947 million.

The 2012 effective income tax rate, which was lower than the U.S. statutory tax rate of 35%, reflected the effects of income being taxed in countries with lower statutory income tax rates and favorable permanent deductions related to notional royalties, equity earnings, the U.S. domestic production activity deduction, and changes to the valuation allowance, partially offset by the effect of local taxes. The effective income tax rate for 2011 was lower than the U.S. statutory tax rate of 35% primarily due to the effect of income being taxed in countries with lower statutory income tax rates and favorable permanent deductions related to notional royalties, equity earnings and the U.S. domestic production activity deduction. The provision for the 2010 Successor period differs from the U.S. statutory income tax rate of 35% primarily due to the fact that in several countries the Company generated either income with no tax expense or losses where we recorded no tax benefit due to valuation allowances on our deferred tax assets in those countries. The tax provision for the 2010 Predecessor period was significantly lower than the U.S. statutory income tax rate primarily because a substantial portion of the pre-tax gain from the discharge of pre-petition liabilities was not subject to income tax. This benefit was partially offset by restructuring charges for which no tax benefit was provided.

Income from Continuing Operations—Income from continuing operations was $2,858 million in 2012, $2,472 million in 2011 and $9,823 million in 2010. The following table summarizes the major components contributing to our income from continuing operations:


	Successor									Predecessor
Millions of dollars	Year Ended December 31, 2012			Year Ended December 31, 2011			May 1 through December 31, 2010			January 1 through April 30, 2010
Operating income	$	4,676		$	4,337		$	2,292		$	704
Interest expense, net		(640	)		(1,007	)		(522	)		(706	)
Other income (expense), net		2			30			(102	)		(259	)
Income from equity investments		143			216			86			84
Reorganization items		4			(45	)		(23	)		7,124
Provision for (benefit from) income taxes		1,327			1,059			170			(1,315	)

Net income from continuing operations	$	2,858		$	2,472		$	1,561		$	8,262

The table below summarizes items of special note with regards to our income from continuing operations for the periods shown:


	Successor									Predecessor
Millions of dollars	Year Ended December 31, 2012			Year Ended December 31, 2011			May 1 through December 31, 2010			January 1 through April 30, 2010
Pretax charges (benefits):
Charges and premiums related to prepayment of debt	$	329		$	443		$	26		$	—
Reorganization items		(4	)		45			23			(7,124	)
Corporate restructurings		53			93			—			—
Impairments		22			23			3			9
Sale of precious metals		—			(41	)		—			—
Warrants – fair value adjustment		11			37			114			—
Legal recovery		(24	)		—			—			—
Insurance settlements		(100	)		(34	)		—			—
Unfavorable contract reserve reversal		(28	)		—			—			—
Environmental accruals		—			16			—			—
Asset retirement obligations		—			10			—			—
Settlement related to Houston refinery crane incident		—			(15	)		—			—
Lower of cost or market inventory adjustment		—			—			42
Charge related to dispute over environmental liability		—			—			64			—
Gain on sale of Flavors and Fragrance chemicals business		—			—			(64	)		—

Total pretax income effect		259			577			208			(7,115	)
Tax effect of above items		(96	)		(169	)		(48	)		(1,260	)

Total	$	163		$	408		$	160		$	(8,375	)

Income (Loss) from Discontinued Operations, Net of Tax—The improvement in the results of our discontinued operations in 2012 compared to 2011 reflect a benefit from the suspension of operations at the Berre refinery in early January 2012 as well as pretax benefits totaling $73 million related to the liquidation of product inventory during 2012. Results for 2011 also included charges related to the Berre refinery of $130 million and $31 million, respectively, associated with the estimated cost of the social plan for affected employees and asset impairments.

Lower results at the Berre refinery were responsible for the decline in our 2011 results of discontinued operations compared to 2010, which included a $64 million gain in the 2010 Successor period related to the sale of our Flavor and Fragrance chemicals business. In addition to the effect of lower refining margins at the Berre refinery in 2011 compared to 2010, results for the Berre refinery also reflected the impact of the 2011 charges described above and a $264 million pre-tax benefit in 2010 associated with the fair value adjustment of our Berre refinery inventory recognized upon the application of fresh start accounting.

Comprehensive Income—Comprehensive income increased by $1,225 million in 2012 compared to 2011 and decreased by $8,597 million in 2011 compared to 2010. The increase in comprehensive income in 2012 mainly reflected an increase in net income and to a lesser extent, foreign currency translation adjustments, and actuarial losses related to our defined benefit pension plans and our other post-retirement benefit plans that were lower in 2012 compared to 2011. The predominant local currency of our operations outside the United States is the Euro, which has increased relative to the value of the U.S. dollar.

The predominant factor contributing to the decrease seen in 2011 was the $8,376 million after-tax income in the 2010 predecessor period related to reorganization items. Reorganization items in this period included a pretax gain on discharge of liabilities subject to compromise of $13,617 million offset in part by a pretax charge of $6,542 million related to the change in net asset value resulting from the application of fresh start accounting on the Emergence date.

Fourth Quarter 2012 versus Third Quarter 2012—The Company had income from continuing operations of $645 million in the fourth quarter compared to $851 million in the third quarter, which included a $71 million pretax benefit related to the reversal of the second quarter lower of cost or market inventory valuation adjustment due to market price recovery in the third quarter. Third quarter results also included a $24 million recovery related to a former employee who pled guilty to fraud. The decrease in income from continuing operations was primarily due to lower results in our O&P—EAI segment and I&D segments. Fourth quarter segment results for our O&P—EAI segment reflected lower polyolefins and PP compounding margins, which were offset in part by higher olefins margins. Lower oxyfuels margins and sales volumes contributed to the decrease in the I&D segment operating results. These decreases were partially offset by higher results in our O&P—Americas segment, which benefited from higher ethylene margins that resulted from lower NGL feedstock costs and higher average sales prices. Underlying operations of our refining segment were relatively unchanged between the two periods.

EMERGENCE

LyondellBasell N.V., the successor holding company, owns and operates, directly and indirectly, substantially the same business owned and operated by LyondellBasell AF prior to the Company’s emergence from bankruptcy. However, for accounting purposes, the operations of LyondellBasell AF are deemed to have ceased on April 30, 2010 and LyondellBasell N.V. is deemed to have begun operations on that date. Effective May 1, 2010, we adopted fresh-start accounting. Consequently, the results of operations for the Successor are not comparable to the Predecessor due to adjustments made under fresh-start accounting.

The primary impacts of our reorganization pursuant to the Plan of Reorganization and the adoption of fresh-start accounting on our results of operations are as follows:

Tax Impact of Reorganization—The application of the tax provisions of the Internal Revenue Code to the Plan of Reorganization resulted in the reduction or elimination of the majority of our U.S. tax attributes that otherwise would have carried forward into 2011 and later years. As a result, we did not retain any U.S. net operating loss carryforwards, alternative minimum tax credits or capital loss carryforwards after 2010. In addition, a significant portion of our tax basis in depreciable assets was eliminated. Accordingly, our cash tax liabilities for 2012 and 2011 were relatively higher than in 2010. We retained approximately $2,500 million of interest carryforwards at December 31, 2010, which were fully utilized to offset taxable income in 2011 and 2012.

Inventory—We adopted the last in, first out (“LIFO”) method of accounting for inventory upon implementation of fresh-start accounting. Prior to the emergence from bankruptcy, LyondellBasell AF used both the first in, first out (“FIFO”) and LIFO methods of accounting to determine inventory cost. For purposes of evaluating segment results, management reviewed operating results for LyondellBasell AF that were determined using current cost, which approximates results using the LIFO method of accounting for inventory. Subsequent to the Emergence Date, our operating results are reviewed using the LIFO method of accounting for inventory. While determining the impact of the adoption of LIFO on predecessor periods is not practicable, we believe that the current cost method used by the Predecessor for segment reporting is similar to LIFO and the current cost method would have resulted in a decrease of cost of sales of $199 million for the four months ended April 30, 2010.

In addition, on May 1, 2010, pursuant to Accounting Standard Codification (“ASC”) Topic 852, Reorganizations, we recorded inventory at fair value. In the 2010 Successor period, lower market prices, primarily for polypropylene, resulted in a $42 million lower of cost or market charge to adjust the value of our finished goods inventory to market. The effect of this adjustment to the value of our inventory is reflected in cost of sales for the 2010 Successor period.

Depreciation and amortization expense—Depreciation and amortization expense is lower in the Successor periods as a result of our revaluation of assets for fresh-start accounting. Depreciation and amortization as reported for all periods presented is as follows:


	Successor						Predecessor
Millions of dollars	Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Cost of sales:
Depreciation	$	817	$	718	$	394	$	464
Amortization		125		170		142		75

Research and development expenses:
Depreciation		21		21		11		8

Selling, general and administrative expenses:
Depreciation		20		22		11		18

	$	983	$	931	$	558	$	565

Interest expense—Lower interest expense in the 2010 Successor period was largely driven by the discharge or repayment of debt, upon which interest was accruing during the bankruptcy, through the Company’s reorganization on April 30, 2010 pursuant to the Plan of Reorganization, partially offset by interest expense on the new debt incurred as part of the emergence from bankruptcy. Interest expense in 2011, which was lower compared to the combined 2010 Successor and Predecessor periods, reflects the repayment of $4,288 million principal amount of debt since the beginning of the fourth quarter 2010. This benefit was partially offset by the premiums and other costs associated with the prepayments as well as interest expense on the Senior 6% Notes issued in November 2011. Interest expense continued to decline in 2012 following the refinancing of notes bearing interest rates of 8% and 11% per annum with lower coupon notes in the second quarter of 2012. The benefit of these lower interest rates was partially offset by premiums and other costs related to the repayment of the 8% and 11% notes.


