Edgar Filing: LyondellBasell Industries N.V.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended June 30, 2018



¨	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.)

1221 McKinney St., Suite 300 Houston, Texas USA 77010	4th Floor, One Vine Street London W1J0AH The United Kingdom	Delftseplein 27E 3013 AA Rotterdam The Netherlands

(Addresses of registrant’s principal executive offices)



(713) 309-7200	+44 (0) 207 220 2600	+31 (0)10 275 5500

(Registrant’s telephone numbers, including area codes)

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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). Yes x No ¨

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



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

The registrant had 389,323,996 ordinary shares, €0.04 par value, outstanding at July 31, 2018 (excluding 189,119,167 treasury shares).

Table of Contents

LYONDELLBASELL INDUSTRIES N.V.

TABLE OF CONTENTS



	Page
Part I – Financial Information	1

Item 1. Consolidated Financial Statements (Unaudited)	1
Consolidated Statements of Income	1
Consolidated Statements of Comprehensive Income	2
Consolidated Balance Sheets	3
Consolidated Statements of Cash Flows	5
Consolidated Statement of Stockholders’ Equity	7
Notes to the Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3. Quantitative and Qualitative Disclosures About Market Risk	51

Item 4. Controls and Procedures	51

Part II – Other Information	52

Item 1. Legal Proceedings	52

Item 1A. Risk Factors	52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 4. Mine Safety Disclosures	53

Item 6. Exhibits	54

Signature	55

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENTS OF INCOME



	Three Months Ended June 30,						Six Months Ended June 30,
Millions of dollars, except earnings per share	2018			2017			2018			2017
Sales and other operating revenues:
Trade	$	9,985		$	8,220		$	19,515		$	16,463
Related parties	221			183			458			370
	10,206			8,403			19,973			16,833
Operating costs and expenses:
Cost of sales	8,290			6,601			16,302			13,592
Selling, general and administrative expenses	261			200			494			404
Research and development expenses	29			25			57			50
	8,580			6,826			16,853			14,046
Operating income	1,626			1,577			3,120			2,787
Interest expense	(91		)	(95		)	(182		)	(302		)
Interest income	15			4			26			10
Other income, net	16			29			40			59
Income from continuing operations before equity investments and income taxes	1,566			1,515			3,004			2,554
Income from equity investments	68			78			164			159
Income from continuing operations before income taxes	1,634			1,593			3,168			2,713
Provision for (benefit from) income taxes	(21		)	459			282			774
Income from continuing operations	1,655			1,134			2,886			1,939
Loss from discontinued operations, net of tax	(1		)	(4		)	(1		)	(12		)
Net income	1,654			1,130			2,885			1,927
Net loss attributable to non-controlling interests	—			1			—			1
Net income attributable to the Company shareholders	$	1,654		$	1,131		$	2,885		$	1,928

Earnings per share:
Net income (loss) attributable to the Company shareholders —
Basic:
Continuing operations	$	4.23		$	2.83		$	7.34		$	4.82
Discontinued operations	—			(0.01		)	—			(0.03		)
	$	4.23		$	2.82		$	7.34		$	4.79
Diluted:
Continuing operations	$	4.22		$	2.82		$	7.33		$	4.81
Discontinued operations	—			(0.01		)	—			(0.03		)
	$	4.22		$	2.81		$	7.33		$	4.78

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended June 30,						Six Months Ended June 30,
Millions of dollars	2018			2017			2018			2017
Net income	$	1,654		$	1,130		$	2,885		$	1,927
Other comprehensive income (loss), net of tax –
Financial derivatives	31			(21		)	38			1
Unrealized losses on available-for-sale debt securities	—			(1		)	—			(2		)
Unrealized gains (losses) on equity securities and equity securities held by equity investees	—			(5		)	—			4
Defined pension and other postretirement benefit plans	7			6			14			13
Foreign currency translations	(95		)	84			(55		)	120
Total other comprehensive income (loss), net of tax	(57		)	63			(3		)	136
Comprehensive income	1,597			1,193			2,882			2,063
Comprehensive loss attributable to non-controlling interests	—			1			—			1
Comprehensive income attributable to the Company shareholders	$	1,597		$	1,194		$	2,882		$	2,064