	Successor						Predecessor
Millions of dollars	Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Interest expense	$	655	$	1,044	$	539		$	711

Segment Analysis

Our continuing operations are divided into five reportable segments: O&P—Americas; O&P—EAI; I&D; Refining; and Technology. In the second quarter 2012, the operations of our Berre refinery in France met the criteria to be reported as discontinued operations and, our oxyfuels business, which was previously managed in conjunction with our refining operations, and included in our Refining segment, was included in our I&D segment. All comparable periods presented have been revised accordingly.

The following tables reflect selected financial information for our reportable segments.


	Successor									Predecessor
Millions of dollars	Year Ended December 31, 2012			Year Ended December 31, 2011			May 1 through December 31, 2010			January 1 through April 30, 2010
Sales and other operating revenues:
O&P—Americas segment	$	12,934		$	14,880		$	8,406		$	4,183
O&P—EAI segment		14,521			15,591			8,950			4,026
I&D segment		9,658			9,500			5,383			2,748
Refining segment		13,291			13,706			6,259			3,051
Technology segment		498			506			365			145
Other, including intersegment eliminations		(5,550	)		(6,000	)		(3,231	)		(1,346	)

Total	$	45,352		$	48,183		$	26,132		$	12,807


Operating income (loss):
O&P—Americas segment	$	2,650		$	1,855		$	1,039		$	317
O&P—EAI segment		127			435			367			106
I&D segment		1,430			1,156			629			192
Refining segment		334			809			208			(97	)
Technology segment		122			107			69			39
Other, including intersegment eliminations		13			(25	)		(20	)		(52	)
Current cost adjustment		—			—			—			199

Total	$	4,676		$	4,337		$	2,292		$	704


Income (loss) from equity investments:
O&P—Americas segment	$	25		$	21		$	16		$	5
O&P—EAI segment		121			168			68			80
I&D segment		(3	)		27			2			(1	)

Total	$	143		$	216		$	86		$	84

Olefins and Polyolefins—Americas Segment

2012 Versus 2011—The U.S. ethylene industry continues to benefit from processing comparably low cost NGLs. Ethylene produced from NGLs in North America is currently lower in cost compared to that produced from crude oil-based liquids, which is the predominant feedstock used in the rest of the world.

Higher operating results for 2012 were driven by continued strong ethylene performance. Ethylene margins improved in 2012 despite a decrease in the average price of ethylene as prices for ethane and propane remained advantaged. Higher sales volumes in 2012 for ethylene reflect higher demand. Polypropylene and polyethylene results, which reflected higher margins and moderately higher sales volumes also contributed to the higher segment results.

2011 Versus 2010—Ethylene margins remained strong in 2011 primarily due to advantaged prices for ethane, which was the favored feedstock. Co-product sales prices, which remained high in 2011 despite a fourth quarter decline, also contributed to the strength of ethylene margins. Market demand for polyethylene was relatively unchanged in 2011, but higher prices driven by increased raw material costs dampened demand for U.S. polypropylene.

Operating results for 2011 and the 2010 Successor period include the impacts of fresh-start accounting, including the benefit of lower depreciation and amortization expense related to the write-down of segment assets. The 2010 Successor period also includes the negative impact of a non-cash charge to adjust inventory to market value (see “Results of Operations-Cost of Sales”).

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

•

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; and

•

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

Although prices of these raw materials are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. In the U.S., we have significant capability to change the mix of raw materials used in the production of ethylene and its co-products to take advantage of the relative costs of heavy liquids and NGLs.

Production economics for the industry continued to favor NGLs during 2012 and 2011. As a result, we further increased our use of NGLs and reduced liquids consumption at our U.S. plants. Approximately 85% of our U.S. ethylene production was produced from NGLs during 2012 compared to approximately 75% in 2011 and 70% in 2010.

The following table shows the average U.S. benchmark prices for crude oil and natural gas for the applicable periods, as well as benchmark U.S. sales prices for ethylene and propylene, which we produce and sell or consume internally. The table also shows the discounted U.S. benchmark prices for certain polyethylene and polypropylene products. The benchmark weighted average cost of ethylene production, which reflects credits for co-product sales, is based on a third-party consultant’s estimated ratio of heavy liquid raw materials and NGLs used in U.S. ethylene production.


	Average Benchmark Price and Percent Change Versus Prior Year Period Average
	Year Ended							Year Ended
	December 31,							December 31,
	2012		2011		Change			2011		2010		Change
Crude oil, dollars per barrel:
WTI		94.1		95.1		(1	)%		95.1		79.6		20	%
LLS		111.7		112.4		(1	)%		112.4		82.8		36	%
Natural gas (Henry Hub), dollars per million BTUs		2.9		4.1		(30	)%		4.1		4.5		(8	)%
United States, cents per pound:
Weighted average cost of ethylene production		21.2		35.6		(40	)%		35.6		30.0		19	%
Ethylene		48.3		54.3		(11	)%		54.3		45.9		18	%
Polyethylene (HDPE)		62.3		63.3		(2	)%		63.3		61.7		3	%
Propylene—polymer grade		58.9		73.3		(20	)%		73.3		59.6		23	%
Polypropylene		72.5		87.5		(17	)%		87.5		75.3		16	%

The following table sets forth the O&P—Americas segment’s sales and other operating revenues, operating income, income from equity investments and selected product production and sales volumes. Production volumes are based on actual production in the time period.


	Successor						Predecessor
Millions of dollars	Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Sales and other operating revenues	$	12,934	$	14,880	$	8,406	$	4,183
Operating income		2,650		1,855		1,039		317
Income from equity investments		25		21		16		5

Production volumes, in millions of pounds
Ethylene		8,972		8,353		5,585		2,768
Propylene		2,363		2,907		1,998		1,019
Sales volumes, in millions of pounds
Polyethylene		5,639		5,493		3,704		1,765
Polypropylene		2,889		2,843		1,966		968

Revenues—Revenues decreased by $1,946 million, or 13%, in 2012 compared to 2011, and increased by $2,291 million, or 18% in 2011 compared to 2010. In 2012, lower average sales prices across most products were responsible for a 9% decrease in revenue and lower sales volumes were responsible for an additional 4% decrease in revenue. Average sales prices for ethylene and polyethylene were lower in 2012 mainly due to the significantly lower costs of NGL feedstocks. Lower average sales prices for polypropylene in 2012 reflected lower propylene prices compared to a strong propylene market in 2011. The overall decrease in sales volumes reflects the increased amount of NGLs in our olefins feed slate in 2012, as NGLs produce significantly less co-products than liquids feedstock. Sales volumes of the main products in the segment (ethylene, polyethylene and polypropylene) actually increased in 2012 over 2011 levels. The increase in ethylene sales volumes was driven by improved demand and higher spot sales opportunities in 2012. The higher polyethylene sales volumes in 2012 reflect an increase in market share.

Higher average sales prices for most products in 2011 were responsible for revenue increases of 22% while lower sales volumes reduced revenues by 4% in 2011 compared to 2010. An improved supply/demand balance and higher crude-oil based raw material costs were reflected in the higher average sales prices in 2011.

Operating Income—Operating results reflected increases of $795 million in 2012 compared to 2011, and $499 million in 2011 compared to 2010.

The increase in operating income in 2012 primarily reflects strong ethylene performance, which resulted in higher margins and sales volumes, and to a lesser extent, higher results for polyethylene and polypropylene. A significant benefit to the cost of ethylene production in 2012 from lower ethane and propane prices was offset in part by lower average sales prices for co-products. Margins increased as the cost reduction was only partly offset by lower average ethylene sales prices. Polyethylene and polypropylene saw higher product margins and sales volumes in 2012. The higher margins for polyethylene and polypropylene reflect decreases in the prices for ethylene and propylene, respectively, that outpaced decreases in average sales prices. Operating results for 2012 also reflected a $29 million benefit associated with an insurance settlement related to Hurricane Ike.

The $499 million increase in operating results for 2011 was primarily due to higher ethylene product margins, which were partially offset by lower product margins for polyethylene and polypropylene and lower ethylene and polypropylene sales volumes. The higher ethylene margins reflected increases in the average sales prices of ethylene and ethylene co-products during 2011, which more than offset increases in raw material prices. Polyethylene and polypropylene product margins were lower in 2011 compared to 2010 as increases in raw material costs outpaced the increases in average sales prices. Operating results for 2011 were negatively

impacted by a major turnaround at our Channelview plant and a utility supplier outage at our Morris, Illinois facility as well as planned and unplanned outages at our polypropylene plants. Operating results for 2011 benefited from $64 million of lower depreciation expense compared to 2010 as a result of the application of fresh-start accounting and the revaluation of our assets, while the 2010 Successor period results were negatively impacted by a $34 million non-cash charge to adjust inventory to market value.

Fourth Quarter 2012 versus Third Quarter 2012—Operating income decreased from $738 million in the third quarter to $693 million in the fourth quarter. Third quarter operating results include a $71 million non-cash benefit, resulting from the recovery of market price, which reversed the $71 million lower of cost or market inventory valuation adjustment recognized in the second quarter.

Results of the underlying operations of the O&P-Americas segment reflect higher ethylene results, which were offset in part by lower margins for polyethylene and polypropylene and lower polypropylene sales volumes, compared to the third quarter. The higher ethylene results reflect an improvement in ethylene margins. Lower NGL prices coupled with higher average sales prices for ethylene were the primary drivers of the improved ethylene margins. Fourth quarter polyethylene margins were lower, compared to the third quarter, due to higher feedstock costs. These costs rose with the price of ethylene and outpaced the average sales price increases for polyethylene. Sales volumes for polyethylene were relatively flat between the two periods. Operational issues at one of our facilities, which have been resolved, led to the lower level of polypropylene sales volumes in the fourth quarter.

Olefins and Polyolefins—Europe, Asia and International Segment

2012 Versus 2011—Market conditions, particularly in Europe, continued to be weak throughout 2012 amid economic uncertainty. This resulted in a decline for European demand for ethylene and polyolefins in 2012 compared to 2011. The volatility of naphtha feedstock prices throughout 2012 resulted in substantial swings in olefins margins over this period.

Operating results in 2012 primarily reflected weak margins and lower sales volumes across most products. The decrease in sales volumes reflects weak European demand and the negative impact of reduced production during the last half of 2012 from a turnaround at our Wesseling, Germany cracker. The volatility in naphtha feedstock price noted above resulted in volume volatility, compressed margins for most of the year, and considerably lower butadiene margins in 2012. Polypropylene and polyethylene results were lower in 2012 reflecting lower product margins and lower polyethylene sales volumes. Results for our PP compounding and polybutene-1 businesses were slightly higher in 2012 compared to 2011.

2011 Versus 2010—Market conditions, which were strong in the first half of 2011, began to deteriorate in the third quarter and continued to decline rapidly in the fourth quarter of 2011. The decline was most evident in Europe, amid uncertainty and poor economic conditions. An industry wide inventory adjustment that occurred during the fourth quarter 2011, as producers drew down existing inventories, led to a decline in prices from the high levels experienced earlier in the year. Despite lower market demand for ethylene in 2011, industry margins for ethylene expanded as benchmark average sales prices increased more than the benchmark weighted average cost of ethylene production. Market demand for polyolefins was lower in 2011 compared to 2010.

Despite a lower second half of 2011, operating results in 2011 for the O&P—EAI segment reflected higher product margins for ethylene and especially butadiene, and higher sales volumes across most products compared to 2010. Segment results in 2011 also benefited from the continued strong performance of our PP compounding business. Results for the 2010 Successor period include the negative impact of a charge related to a change in estimate associated with a dispute over an environmental indemnity, while 2011 results include charges associated with activities to reorganize certain functional organizations and for increased environmental liabilities at our Wesseling, Germany site.

Ethylene Raw Materials—In Europe, heavy liquids are the primary raw materials for our ethylene production.

The following table shows the average Western Europe benchmark prices for Brent crude oil for the applicable periods, as well as benchmark Western Europe prices for ethylene and propylene, which we produce and consume internally or purchase from unrelated suppliers, and discounted prices for certain polyethylene and polypropylene products.


	Average Benchmark Price and Percent Change Versus Prior Year Period Average
	Year Ended							Year Ended
	December 31,							December 31,
	2012		2011		Change			2011		2010		Change
Brent crude oil, dollars per barrel		111.7		110.7		1	%		110.7		80.8		37	%
Western Europe benchmark prices, €0.01 per pound:
Weighted average cost of ethylene production		38.9		36.5		7	%		36.5		29.5		24	%
Ethylene		56.2		51.7		9	%		51.7		43.2		20	%
Polyethylene (high density)		59.4		55.4		7	%		55.4		47.3		17	%
Propylene		50.7		50.7		—	%		50.7		42.4		20	%
Polypropylene (homopolymer)		58.3		58.8		(1	)%		58.8		51.9		13	%
Average Exchange Rate, $US per €		1.2858		1.3921		(8	)%		1.3921		1.3273		5	%

The following table sets forth the O&P—EAI segment’s sales and other operating revenues, operating income, income from equity investments and selected product production and sales volumes. Production volumes are based on the actual production in the time period.


	Successor						Predecessor
Millions of dollars	Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Sales and other operating revenues	$	14,521	$	15,591	$	8,950	$	4,026
Operating income		127		435		367		106
Income from equity investments		121		168		68		80

Production volumes, in millions of pounds
Ethylene		3,512		3,729		2,502		1,108
Propylene		2,134		2,286		1,584		661
Sales volumes, in millions of pounds
Polyethylene		4,963		5,143		3,402		1,658
Polypropylene		6,085		6,077		4,230		1,834

Revenues—Revenues for 2012 decreased by $1,070 million, or 7%, compared to revenues for 2011, and revenues for 2011 increased by $2,615 million, or 20%, compared to revenues for 2010. Lower average sales prices in 2012 contributed 6% to the revenue decrease and lower sales volumes were responsible for the remaining revenue decrease of 1%. The lower average sales prices and sales volumes reflect weak economic conditions in Europe that have existed since late 2011. In addition, polyethylene sales volumes were affected by an explosion in a reactor bay at our LDPE plant in Wesseling, Germany that occurred during the first quarter 2012.

The increase in 2011 revenues, compared to 2010, was due to higher average product sales prices, which were mainly driven by higher raw material costs. Sales volumes in 2011 decreased slightly as a decline in polypropylene sales was offset by increases in other product areas, but sales volumes in the second half of 2011 were significantly lower than in the first half of the year. Overall, the change in 2011 sales volumes did not have a material impact on revenues.

Operating Income—Operating results decreased $308 million in 2012 compared to 2011, and by $38 million in 2011 compared to 2010. Segment operating results for 2012 included charges of $35 million for restructuring activities in Europe and $22 million for impairment of assets related to damage of our LDPE plant in Wesseling, Germany that resulted from an explosion in a reactor bay. These charges were partially offset by a $28 million benefit related to the reversal of a reserve established at emergence for an unfavorable monomer contract. Operating results in 2011 included charges associated with activities to reorganize certain functional organizations and for increased environmental liabilities at our Wesseling, Germany site. Operating results for the Successor period in 2010 were negatively impacted by a $56 million charge associated with a change in estimate that arose during the third quarter 2010 over an environmental indemnity.

Excluding the impact of the items occurring in 2012 and 2011 discussed above, operating results for 2012 reflect lower cracker and butadiene margins and a 6% decline in olefins production volumes. Lower butadiene margins were principally due to lower average sales prices in the second half of 2012 compared to the very strong levels in 2011 as supplies outpaced weaker global demand. The turnaround at our Wesseling, Germany cracker and the subsequent delay in the start-up of activities during the last half of 2012 contributed to the decline in production volumes. Polyethylene results were lower in 2012 as a result of lower sales volumes and margins. Polypropylene results were lower in 2012 due to lower margins in Europe. The lower polyethylene and polypropylene margins reflected decreases in average sales prices that exceeded average decreases in raw material prices. The lower polyethylene sales volumes in 2012 reflected lower operating rates which were largely attributable to the Wesseling turnaround. Slightly higher results for our PP compounding and PB-1 businesses reflected margins that were higher in 2012 compared to 2011. Sales volumes for PP compounding and PB-1 were relatively unchanged over the two periods.

Apart from the charges occurring in 2011 and 2010 discussed above, business results in 2011 reflected higher product margins for butadiene, ethylene, and to a lesser extent, PP compounds, and the effect of slightly higher ethylene sales volumes. These improvements were substantially offset by lower product margins for polypropylene and polyethylene reflecting higher monomer prices compared to those experienced in 2010 and higher freight and distribution and other costs. The strength in butadiene margins reflects strong global demand coupled with constrained supply as a result of a preference in North America for NGL olefins feedstocks, which produce less butadiene than liquid feedstocks.

Fourth Quarter 2012 versus Third Quarter 2012—The O&P—EAI segment had an operating loss of $94 million in the fourth quarter compared to operating income of $15 million in the third quarter. Fourth quarter results included the charges related to the restructuring activities described above and employee compensation. These charges were partly offset by the benefit related to the reversal of the reserve associated with the unfavorable contract discussed above. Apart from these items, the decrease in operating results in the fourth quarter was primarily attributed to seasonally lower results for PP compounding and polyolefins, which were partly offset by higher olefin results. Margins for PP compounding returned to more normal levels in the fourth quarter following a strong third quarter as the timing of polypropylene price reductions positively affected third quarter results. Fourth quarter polyolefins results reflected lower margins due mainly to typical fourth quarter seasonality. Fourth quarter olefins results reflected higher margins, which recovered from the low levels seen in the third quarter, and higher sales volumes following the Wesseling turnaround.

Intermediates and Derivatives Segment

2012 Versus 2011—Operating results for 2012 reflect strong performance of our oxyfuels business as global gasoline prices remained high relative to butane feedstock costs compared to 2011 and our oxyfuels sales volumes increased as we expanded to new regional markets. Higher margins for TBA and derivatives, which reflected higher average sales prices and lower raw material costs, also contributed to the higher operating results for the I&D segment for 2012. These benefits were partially offset by lower results for our PO derivatives and lower ethylene glycol margins.