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED BALANCE SHEETS



Millions of dollars	June 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	2,384		$	1,523
Restricted cash	2			5
Short-term investments	933			1,307
Accounts receivable:
Trade, net	3,699			3,359
Related parties	190			180
Inventories	4,096			4,217
Prepaid expenses and other current assets	1,045			1,147
Total current assets	12,349			11,738
Property, plant and equipment at cost	17,164			16,570
Less: Accumulated depreciation	(5,854		)	(5,573		)
Property, plant and equipment, net	11,310			10,997
Investments and long-term receivables:
Investment in PO joint ventures	429			420
Equity investments	1,599			1,635
Other investments and long-term receivables	22			17
Goodwill	562			570
Intangible assets, net	528			568
Other assets	224			261
Total assets	$	27,023		$	26,206

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED BALANCE SHEETS



Millions of dollars, except shares and par value data	June 30, 2018			December 31, 2017
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	974		$	2
Short-term debt	76			68
Accounts payable:
Trade	2,489			2,258
Related parties	606			637
Accrued liabilities	1,306			1,812
Total current liabilities	5,451			4,777
Long-term debt	7,490			8,549
Other liabilities	1,805			2,275
Deferred income taxes	1,674			1,655
Commitments and contingencies
Stockholders’ equity:
Ordinary shares, €0.04 par value, 1,275 million shares authorized, 390,343,283 and 394,512,054 shares outstanding, respectively	31			31
Additional paid-in capital	10,190			10,206
Retained earnings	17,939			15,746
Accumulated other comprehensive loss	(1,358		)	(1,285		)
Treasury stock, at cost, 188,096,880 and 183,928,109 ordinary shares, respectively	(16,200		)	(15,749		)
Total Company share of stockholders’ equity	10,602			8,949
Non-controlling interests	1			1
Total equity	10,603			8,950
Total liabilities and equity	$	27,023		$	26,206

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended June 30,
Millions of dollars	2018			2017
Cash flows from operating activities:
Net income	$	2,885		$	1,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	599			582
Amortization of debt-related costs	7			8
Charges related to repayment of debt	—			48
Share-based compensation	24			21
Equity investments –
Equity income	(164		)	(159		)
Distributions of earnings, net of tax	192			189
Deferred income taxes	82			133
Changes in assets and liabilities that provided (used) cash:
Accounts receivable	(324		)	(138		)
Inventories	9			(95		)
Accounts payable	215			(229		)
Other, net	(792		)	(49		)
Net cash provided by operating activities	2,733			2,238
Cash flows from investing activities:
Expenditures for property, plant and equipment	(925		)	(828		)
Payments for repurchase agreements	—			(512		)
Proceeds from repurchase agreements	—			381
Purchases of available-for-sale debt securities	(50		)	(653		)
Proceeds from sales and maturities of available-for-sale debt securities	410			487
Proceeds from maturities of held-to-maturity securities	—			75
Purchases of equity securities	(19		)	—
Proceeds from sales of equity securities	32			—
Proceeds from settlement of net investment hedges	498			—
Payments for settlement of net investment hedges	(473		)	—
Other, net	(62		)	(4		)
Net cash used in investing activities	(589		)	(1,054		)

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended June 30,
Millions of dollars	2018			2017
Cash flows from financing activities:
Repurchases of Company ordinary shares	(470		)	(570		)
Dividends paid	(787		)	(704		)
Issuance of long-term debt	—			990
Repayment of long-term debt	—			(1,000		)
Debt extinguishment costs	—			(65		)
Payments of debt issuance costs	—			(8		)
Other, net	(8		)	(2		)
Net cash used in financing activities	(1,265		)	(1,359		)
Effect of exchange rate changes on cash	(21		)	37
Increase (decrease) in cash and cash equivalents and restricted cash	858			(138		)
Cash and cash equivalents and restricted cash at beginning of period	1,528			878
Cash and cash equivalents and restricted cash at end of period	$	2,386		$	740

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY



	Ordinary Shares					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Company Share of Stockholders’ Equity			Non- Controlling Interests
Millions of dollars	Issued		Treasury			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Company Share of Stockholders’ Equity			Non- Controlling Interests
Balance, December 31, 2017	$	31	$	(15,749	)	$	10,206		$	15,746		$	(1,285	)	$	8,949		$	1
Adoption of accounting standards	—		—			—			95			(70		)	25			—
Net income	—		—			—			2,885			—			2,885			—
Other comprehensive loss	—		—			—			—			(3		)	(3		)	—
Share-based compensation	—		27			12			—			—			39			—
Dividends ($2.00 per share)	—		—			—			(787		)	—			(787		)	—
Repurchases of Company ordinary shares	—		(478		)	—			—			—			(478		)	—
Purchase of non-controlling interest	—		—			(28		)	—			—			(28		)	—
Balance, June 30, 2018	$	31	$	(16,200	)	$	10,190		$	17,939		$	(1,358	)	$	10,602		$	1

See Notes to the Consolidated Financial Statements.

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

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		Page
1.	Basis of Presentation	9

2.	Accounting and Reporting Changes	9

3.	Revenues	11

4.	Accounts Receivable	13

5.	Inventories	13

6.	Debt	14

7.	Financial Instruments and Fair Value Measurements	16

8.	Pension and Other Postretirement Benefits	24

9.	Income Taxes	25

10.	Commitments and Contingencies	25

11.	Stockholders’ Equity	27

12.	Per Share Data	31

13.	Segment and Related Information	32

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

1. Basis of Presentation

LyondellBasell Industries N.V., together with its consolidated subsidiaries (collectively “LyondellBasell N.V.”), is a worldwide manufacturer of chemicals and polymers, a refiner of crude oil, a significant producer of gasoline blending components and a developer and licensor of technologies for production of polymers. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell N.V.

The accompanying Consolidated Financial Statements are unaudited and have been prepared from the books and records of LyondellBasell N.V. in accordance with the instructions to Form 10-Q and Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement have been included. The results for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

2. Accounting and Reporting Changes



Standard	Description	Period of Adoption	Effect on the Consolidated Financial Statements
Recently Adopted Guidance
Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (including subsequent amendments: ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20)	Under this guidance, entities should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods and services. This guidance also enhanced related disclosures and was effective for annual and interim periods beginning after December 15, 2017.	First quarter of 2018	See Note 3 for disclosures related to the adoption of this guidance.
ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	This guidance includes a requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This guidance was effective for annual and interim periods on or after December 15, 2017.	First quarter of 2018	We adopted this guidance prospectively and recorded a cumulative effect adjustment of $15 million to beginning retained earnings.
ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10)	This ASU was issued as part of the Financial Accounting Standards Board’s ongoing agenda to make improvements clarifying the Accounting Standards Codification and provides technical corrections and improvements related to ASU 2016-01. This ASU was effective for annual and interim periods beginning after December 15, 2017.	First quarter of 2018	No material impact upon adoption.

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



Standard	Description	Period of Adoption	Effect on the Consolidated Financial Statements
ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory	This ASU is aimed at reducing complexity in accounting standards. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This new guidance eliminates the exception for all intra-entity sales of assets other than inventory. A reporting entity would be required to recognize tax expense from the sale of assets in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. This guidance was effective for annual periods beginning after December 15, 2017.	First quarter of 2018	We adopted this guidance using the modified-retrospective method and recorded a cumulative-effect adjustment of $9 million to beginning retained earnings.
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	This guidance permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the U.S.-enacted “H.R.1,” also known as the “Tax Cuts and Jobs Act” (the “Tax Act”) to retained earnings. This amendment will be effective for annual and interim periods beginning after December 15, 2018.	First quarter of 2018 (early adopted)	We adopted this guidance using the specific identification method and recorded a cumulative-effect adjustment of $52 million to beginning retained earnings.
ASU 2017-01, Clarifying the Definition of a Business	This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition or disposal of an asset or a business. This amendment was effective for annual and interim periods beginning after December 15, 2017.	First quarter of 2018	The prospective adoption of this guidance did not have a material impact.
ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets	This guidance provides clarification about the term in substance nonfinancial asset, other aspects of the scope of Subtopic 610-20 Other Income, and how an entity should account for partial sales of nonfinancial assets once the amendments in ASU 2014-09 become effective. This amendment was effective for annual and interim periods beginning after December 15, 2017.	First quarter of 2018	The retrospective adoption of this guidance did not have a material impact.
ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This guidance requires changes in presentation of current service cost and other components of net benefit cost. This amendment was effective for annual and interim periods beginning after December 15, 2017.	First quarter of 2018	The retrospective adoption of this guidance did not have a material impact.
ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities	This guidance makes more financial and nonfinancial hedging strategies eligible for hedge accounting and amends the presentation and disclosure requirements while changing how companies assess effectiveness. These amendments will be effective for annual and interim periods beginning after December 15, 2018.	First quarter of 2018 (early adopted)	No material impact upon adoption.