2011 Versus 2010—The demand for I&D products generally remained strong in the first nine months of 2011. Significant scheduled maintenance turnarounds at two facilities commenced at the end of the third quarter 2011 and continued into the fourth quarter. As the facilities returned to full operations in the fourth quarter, demand eroded, particularly in Europe. The decrease in demand reflected typical seasonal declines as well as a weak start to the winter aircraft deicing season. I&D segment results for 2011 reflected higher margins in most product areas, especially in oxyfuels, butanediol (“BDO”), acetyls, isobutylenes and in EO and derivatives. Operating results for 2011 reflected the impacts of fresh-start accounting, including the benefit of lower depreciation and amortization expense for 2011 related to the write-down of segment assets. The 2010 Successor period includes the negative impact of a non-cash charge to adjust inventory to market value. See “Results of Operations—Cost of Sales.” Operating results for 2010 also included the operations of our Flavors and Fragrances business that was sold in December 2010.

The following table sets forth the I&D segment’s sales and other operating revenues, operating income, income from equity investments and selected product production and sales volumes. Production volumes are based on actual production in the time period. In addition, the table shows MTBE margins in Northwest Europe (“NWE”).


	Successor							Predecessor
Millions of dollars	Year Ended December 31, 2012			Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Sales and other operating revenues	$	9,658		$	9,500	$	5,383	$	2,748
Operating income		1,430			1,156		629		192
Income (loss) from equity investments		(3	)		27		2		(1	)

Sales volumes, in millions of pounds
PO and derivatives		2,942			2,940		2,121		1,082
EO and derivatives		1,158			1,100		614		358
Styrene		2,974			3,065		2,023		858
Acetyls		1,836			1,637		1,189		518
TBA intermediates		1,750			1,795		1,208		613

Sales volumes, in millions of gallons
MTBE/ETBE		849			818		625		266

Market margins, cents per gallon
MTBE–NWE		118.2			83.1		33.9		58.5

Revenues—Revenues for 2012 increased $158 million, or 2%, compared to 2011. This increase in revenues reflects a 1% increase due to higher sales volumes, primarily oxyfuels and acetyls, and a 1% increase from overall higher average sales prices. Higher sales volumes for oxyfuels in 2012 reflected strong market demand and expansion into new geographic markets, primarily Eastern Europe. Increased production resulting from a catalyst replacement earlier this year, combined with strong acetyls demand in our European and South American markets contributed to the higher sales volumes for acetyls in 2012.

Revenues for 2011 increased $1,369 million, or 17%, compared to 2010, reflecting higher average sales prices across all businesses and the effect of higher sales volumes for EO, EG and styrene, which more than offset declines in volumes for PO & derivatives, acetyls and isobutylenes. Increased demand in the Asian automotive and polyester markets and the effect of competitor outages on supply were partially responsible for the higher average sales prices in 2011. The sales volume changes scheduled maintenance turnarounds at two of our facilities in the fourth quarter 2011, higher production from the EO/EG facility in a strong global market for most of the year, and the year-end slowdown experienced primarily in Europe. The higher average sales prices resulted in a revenue increase in 2011 of 18%, while higher sales volumes resulted in a revenue increase of 2%. Revenues of our Flavors and Fragrance chemicals business, which was sold in December 2010, comprised 3% of total revenues in 2010.

Operating Income—Operating results increased $274 million in 2012, compared to 2011. Operating results for 2012 primarily reflect higher oxyfuels margins and sales volumes as a result of the increased spread between gasoline and raw materials, butane, methanol and ethanol as well as a higher market premium for oxyfuels products over gasoline. Collective results for PO and derivatives were lower as lower product margins for PO derivatives were slightly offset by higher PO sales volumes. PO derivatives margins reflect decreases in average sales prices that outpaced lower raw materials prices, particularly propylene. Lower demand for PG used in deicers due to the unseasonably warm start to winter also contributed to the decrease in 2012 PO and derivatives results. Higher TBA and derivatives margins in 2012 were partially offset by lower ethylene glycol margins. TBA and derivative margins reflect lower butane feedstock prices, which were related in part to natural gas prices, coupled with higher average sales prices. The lower ethylene glycol margins reflect average sales prices which decreased more rapidly than the cost of ethylene. Results for acetyls reflected lower natural gas and ethylene feedstock costs and higher volumes, which largely offset lower product sales prices. Segment operating results for 2012 also included an $18 million benefit related to an insurance settlement associated with Hurricane Ike.

Operating results increased $335 million in 2011 compared to 2010, which primarily reflected higher product margins across all business products, especially in PO derivatives. Improved automotive and other durable goods demand and competitor outages contributed to favorable supply/demand fundamentals as prices outpaced increased raw material costs. Oxyfuels margins were also higher in 2011, compared to 2010, reflecting higher spreads between the prices of gasoline and butane, a key raw material. Operating results in 2011 benefited from lower depreciation and amortization expense of $37 million compared to 2010, primarily due to the write-down of Property, plant and equipment associated with the revaluation of our assets in fresh-start accounting. Operating results for 2010 also included the results of the Flavors & Fragrance chemicals business which was sold in December 2010.

Fourth Quarter 2012 versus Third Quarter 2012—Operating income was $246 million in the fourth quarter compared to $424 million in the third quarter. The decrease in fourth quarter operating results reflects lower oxyfuels margins and lower sales volumes for most products. Oxyfuels margins were lower in the fourth quarter due to a decrease in the spread between butane and gasoline as demand for high octane, clean gasoline components followed seasonal demand patterns, which also led to lower sales volumes for oxyfuels in the fourth quarter. Results for PO and derivatives were lower largely due to scheduled turnarounds in the fourth quarter and seasonally weaker demand for PO and PO derivatives which led to lower sales volumes. The collective results for the remaining I&D segment businesses in the fourth quarter were relatively unchanged from the third quarter.

Refining Segment

2012 Versus 2011—The Refining segment comprises the operations of our full conversion refinery located on the Houston Ship Channel in Houston, Texas. The Berre refinery, which was previously included in the Refining segment through the first quarter of 2012, was classified as discontinued operations in the second quarter of 2012. Accordingly, results of operations for the Berre refinery are not included in the segment discussion.

Although the benchmark Maya 2-1-1 margin increased in 2012, our refinery’s operating results decreased largely as a result of a reduced benefit from favorable crude purchasing opportunities compared to 2011 and lower by-product spreads for petroleum coke and other natural gas-based products. Operating results also reflected lower crude processing rates compared to 2011 as a result of planned and unplanned plant outages.

2011 Versus 2010—Benchmark U.S. heavy crude refining margins, despite declining significantly in the fourth quarter, were higher in 2011 as a result of significant discounts for heavy crude oil and increased gasoline and distillate spreads over crude oil for much of the year.

Segment operating results were higher in 2011 compared to 2010, despite significantly lower refining margins in the fourth quarter. The higher 2011 results primarily reflected higher crude oil refining margins and

increased crude runs at the Houston refinery compared to 2010. Crude processing rates were higher in 2011, compared to 2010, as a result of unplanned outages during 2010, including the crude unit fire in May 2010. Operating results for 2011 and the Successor period in 2010 reflect the impacts of fresh-start accounting, including the benefit of lower depreciation and amortization expense related to the write-down of segment assets.

The following table sets forth the Refining segment’s sales and other operating revenues, operating income and market refining margins for the U.S. for the applicable periods. Light Louisiana Sweet, or “LLS” and “WTI,” or West Texas Intermediate, are light crude oils, while “Maya” is a heavy crude oil.


	Successor						Predecessor
Millions of dollars	Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Sales and other operating revenues	$	13,291	$	13,706	$	6,259	$	3,051
Operating income (loss)		334		809		208		(97	)

Heavy crude processing rates, thousands of barrels per day		255		263		223		263


Market margins, dollars per barrel
Light crude oil - 2-1-1 ^*		11.50		7.80		8.98		7.50
Light crude oil - Maya differential ^*		12.05		13.76		8.99		9.46

Total Maya 2-1-1		23.55		21.56		17.97		16.96

WTI crude oil was used as the Light crude reference for periods prior to 2011. As of January 1, 2011, LLS crude oil is used as the Light crude oil reference. Beginning in early 2011, the WTI crude oil reference was no longer an effective indicator of light crude oil pricing given the large location differential compared to other light crude oils.

Revenues—Revenues decreased $415 million, or 3%, in 2012 compared to 2011 and increased $4,396 million, or 47%, from 2010 to 2011. Lower sales volumes in 2012 were responsible for a revenue decrease of 4% compared to 2011. The lower sales volumes reflect the resale of excess crude oil in 2011. In addition, crude processing rates were lower in 2012 compared to 2011 as a result of planned and unplanned outages in 2012. A 1% revenue increase from sales prices in 2012 compared to 2011 was driven by the impact of higher gasoline and distillate prices, partly offset by lower values for refinery byproducts.

The increase in revenues in 2011 was primarily due to higher average sales prices and higher refining sales volumes. Higher average sales prices and higher sales volumes were responsible for revenue increases of 30% and 17%, respectively. Crude processing rates were 11% higher compared to 2010, which was negatively impacted by a crude unit fire during the second quarter, sulfur constraints, unplanned coker unit outages and a supply disruption from a third party utility supplier.

Operating Income (Loss)—Operating results decreased $475 million in 2012 compared to 2011 and increased $698 million in 2011 compared to 2010. In 2012, segment operating results reflected benefits totaling $77 million, including a recovery of $24 million related to a former employee who pled guilty to fraud and a $53 million insurance settlement associated with Hurricane Ike. Operating results for 2011 reflected benefits totaling $49 million, including an insurance recovery related to the fraud mentioned above and a settlement related to the 2008 crane incident at the refinery. Operating results for 2011 also reflected margins that benefited from favorable crude purchasing opportunities.