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



Standard	Description	Period of Adoption	Effect on the Consolidated Financial Statements
Accounting Guidance Issued But Not Adopted as of June 30, 2018
ASU 2016-02, Leases (Topic 842) (including subsequent amendments: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, and ASU 2018-11, Leases, Targeted Improvements)	This guidance, as amended, requires lessee leases with a term longer than 12 months to be recognized as a lease liability and a right-of-use asset representing the right to use the underlying asset for the lease term. Topic 842 retains a classification distinction between finance leases and operating leases, with the classification affecting the pattern of expense recognition in the income statement. Enhanced disclosures are also required.	January 1, 2019	We are currently assessing the impact of this guidance, as amended, on our Consolidated Financial Statements through review of existing lease contracts and other purchase obligations that contain embedded lease features, which are generally classified as operating leases under the existing guidance. We will complete any required changes to our systems and processes, including updating our internal controls during 2018.
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This guidance, as amended, modifies the current incurred loss model of recognizing credit losses and requires a current expected credit loss model which requires utilizing historical, current and forecasted information to develop a current estimate of credit losses for financial assets recorded either at amortized costs, or fair valued through Other Comprehensive Income. The guidance will be effective for public entities for annual and interim periods beginning after December 15, 2019.	January 1, 2020 (early adoption permitted)	We are currently assessing the impact of the amendment of this guidance on our Consolidated Financial Statements.

3. Revenues

Adoption of new revenue accounting guidance—On January 1, 2018, we adopted the accounting standard ASC 606, Revenue from Contracts with Customers and all related amendments using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized an $18 million adjustment to the beginning retained earnings balance for the cumulative effect of initially applying the new standard. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of this new guidance was immaterial for the six months ended June 30, 2018, and we expect the impact to be immaterial to our Consolidated Financial Statements on an ongoing basis.

Revenue Recognition—Substantially all our revenues are derived from contracts with customers. We account for contracts when both parties have approved the contract and are committed to perform, the rights of the parties and payment terms have been identified, the contract has commercial substance, and collectability is probable. Payments are typically required within a short period following the transfer of control over the product to the customer. We occasionally require customers to prepay purchases to ensure collectability. Such prepayments do not represent financing arrangements, and payment and fulfillment of the performance obligation occurs within a short time frame. We elected to apply the practical expedient, which permits us not to adjust the promised amount of consideration for the effects of a significant financing component when, at contract inception, we expect that payment will occur in one year or less.

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. This generally occurs at the point in time when performance obligations are fulfilled and control transfers to the customer. In most instances, control transfers upon transfer of risk of loss and title to the customer, which usually occurs when we ship products to the customer from our manufacturing facility. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Customer incentives are generally based on volumes purchased and recognized over the period earned. Sales, value added, and other taxes that we collect concurrent with revenue-producing activities are excluded from the transaction price as they represent amounts collected on behalf of third parties. Incidental costs incurred to obtain a contract are immaterial in the context of the contract and are recognized as expense. We have elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. Shipping and handling costs are treated as a fulfillment cost and not a separate performance obligation.

Contract Balances—Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. Our contract liabilities, which are reflected in our Consolidated Financial Statements as Accrued liabilities and Other liabilities, consist primarily of customer payments for products or services received before the transfer of control to the customer occurs. These contract liabilities were $121 million as of June 30, 2018. Revenue recognized in the reporting period included in the contract liability balance at the beginning of the period was immaterial.

Disaggregation of 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 feedstocks 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 refining business consists of our Houston refinery, which processes crude oil into refined products such as gasoline, diesel and jet fuel.

Petrochemical products generally follow global price trends of crude oil, natural gas liquids and/or natural gas. Price volatility significantly affects our revenues, as our sales contracts are tied to global commodity indexes. Other factors such as global industry capacities and operating rates, foreign exchange rates and worldwide geopolitical trends also affect our revenues.

The following table presents our revenues disaggregated by key products for the three and six months ended June 30, 2018:



Millions of dollars	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Sales and other operating revenues:
Olefins & co-products	$	946	$	1,966
Polyethylene	1,957		3,935
Polypropylene	2,277		4,608
PO & derivatives	658		1,307
Oxyfuels and related products	941		1,736
Intermediate chemicals	921		1,769
Refined products	2,298		4,300
Other	208		352
Total	$	10,206	$	19,973

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following table presents our revenues disaggregated by geography, based upon the location of the customer, for the three and six months ended June 30, 2018:



Millions of dollars	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Sales and other operating revenues:
United States	$	4,864	$	9,517
Germany	764		1,585
Italy	433		827
France	397		747
Mexico	600		1,078
The Netherlands	300		576
Other	2,848		5,643
Total	$	10,206	$	19,973

Transaction Price Allocated to the Remaining Performance Obligations—We have elected to exclude contracts which have an initial term of one year or less from this disclosure. Our contracts with customers are commodity supply arrangements that settle based on market prices at future delivery dates; therefore, transaction prices are entirely variable. Transaction prices are known at the time revenue is recognized since they are generally determined by the commodity price index at a specific date, at month-end or at the month average once products are shipped to our customers. Future estimates of transaction prices for disclosure purposes are substantially constrained as they are highly susceptible to factors outside our influence, including volatility in commodity markets, industry production capacities and operating rates, planned and unplanned industry operating interruptions, foreign exchange rates and worldwide geopolitical trends.

4. Accounts Receivable

Our allowance for doubtful accounts receivable, which is reflected in the Consolidated Balance Sheets as a reduction of accounts receivable, was $17 million at June 30, 2018 and December 31, 2017.

5. Inventories

Inventories consisted of the following components:



Millions of dollars	June 30, 2018		December 31, 2017
Finished goods	$	2,724	$	2,932
Work-in-process	164		142
Raw materials and supplies	1,208		1,143
Total inventories	$	4,096	$	4,217

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

6. Debt

Long-term loans, notes and other long-term debt, net of unamortized discount and debt issuance cost, consisted of the following:



Millions of dollars	June 30, 2018			December 31, 2017
Senior Notes due 2019, $1,000 million, 5.0% ($2 million of debt issuance cost)	$	971		$	961
Senior Notes due 2021, $1,000 million, 6.0% ($6 million of debt issuance cost)	962			981
Senior Notes due 2024, $1,000 million, 5.75% ($7 million of debt issuance cost)	993			992
Senior Notes due 2055, $1,000 million, 4.625% ($16 million of discount; $11 million of debt issuance cost)	973			973
Guaranteed Notes due 2022, €750 million, 1.875% ($2 million of discount; $3 million of debt issuance cost)	870			894
Guaranteed Notes due 2023, $750 million, 4.0% ($6 million of discount; $3 million of debt issuance cost)	741			740
Guaranteed Notes due 2027, $1,000 million, 3.5% ($9 million of discount; $7 million of debt issuance cost)	943			984
Guaranteed Notes due 2027, $300 million, 8.1%	300			300
Guaranteed Notes due 2043, $750 million, 5.25% ($21 million of discount; $7 million of debt issuance cost)	722			722
Guaranteed Notes due 2044, $1,000 million, 4.875% ($11 million of discount; $9 million of debt issuance cost)	980			979
Other	9			25
Total	8,464			8,551
Less current maturities	(974		)	(2		)
Long-term debt	$	7,490		$	8,549

Fair value hedging adjustments associated with the fair value hedge accounting of our fixed-for-floating interest rate swaps for the applicable periods are as follows:



		Gains (Losses)												Cumulative Fair Value Hedging Adjustments Included in Carrying Amount of Debt
	Inception Year	Three Months Ended June 30,						Six Months Ended June 30,						June 30,			December 31,
Millions of dollars	Inception Year	2018			2017			2018			2017			2018			2017
Senior Notes due 2019, 5.0%	2014	$	(8	)	$	(6	)	$	(9	)	$	(42	)	$	27		$	36
Senior Notes due 2021, 6.0%	2016	6			(5		)	20			(3		)	32			12
Guaranteed Notes due 2027, 3.5%	2017	11			(9		)	42			(10		)	41			(1		)
Guaranteed Notes due 2022, 1.875%	2018	(1		)	—			(1		)	—			(1		)	—
Total		$	8		$	(20	)	$	52		$	(55	)	$	99		$	47

The cumulative fair value hedging adjustments remaining at June 30, 2018 and December 31, 2017 associated with our Senior Notes due 2019 includes $19 million and $31 million, respectively, for hedges that have been discontinued. The $42 million loss in the six months ended June 30, 2017 included a $44 million charge for the write-off of the cumulative fair value hedging adjustment related to our 5% Senior Notes due 2019 described below. These fair value adjustments are recognized in Interest expense in the Consolidated Statements of Income.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Short-term loans, notes, and other short-term debt consisted of the following:



Millions of dollars	June 30, 2018		December 31, 2017
$2,500 million Senior Revolving Credit Facility	$	—	$	—
$900 million U.S. Receivables Facility	—		—
Commercial paper	—		—
Precious metal financings	73		64
Other	3		4
Total short-term debt	$	76	$	68

Long-Term Debt

Guaranteed Notes due 2027—In March 2017, LYB International Finance II B.V. (“LYB Finance II”), a direct, 100% owned finance subsidiary of LyondellBasell Industries N.V., as defined in Rule 3-10(b) of Regulation S-X, issued $1,000 million of 3.5% guaranteed notes due 2027 at a discounted price of 98.968%.