Excluding the impact of the benefits described above, operating income in 2012 decreased largely as a result of lower refining margins despite an increase in the benchmark Maya 2-1-1 margin. Our refining margins in

2012, which were lower relative to the Maya 2-1-1 margin, reflected a reduced benefit from favorable crude purchasing opportunities compared to 2011 and lower by-product spreads for petroleum coke and other natural gas-based products.

The improvement in the 2011 operating results of our underlying operations at the refinery primarily reflects higher refining margins as indicated by the increase in the Maya 2-1-1 benchmark margin. The financial performance of our refining business was favorably impacted by purchasing crude oils at discounts versus the Maya reference price for heavy crude oil. Segment operating results for 2011 included $49 million of benefits described above. Operating results for 2011 also benefited from lower depreciation expense of $83 million, compared to the same 2010 period, as a result of the application of fresh-start accounting and the revaluation of our assets. Operating results for 2010 were negatively impacted by a crude unit fire at the refinery in May 2010, resulting in lost production and $14 million of cash costs.

Fourth Quarter 2012 versus Third Quarter 2012—Operating income for the fourth quarter was $86 million compared to $114 million in the third quarter, which included a $24 million recovery related to a former employee who plead guilty to fraud.

After giving consideration to the $24 million recovery discussed above, fourth quarter operating results for the refinery were relatively unchanged from those seen in the third quarter. Although crude processing rates improved from 240,000 barrels per day in the third quarter to 255,000 barrels per day in the fourth quarter, the Maya 2-1-1 benchmark margins declined primarily due to weak gasoline product spreads, and we incurred higher maintenance costs in the fourth quarter. These negative impacts to fourth quarter operating results were substantially offset by a higher heavy crude oil price differential and a lower penalty on petroleum coke and other by-products as natural gas prices increased. Unplanned outages during both quarters negatively impacted the crude processing rates.

Technology Segment

2012 Versus 2011—Operating results in 2012 for the Technology segment were lower compared to 2011. The results for both periods were negatively impacted by restructuring activities in Europe and in 2011, by an impairment of a research and development project. Underlying operations of the Technology segment in 2012 were relatively unchanged from 2011.

2011 Versus 2010—Results for 2011 reflected higher research and development costs primarily related to charges for the impairment of a research and development project in Europe and the relocation of a research and development facility, and lower licensing and services revenue compared to 2010. Operating results for the catalyst business were higher in 2011 compared to 2010.

The following table sets forth the Technology segment’s sales and other operating revenues and operating income.


	Successor						Predecessor
Millions of dollars	Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Sales and other operating revenues	$	498	$	506	$	365	$	145
Operating income		122		107		69		39

Revenues—Revenues decreased $8 million, or 2%, in 2012 compared to 2011. These decreases primarily reflect lower catalyst sales volumes, which were responsible for a revenue decrease of 2% in 2012 compared to 2011. Price changes in 2012 accounted for a revenue decrease of 3% compared to 2011. In addition, the recognition of higher revenues on process licenses issued in prior years in 2012 resulted in an increase of 3% in revenues compared to 2011.

Revenues were comparable in 2011 and 2010. Catalyst sales volumes and prices were essentially the same in both years. The recognition of revenue on process licenses issued in prior periods was lower in 2011 and resulted in a 2% decrease in revenues.

Operating Income—Operating income increased $15 million in 2012 compared to 2011. Operating results for 2012 included an $18 million charge related to restructuring activities in Europe. Charges of $16 million related to restructuring activities and asset retirement obligations associated with a relocated R&D facility and $19 million for the impairment of an R&D project in Europe were included in our 2011 operating results.

Apart from these charges, underlying operations of the Technology segment’s businesses in 2012 were relatively unchanged compared to 2011. Lower catalyst results which stemmed from lower margins and sales volumes were substantially offset by higher revenue recognized from process licenses issued in prior years.

Operating income was comparable in 2011 and 2010. In 2011, lower revenue recognized from process licenses issued in prior years and higher research and development costs in 2011 offset the effects of higher operating results for catalysts. Operating income in both periods reflected the impact of an ongoing slowdown in new polyolefin projects that stemmed from the economic crisis in late 2008.

Fourth Quarter 2012 versus Third Quarter 2012—Operating income was $23 million in the fourth quarter compared to $31 million in the third quarter. Fourth quarter operating results include the $18 million charge related to restructuring activities discussed above. After giving consideration to the restructuring charge, operating results for the Technology segment improved in the fourth quarter compared to the third quarter. Results for the catalyst business improved and higher revenues were recognized in the fourth quarter for licenses issued in prior periods. The higher results for our catalyst business reflected an increase in sales volumes that was offset in part by lower average sales prices.

FINANCIAL CONDITION

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


	Successor									Predecessor
Millions of dollars	Year Ended December 31, 2012			Year Ended December 31, 2011			May 1 through December 31, 2010			January 1 through April 30, 2010
Source (use) of cash:
Operating activities	$	4,787		$	2,860		$	2,968		$	(925	)
Investing activities		(1,013	)		(1,021	)		(323	)		(224	)
Financing activities		(2,145	)		(4,955	)		(1,194	)		3,315

Operating Activities—Cash of $4,787 million provided in 2012 primarily reflected earnings, adjusted for non-cash items, proceeds received from income tax refunds, distributions from our joint ventures, insurance settlements and cash provided by the main components of working capital – accounts receivable, inventories and accounts payable. These increases were offset in part by company contributions to our pension plans and premiums and other fees related to prepayment of debt.

The main components of working capital provided cash of $151 million in 2012. This reflects a decrease in inventories of $441 million, partially offset by a $101 million increase in accounts receivable and a $189 decrease in accounts payable. A reduction in the high level of our O&P–Americas olefins inventories that were built at the end of 2011 in preparation for a turnaround scheduled for early 2012 at our Channelview, Texas facility, and the liquidation of refined products and crude oil inventories following the January 2012 shutdown of our Berre refinery were the primary contributors to the $441 million decrease in inventories. The increase in

accounts receivable reflects higher sales volumes at the end of 2012 compared to the same period in 2011, while the lower accounts payable balance at December 31, 2012 reflects lower outstanding crude oil invoices compared to December 31, 2011.

Cash of $2,860 million provided in 2011 primarily reflected earnings, adjusted for non-cash items, and higher distributions from our joint ventures, partially offset by an increase in cash used by the main components of working capital and payments totaling $1,699 million related to company contributions to our pension plans, tax payments, premiums and other fees related to prepayments of debt and a litigation settlement.

The main components of working capital used cash of $118 million in 2011. The increase in these working capital components during 2011 reflects increases of $89 million and $732 million in accounts receivable and inventories, respectively, partially offset by a $703 million increase in accounts payable. The increases in both accounts receivable and accounts payable reflect increasing prices over the period. The increase in inventories reflects higher prices and increased volumes, especially in the O&P—Americas business segment as we built inventory in preparation for a major first quarter 2012 turnaround.

Cash of $2,043 million provided in the combined Successor and Predecessor periods of 2010 primarily reflected earnings, adjusted for non-cash items, offset by payments for reorganization items, claims under the Plan of Reorganization, and certain annual payments relating to sales rebates, employee bonuses, property taxes and insurance premiums.

In the combined Successor and Predecessor periods of 2010, the main components of working capital used cash of $456 million. The increase in these components of working capital during 2010 reflected a $702 million increase in accounts receivable due to higher average sales prices and higher sales volumes and a $395 million increase in inventory, partially offset by a $641 million increase in accounts payable due to the higher costs and volumes of feedstocks, and more favorable payment terms.

Investing Activities—Cash used in investing activities in 2012 primarily reflects capital expenditures of $1,060 million, partially offset by a $48 million decrease in restricted cash.

Cash used in investing activities in 2011 primarily reflects capital expenditures of $1,050 million, including the purchase of a pipeline for $73 million, and an increase in restricted cash of $42 million related to the issuance of cash collateralized letters of credit, partially offset by proceeds of $71 million from the sale of assets, which includes $57 million related to the sale of surplus precious metals.

Cash used in investing activities in 2010 included $692 million of capital expenditures, partially offset by proceeds of $154 million from the sale of our Flavors & Fragrance chemicals business in December 2010.

The following table summarizes capital expenditures plan for 2013 and actual capital expenditures for the periods from 2010 through 2012:


			Successor						Predecessor
Millions of dollars	Plan 2013		Year Ended December 31, 2012		Year Ended December 31, 2011		May 1 through December 31, 2010		January 1 through April 30, 2010
Capital expenditures by segment:
O&P–Americas	$	654	$	468	$	425	$	146	$	52
O&P–EAI		213		254		235		106		102
I&D		379		159		101		79		12
Refining		201		136		224		80		31
Technology		29		43		26		19		12
Other		5		—		10		11		3

Consolidated capital expenditures of continuing operations	$	1,481	$	1,060	$	1,021	$	441	$	212

In 2011 and the Successor and Predecessor periods of 2010, our discontinued operations had capital expenditures of $29 million, $25 million and $14 million, respectively. There were no capital expenditures related to discontinued operations in 2012. The capital expenditures presented in the table above also exclude costs of major periodic maintenance and repair activities, including turnarounds and catalyst recharges of $55 million in the Predecessor period of 2010.

Capital spending projected for 2013 reflects an increase over 2012 levels of approximately 40%. This increase includes capital for expansion projects, debottlenecks of certain assets to enhance production and the purchase of railcars.

Financing Activities—Financing activities used cash of $2,145 million during 2012. Financing activities in 2012 reflect proceeds of $3,000 million from the issuance of $2,000 million of 5% senior notes due 2019 and $1,000 million of 5.75% senior notes due 2024. Net proceeds from the notes, together with cash on hand, were used to finance the repayment in full of the remaining $755 million of our 8% senior notes due 2017 and $1,921 million of our 11% senior notes due 2018, respectively, and to pay $294 million for associated premiums and fees, which are reflected in operating cash flows.

In May 2012, we entered into a five-year revolving credit facility, and terminated our ABL credit facility. The revolving credit facility may be used for dollar and euro denominated borrowings and includes a sublimit for up to $700 million of dollar and euro denominated letters of credit. The balance of outstanding borrowings and letters of credit under the facility may not exceed $2,000 million at any given time.

In September 2012, we entered into a three-year, $1,000 million U.S. accounts receivable securitization facility that permits the sale of certain eligible trade receivables to participating financial institutions. The facility also provides for the issuance of letters of credit up to $200 million.

In aggregate, we paid fees related to these financing activities totaling $53 million.

Cash dividends of $2,415 million were paid during 2012, which include a special dividend of $2.75 per share paid on December 11, 2012 to shareholders of record on November 19, 2012.

Financing activities used cash of $4,955 million during 2011. In 2011, we redeemed an aggregate of $1,407 million and €234 million ($324 million) of our 8% senior notes due 2017 and $1,319 million of our 11% senior notes. We paid premiums totaling $404 million and bank fees of $7 million in conjunction with these redemptions.

Also in 2011, we issued $1,000 million of 6% senior notes due 2021 and used the proceeds to pay a portion of a special dividend of $4.50 per share, totaling $2,580 million. In addition to the special dividend, we paid a final 2010 dividend and interim dividends totaling $313 million. In June 2011, we paid $15 million of fees related to the amendment of our ABL credit facility.

In December 2010, we redeemed $225 million and €37.5 million ($50 million) of our 8% senior notes due 2017 and paid premiums of $8 million. Also in December 2010, we repaid $495 million of the Senior Term Loan Facility, at par.

We made net payments totaling $398 million in the Successor period of 2010 under our European Securitization Facility, which included the entire outstanding balance in October 2010.

As part of our emergence from bankruptcy, we received gross proceeds of $2,800 million on April 30, 2010 in connection with the issuance of shares in a rights offering and paid $86 million of fees, including $70 million of fees to equity backstop providers. We also received net proceeds of $3,242 million at emergence from the issuance of $2,250 million and €375 million ($497 million) of senior secured notes and from proceeds of the Senior Term Loan facility of $495 million, and paid related fees of $72 million.

Proceeds from the rights offering and the senior notes, along with borrowings under the Senior Term Loan Facility and the amended and restated European Securitization Facility, were used to repay outstanding amounts of $3,152 million under our DIP financing arrangement and to pay a $195 million exit fee required under the arrangement. We also paid fees totaling $92 million in connection with our ABL credit facility and amended and restated our European Securitization Facility. Predecessor debt classified as Liabilities subject to compromise immediately prior to emergence from bankruptcy was discharged pursuant to the Plan of Reorganization.

Apart from the payments reflected above, during the 2010 Predecessor period, we made payments totaling $25 million under other financing arrangements and had a net increase in borrowings of $47 million under the European Securitization Facility.

For additional information related to these financing activities, see Note 12 to the Consolidated Financial Statements.

Liquidity and Capital Resources—As of December 31, 2012, we had unrestricted cash and cash equivalents of $2,732 million. In addition, we had total unused availability under our credit facilities of $3,348 million at December 31, 2012, which included the following:

•

$1,949 million under our revolving credit facility, which is net of outstanding borrowings and outstanding letters of credit provided under the facility. At December 31, 2012, we had $48 million of outstanding letters of credit and no outstanding borrowings under the facility.

•

$916 million under our new, three-year accounts receivable securitization facility. Availability under the U.S. receivables securitization facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. There were no outstanding borrowings or letters of credit at December 31, 2012.

•

€355 million and $20 million (totaling approximately $483 million) under our €450 million European receivables securitization facility. Availability under this facility is subject to a borrowing base, net of outstanding borrowings. There were no outstanding borrowings under this facility at December 31, 2012.

See Note 12 to the Consolidated Financial Statements for additional information related to our credit facilities.

In addition to the letters of credit issued under our committed revolving credit facility, we also have outstanding letters of credit and bank guarantees totaling $83 million at December 31, 2012.

At December 31, 2012, we had total debt, including current maturities, of $4,400 million.

We have receivables outstanding of €257 million ($339 million) related to value added tax (“VAT”) in Italy. In the first quarter 2010, Italy implemented a reverse change rule, under which non-domestic companies may not collect VAT on sales to domestic companies but must submit VAT on purchases from domestic companies. As a result, the balance of VAT receivables due from Italy, which is reflected in Other investments and long-term receivables in the Consolidated Balance Sheets, has increased since that date. We expect to collect all amounts owed to us.

As a result of ceasing operations at our Berre refinery in France in January 2012, we expect to make future payments to affected employees and for exit or disposal activities. See Note 3 to the Consolidated Financial Statements for additional information related to this matter.

We may repay or redeem our debt, including purchases of our outstanding bonds in the open market, using cash on hand, cash from operating activities or proceeds from asset divestitures. We plan to finance 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 intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations. We believe that our cash on hand, cash from operating activities and proceeds from our credit facilities provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due.

Contractual and Other Obligations—The following table summarizes, as of December 31, 2012, our minimum payments for long-term debt, including current maturities, short-term debt, and contractual and other obligations for the next five years and thereafter.


				Payments Due By Period
Millions of dollars	Total			2013		2014		2015		2016		2017		Thereafter
Total debt	$	4,400		$	96	$	1	$	1	$	1	$	1	$	4,300
Interest on total debt		2,220			243		243		243		243		243		1,005
Pension benefits:
PBO		3,444			204		195		204		197		209		2,435
Assets		(2,323	)												(2,323	)

Funded status		1,121
Other postretirement benefits		391			22		22		23		24		24		276
Advances from customers		170			42		61		15		12		12		28
Other		1,113			404		134		122		112		33		308
Deferred income taxes		1,314			34		138		139		153		109		741
Other obligations:
Purchase obligations:
Take-or-pay contracts		17,911			2,472		2,393		2,243		1,737		1,733		7,333
Other contracts		28,719			10,896		5,972		5,296		2,309		2,197		2,049
Operating leases		1,080			256		220		178		111		88		227

Total	$	58,439		$	14,669	$	9,379	$	8,464	$	4,899	$	4,649	$	16,379

Total Debt—Total debt includes our 5% senior notes due 2019, our 6% senior notes due 2021, our 5.75% senior notes due 2024, our 8.1% guaranteed notes due 2027 and various other U.S. and non-U.S. loans. See Note 12 for a discussion of covenant requirements under the credit facilities and indentures and additional information regarding our debt facilities.

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

Pension Benefits—We maintain several defined benefit pension plans, as described in Note 16 to the Consolidated Financial Statements. At December 31, 2012, the projected benefit obligation for our pension plans exceeded the fair value of plan assets by $1,121 million. Subject to future actuarial gains and losses, as well as actual asset earnings, we, together with our consolidated subsidiaries, will be required to fund the $1,121 million, with interest, in future years. We contributed $180 million, $526 million and $99 million to our pension plans in 2012, 2011 and 2010, respectively. Estimates of pension benefit payments net of contributions through 2017 are included in the table above.

Other Postretirement Benefits—We provide other postretirement benefits, primarily medical benefits to eligible participants, as described in Note 16 to the Consolidated Financial Statements. We pay other unfunded postretirement benefits as incurred. Estimates of other postretirement benefit payments through 2017 are included in the table above.

Advances from Customers—We are obligated to deliver product, primarily at cost-based prices, in connection with long-term sales agreements under which advances from customers were received in prior years.

These advances are treated as deferred revenue and will be amortized to earnings as product is delivered over the remaining terms of the respective contracts, which primarily range from 4 to 8 years. The unamortized long-term portion of such advances totaled $128 million as of December 31, 2012.

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

Deferred Income Taxes—The scheduled settlement of the deferred tax liabilities shown in the table is based on the scheduled reversal of the underlying temporary differences. Actual cash tax payments will vary depending upon future taxable income.

Purchase Obligations—We are party to various obligations to purchase products and services, principally for raw materials, utilities and industrial gases. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. The commitments are segregated into take-or-pay contracts and other contracts. Under the take-or-pay contracts, we are obligated to make minimum payments whether or not we take the product or service. Other contracts include contracts that specify minimum quantities; however, in the event that we do not take the contractual minimum, we are only obligated for any resulting economic loss suffered by the vendor. The payments shown for the other contracts assume that minimum quantities are purchased. For contracts with variable pricing terms, the minimum payments reflect the contract price at December 31, 2012.

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

RELATED PARTY TRANSACTIONS

We have related party transactions with certain of our major shareholders and their affiliates and 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.

LyondellBasell AF had related party transactions with its equity investees and its affiliates as well as a member of its Supervisory Board (see Note 4 to the Consolidated Financial Statements). In addition, prior to the Emergence Date, LyondellBasell AF had related party transactions with Access Industries.

CRITICAL ACCOUNTING POLICIES

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

Inventory—LyondellBasell N.V. adopted the LIFO method of accounting for inventory upon implementation of fresh-start accounting. The price of crude oil and natural gas is subject to many factors, including changes in economic conditions. The fluctuation in the price of crude oil and natural gas 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. In conjunction with the implementation of fresh-start accounting on April 30, 2010, the Company recorded its inventory, which was primarily hydrocarbon derived, at fair value.

Following the revaluation of our inventory to fair value on April 30, 2010, we recorded a net non-cash charge of $42 million to adjust the value of inventory to the lower of cost or market at December 31, 2010. A $71 million charge to adjust the value of inventory to the lower of cost or market at June 30, 2012 was reversed in the third quarter of 2012 reflecting the recovery of market price as of September 30, 2012. No lower of cost or market charges were required in 2011.

Long-Lived Assets—With respect to long-lived assets, which primarily include property, plant and equipment and intangible assets, key assumptions included the estimates of the asset fair values and useful lives at the Emergence Date and the recoverability of carrying values of fixed assets and other intangible assets, as well as the existence of any obligations associated with the retirement of fixed assets. Such estimates could be significantly modified and/or the carrying values of the assets could be impaired by such factors as new technological developments, new chemical industry entrants with significant raw material or other cost advantages, uncertainties associated with the European, U.S. and other world economies, the cyclical nature of the chemical and refining industries, and uncertainties associated with regulatory governmental actions.

When events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, we evaluate long-lived assets, including intangible assets, for impairment. When it is probable that the undiscounted cash flows of a tangible asset or asset group will not be sufficient to recover the carrying amount, the asset is written down to its estimated fair value. In-process research and development projects are impaired when abandoned.

During the year ended December 31, 2011 and the eight months ended December 31, 2010, we recognized impairments of $19 million and $3 million, respectively, related to certain in-process research and development projects which were abandoned.

The estimated useful lives of long-lived assets range from 3 to 30 years. Depreciation and amortization of these assets, including amortization of capitalized turnaround costs, under the straight-line method over their estimated useful lives totaled $983 million in 2012. If the useful lives of assets are found to be shorter than originally estimated, depreciation and amortization charges would be accelerated over the revised useful life.

Goodwill—Goodwill of $591 million at December 31, 2012 represents the tax effect of the differences between the tax and book bases of the Company’s assets and liabilities resulting from the Company’s revaluation of those assets and liabilities to fair value in connection with the Company’s emergence from bankruptcy and adoption of fresh-start accounting. LyondellBasell N.V. evaluates 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 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 two-step quantitative test is required.

For 2012 and 2011, our qualitative assessment indicated that the fair value of our reporting units was greater than their carrying value. Accordingly, a quantitative two-step goodwill impairment test was not required.

Long-Term Employee Benefit Costs—The costs to LyondellBasell N.V. of long-term employee benefits, particularly pension and other postretirement medical and life insurance benefits, are incurred over long periods

of time, and involve many uncertainties over those periods. The net periodic benefit cost attributable to current periods is based on several assumptions about such future uncertainties, and is sensitive to changes in those assumptions. It is management’s responsibility, often with the assistance of independent experts, to select assumptions that in its judgment represent its best estimates of the future effects of those uncertainties. It also is management’s responsibility to review those assumptions periodically to reflect changes in economic or other factors that affect those assumptions.

The current benefit service costs, as well as the existing liabilities, for pensions and other postretirement benefits are measured on a discounted present value basis. The discount rate is a current rate, related to the rate at which the liabilities could be settled. LyondellBasell N.V.’s assumed discount rate is based on yield information for high-quality corporate bonds. For the purpose of measuring the benefit obligations at December 31, 2012, LyondellBasell N.V. used a weighted average discount rate of 3.82% 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, 2012 was 3.63%, reflecting market interest rates. The discount rates in effect at December 31, 2012 will be used to measure net periodic benefit cost during 2013.

The benefit obligation and the periodic cost of other postretirement medical benefits also are measured based on assumed rates of future increase in the per capita cost of covered health care benefits. As of December 31, 2012, the assumed rate of increase for our U.S. plans was 7.9%, decreasing to 4.5% in 2027 and thereafter. A one percentage point change in the health care cost trend rate assumption would have no significant effect on either the benefit liability or the net periodic cost, due to limits on LyondellBasell N.V.’s maximum contribution level under the medical plan.

The net periodic cost of pension benefits included in expense also is affected by the expected long-term rate of return on plan assets assumption. Investment returns that are recognized currently in net income represent the expected long-term rate of return on plan assets applied to a market-related value of plan assets which, for LyondellBasell N.V., 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 rates of return on U.S. and non-U.S. plan assets of 8.00% and 4.84%, respectively, are based on the average level of earnings that our independent pension investment advisor had advised could be expected to be earned over time. The expectation is based on an asset allocation that varies by region. The asset allocations are summarized in Note 16 to the Consolidated Financial Statements. The actual returns in 2012 were a gain of 12.82% for U.S. plan assets and a gain of 7.63% for non-U.S. plan assets.

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

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

Additional information on the key assumptions underlying these benefit costs appears in Note 16 to the Consolidated Financial Statements.

Liabilities for Environmental Remediation Costs—Environmental remediation liabilities were recorded at fair value at emergence. Additional liabilities recorded subsequent to emergence for anticipated expenditures related to investigation and remediation of contaminated sites, which include current and former plant sites and other remediation sites, are accrued when it is probable a liability has been incurred and the amount of the

liability can be reasonably estimated. Only ongoing operating and monitoring costs, the timing of which can be determined with reasonable certainty, are discounted to present value. Future legal costs associated with such matters, which generally are not estimable, are not included in these liabilities.

As of December 31, 2012, LyondellBasell N.V.’s accrued liability for future environmental remediation costs at current and former plant sites and other remediation sites totaled $126 million. The liabilities for individual sites range from less than $1 million to $23 million, and remediation expenditures are expected to occur over a number of years, and not to be concentrated in any single year. In the opinion of management, it is reasonably possible that losses in excess of the liabilities recorded for environmental remediation may have been incurred. However, we cannot estimate any amount or range of such possible additional losses. New information about sites, new technology or future developments such as involvement in investigations by regulatory agencies, could require LyondellBasell N.V. to reassess potential exposure related to environmental matters. See Note 19 to the Consolidated Financial Statements for further discussion of environmental remediation matters.

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

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

We recognize future tax benefits to the extent that the realization of these benefits is more likely than not. Our current provision for income taxes is impacted by the recognition and release of valuation allowances related to net deferred assets in certain non-U.S. 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 it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized.

For further information related to our income taxes, see Note 18 to the Consolidated Financial Statements of LyondellBasell N.V. for the year ended December 31, 2012.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

See Note 14 to the Consolidated Financial Statements for discussion of LyondellBasell N.V.’s management of commodity price risk, foreign currency exposure and interest rate risk through its use of derivative instruments and hedging activities.

The Company’s ability to engage in risk mitigation activities through the use of derivative transactions was limited until April 30, 2010 as a result of the voluntary filings in 2009 for relief under chapter 11 of the U.S. Bankruptcy Code and the associated perceived credit risk.

Commodity Price Risk

A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to fluctuate with changes in the business cycle. We try to protect against such instability through various business strategies. These include provisions in sales contracts allowing us to pass on higher raw material costs through timely price increases, formula price contracts to transfer or share commodity price risk, and increasing the depth and breadth of our product portfolio.

In addition, we selectively use commodity swap, option, and futures contracts with various terms to manage the volatility related to purchases of natural gas and raw materials, as well as product sales. Such contracts are generally limited to durations of one year or less. Hedge accounting has not been elected for any of our commodity contracts in any of the periods presented. Market risks created by these derivative instruments and the mark-to-market valuations of open positions are monitored by management.

The estimated fair value and notional amounts of our open commodity futures contracts are shown in the table below:


	Open Commodity Contracts
	December 31, 2012
				Notional Amounts
Millions of dollars	Fair Value			Value		Volumes		Volume Unit		Maturity Dates
Futures:
Gasoline	$	(7	)	$	56		20		million gallons		January 2013 - February 2013
Heating oil		—			38		13		million gallons		January 2013
Butane		5			25		14		million gallons		January 2013 - February 2013
Crude oil		1			110		47		million gallons		February 2013 - March 2013

	$	(1	)	$	229


	December 31, 2011
				Notional Amounts
	Fair Value			Value		Volumes		Volume Unit		Maturity Dates
Futures:
Gasoline	$	12		$	34		12		million gallons		January 2012 - February 2012
Heating oil		1			54		19		million gallons		January 2012
Butane		(1	)		22		12		million gallons		January 2012 - February 2012

	$	12		$	110

We use value at risk (“VAR”), stress testing and scenario analysis for risk measurement and control purposes.

VAR estimates the maximum potential loss in fair market values, given a certain move in prices over a certain period of time, using specified confidence levels.

Using sensitivity analysis and hypothetical changes in market prices ranging from 18% to 31%, which represents the one year volatility ranges of the underlying products, the effect would have been to increase our net income by less than $1 million. The quantitative information about market risk is necessarily limited because it does not take into account the effects of the underlying operating transactions.

Foreign Exchange Risk

We manufacture and market our products in a number of countries throughout the world and, as a result, are exposed to changes in foreign currency exchange rates. Transactions are entered into, in part, in currencies other than the applicable functional currency.

A significant portion of our reporting entities use the Euro as their functional currency. Our reporting currency is the U.S. Dollar. The translation gains or losses that result from the process of translating the Euro denominated financial statements to U.S. Dollars are deferred in AOCI until such time as those entities may be liquidated or sold. Changes in the value of the U.S. Dollar relative to the Euro can therefore have a significant impact on comprehensive income. We generally do not attempt to minimize or mitigate the foreign currency risks resulting from the translation of assets and liabilities of non-U.S. operations into our reporting currency.

Some of our operations enter into transactions denominated in other than their functional currency. This results in exposure to foreign currency risk for financial instruments, including, but not limited to third party and intercompany receivables and payables and intercompany loans. We maintain risk management control systems intended to monitor foreign currency risk attributable to inter-company and third party outstanding foreign currency balances. The control systems involve the centralization of foreign currency exposure management, offsetting exposures and estimating the expected impacts of changes in foreign currency rates on our earnings. We enter into foreign currency forward contracts to reduce the effects of our net currency exchange exposures. Since June 30, 2010, our policy has been to maintain an approximately balanced position in foreign currencies to minimize exchange gains and losses arising from changes in exchange rates. This position is monitored routinely. A 10% fluctuation compared to the U.S. dollar in the underlying currencies would result in an additional impact to earnings of no more than $2.5 million in any reporting period.

For 2012, 2011, and the 2010 Successor and Predecessor periods, other income (loss), net, in the Consolidated Statements of Income reflected a loss of $21 million, a loss of $17 million, a gain of $18 million and a loss of $258 million, respectively, in net exchange rate gains and losses. The $258 million loss in the 2010 Predecessor period was primarily the result of the revaluation of third party debt of certain of our subsidiaries due to changes in the foreign exchange rates in effect during those periods. Such debt was denominated in currencies other than the functional currencies of the subsidiaries and was refinanced upon emergence from bankruptcy. For forward contracts that economically hedge recognized monetary assets and liabilities in foreign currencies, no hedge accounting is applied. Changes in the fair value of foreign currency forward contracts are reported in the Consolidated Statements of Income and offset the currency exchange results recognized on the assets and liabilities.

Interest Rate Risk

We are exposed to interest rate risk with respect to variable rate debt. Our variable rate debt consists of our $2,000 million Senior Revolving Credit Facility, our $1,000 million U.S. Receivables Securitization Facility and our €450 million European Receivables Securitization Facility. At December 31, 2012, there were no outstanding borrowings under these facilities.

Item 8. Financial Statements and Supplementary Data.

Index to the Consolidated Financial Statements


	Page
LYONDELLBASELL INDUSTRIES N.V.
Management’s Report On Internal Control Over Financial Reporting		65
Reports of Independent Registered Public Accounting Firm		66
Consolidated Financial Statements:
Consolidated Statements of Income		68
Consolidated Statements of Comprehensive Income		69
Consolidated Balance Sheets		70
Consolidated Statements of Cash Flows		72
Consolidated Statement of Stockholders’ Equity		74
Notes to the Consolidated Financial Statements		77

MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

We conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2012.

The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of LyondellBasell Industries N.V.

In our opinion, the accompanying consolidated balance sheets as of December 31, 2012 and 2011 and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for the two years ended December 31, 2012 and for the period from May 1, 2010 through December 31, 2010 present fairly, in all material respects, the financial position of LyondellBasell N.V. and its subsidiaries (the “ Company” or the “Successor”) at December 31, 2012 and 2011 and the results of their operations and their cash flows for the two years ended December 31, 2012 and for the period from May 1, 2010 through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits (which were integrated audits in 2012 and 2011). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Notes 1 and 23 to the consolidated financial statements, on April 23, 2010, the United States Bankruptcy Court confirmed LyondellBasell Industries AF S.C.A.’s (“the Predecessor Company”) Third Amended and Restated Plan of Reorganization and the debtors emerged from Chapter 11 protection on April 30, 2010. As of the emergence date, the Predecessor Company’s equity interests in its indirect subsidiaries terminated and the Successor now owns and operates, directly and indirectly, substantially the same business as the Predecessor Company owned and operated prior to emergence from the bankruptcy cases. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting on May 1, 2010.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Houston, Texas

February 12, 2013

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of LyondellBasell Industries N.V.

In our opinion, the accompanying consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for the period from January 1, 2010 through April 30, 2010 present fairly, in all material respects the results of operations and cash flows for the period from January 1, 2010 through April 30, 2010 of the Predecessor of LyondellBasell Industries N.V and its subsidiaries (the “Predecessor Company”) in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Predecessor Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

As discussed in Notes 1 and 23 to the consolidated financial statements, on April 23, 2010, the United States Bankruptcy Court confirmed the Predecessor Company’s Third Amended and Restated Plan of Reorganization and the debtors emerged from Chapter 11 protection on April 30, 2010. As of the emergence date, the Predecessor Company’s equity interests in its indirect subsidiaries terminated and LyondellBasell Industries N.V. (the “Successor Company”) now owns and operates, directly and indirectly, substantially the same business as the Predecessor Company owned and operated prior to emergence from the bankruptcy cases. In connection with its emergence from bankruptcy, the Successor Company adopted fresh start accounting on May 1, 2010.

PricewaterhouseCoopers LLP

Houston, Texas

March 17, 2011, except for Revision II described in Note 2 (not presented herein) to the consolidated financial statements appearing in the Registration Statement on Form S-4/A of LyondellBasell Industries N.V. filed on September 6, 2011, as to which the date is August 12, 2011, and except for the effects of discontinued operations discussed in Note 3 and the change in the composition of reportable segments discussed in Note 22, as to which the date is February 12, 2013.

LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENTS OF INCOME


	Successor									Predecessor
							May 1 through December 31, 2010			January 1 through April 30, 2010
	Year Ended
Millions of dollars, except earnings per share	December 31,
Millions of dollars, except earnings per share	2012			2011
Sales and other operating revenues:
Trade	$	44,315		$	47,067		$	25,409		$	12,600
Related parties		1,037			1,116			723			207

		45,352			48,183			26,132			12,807
Operating costs and expenses:
Cost of sales		39,595			42,732			23,183			11,744
Selling, general and administrative expenses		909			918			558			304
Research and development expenses		172			196			99			55

		40,676			43,846			23,840			12,103
Operating income		4,676			4,337			2,292			704
Interest expense		(655	)		(1,044	)		(539	)		(711	)
Interest income		15			37			17			5
Other income (expense), net		2			30			(102	)		(259	)

Income (loss) from continuing operations before equity investments, reorganization items and income taxes		4,038			3,360			1,668			(261	)
Income from equity investments		143			216			86			84
Reorganization items		4			(45	)		(23	)		7,124

Income from continuing operations before income taxes		4,185			3,531			1,731			6,947
Provision for (benefit from) income taxes		1,327			1,059			170			(1,315	)

Income from continuing operations		2,858			2,472			1,561			8,262
Income (loss) from discontinued operations, net of tax		(24	)		(332	)		19			242

Net income		2,834			2,140			1,580			8,504
Net loss attributable to non-controlling interests		14			7			7			60

Net income attributable to the Company shareholders	$	2,848		$	2,147		$	1,587		$	8,564

Earnings (loss) per share:
Net income (loss) attributable to the Company shareholders—
Basic:
Continuing operations	$	5.01		$	4.34		$	2.76
Discontinued operations		(0.04	)		(0.58	)		0.03

	$	4.97		$	3.76		$	2.79

Diluted:
Continuing operations	$	4.96		$	4.32		$	2.75
Discontinued operations		(0.04	)		(0.58	)		0.03

	$	4.92		$	3.74		$	2.78

See Notes to the Consolidated Financial Statements.

LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Successor									Predecessor
							May 1 through December 31, 2010			January 1 through April 30, 2010
	Year Ended
	December 31,
Millions of dollars	2012			2011
Net income	$	2,834		$	2,140		$	1,580		$	8,504
Other comprehensive income, net of tax –
Financial derivatives:
Financial instrument adjustments during the period		—			—			—			141
Income tax expense (benefit)		—			—			—			51

Financial derivatives, net of tax		—			—			—			90

Unrealized losses on held-for-sale securities held by equity investees:
Unrealized losses arising during the period		—			—			—			(13	)
Income tax expense (benefit)		—			—			—			—

Unrealized loss on held-for-sale securities held by equity investees, net of tax		—			—			—			(13	)

Defined benefit and other postretirement benefit plans:
Prior service cost arising during the period		12			(16	)		(10	)		—
Reclassification adjustment for amortization of prior service cost included in net income		3			—			—			—
Net actuarial loss arising during the period		(198	)		(382	)		(53	)		(45	)
Reclassification adjustment for net actuarial loss included in net income		24			—			—			—

Defined benefit and other postretirement benefit plans, before tax		(159	)		(398	)		(63	)		(45	)
Income tax expense (benefit)		(38	)		(128	)		(30	)		3

Defined benefit and other postretirement benefit plans, net of tax		(121	)		(270	)		(33	)		(48	)

Foreign currency translations adjustment:
Unrealized net change arising during the period		136			(237	)		118			(34	)
Income tax expense (benefit)		(1	)		1			4			(9	)

Foreign currency translations, net of tax		137			(238	)		114			(25	)

Total other comprehensive income (loss)		16			(508	)		81			4

Comprehensive income		2,850			1,632			1,661			8,508
Comprehensive loss attributable to non-controlling interest		14			7			7			60

Comprehensive income attributable to the Company shareholders	$	2,864		$	1,639		$	1,668		$	8,568

See Notes to the Consolidated Financial Statements.

LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED BALANCE SHEETS


	December 31,
Millions, except shares and par value data	2012	2011
ASSETS
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