Senior Notes due 2019—In March 2017, we redeemed $1,000 million aggregate principal amount of our outstanding 5% senior notes due 2019, and paid $65 million in make-whole premiums. In conjunction with the redemption of these notes, we recognized non-cash charges of $4 million for the write-off of unamortized debt issuance costs and $44 million for the write-off of the cumulative fair value hedge accounting adjustment related to the redeemed notes. The remaining balance of these notes is due in April 2019 and is reflected in our Consolidated Balance Sheets in Current maturities of long-term debt.

Short-Term Debt

Senior Revolving Credit Facility—Our $2,500 million revolving credit facility, which expires in June 2022, may be used for dollar and euro denominated borrowings, has a $500 million sublimit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. The aggregate balance of outstanding borrowings, including amounts outstanding under our commercial paper program, and letters of credit under this facility may not exceed $2,500 million at any given time. Borrowings under the facility bear interest at a Base Rate or LIBOR, plus an applicable margin. Additional fees are incurred for the average daily unused commitments.

The facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00 or less for the period covering the most recent four quarters. We are in compliance with these covenants as of June 30, 2018.

Commercial Paper Program—We have a commercial paper program under which we may issue up to $2,500 million of privately placed, unsecured, short-term promissory notes (“commercial paper”). This program is backed by our $2,500 million senior revolving credit facility. Proceeds from the issuance of commercial paper may be used for general corporate purposes, including dividends and share repurchases.

U.S. Receivables Facility—In July 2018, we amended our U.S. accounts receivable facility to, among other things, extend the term of the facility to July 2021. The facility has a purchase limit of $900 million in addition to a $300 million uncommitted accordion feature. This facility provides liquidity through the sale or contribution of trade receivables by certain of our U.S. subsidiaries to a wholly owned, bankruptcy-remote subsidiary on an ongoing basis and without recourse. The bankruptcy-remote subsidiary may then, at its option and subject to a borrowing base of eligible receivables, sell undivided interests in the pool of trade receivables to financial institutions participating in the facility. In the event of liquidation, the bankruptcy-remote subsidiary’s assets will be used to satisfy the claims of its creditors prior to any assets or value in the bankruptcy-remote subsidiary becoming available to us. We are responsible for servicing the receivables. This facility also provides for the issuance of letters of credit up to $200 million. The term of the facility may be extended in accordance with the terms of the agreement. The facility is also subject to customary warranties and covenants, including limits and reserves and the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

maintenance of specified financial ratios. We are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00 or less for the period covering the most recent four quarters. Performance obligations under the facility are guaranteed by the parent company. Additional fees are incurred for the average daily unused commitments.

At June 30, 2018, there were no borrowings or letters of credit under the facility.

Weighted Average Interest Rate—At June 30, 2018 and December 31, 2017, our weighted average interest rate on outstanding short-term debt was 4.4% and 1.8%, respectively.

Debt Discount and Issuance Costs—In the six months ended June 30, 2018 and 2017, amortization of debt discounts and debt issuance costs resulted in amortization expense of $7 million and $12 million, respectively, which is included in Interest expense in the Consolidated Statements of Income.

Other Information—On December 28, 2016, LYB International Finance III, LLC was formed as a private company with limited liability in Delaware. LYB International Finance III, LLC is a direct, 100% owned finance subsidiary of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X. Any debt securities issued by LYB International Finance III, LLC will be fully and unconditionally guaranteed by LyondellBasell N.V.

7. Financial Instruments and Fair Value Measurements

We are exposed to market risks, such as changes in commodity pricing, currency exchange rates and interest rates. To manage the volatility related to these exposures, we selectively enter into derivative transactions pursuant to our risk management policies.

A summary of our financial instruments, risk management policies, derivative instruments, hedging activities and fair value measurement can be found in Notes 2 and 14 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. If applicable, updates have been included in the respective sections below.

At June 30, 2018 and December 31, 2017, we had marketable securities classified as Cash and cash equivalents of $1,985 million and $1,035 million, respectively.

Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency gains of $3 million and $9 million for the three and six months ended June 30, 2018, respectively, and foreign currency losses of less than $1 million and $6 million for the three and six months ended June 30, 2017, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding as of June 30, 2018 and December 31, 2017 that are measured at fair value on a recurring basis:



	June 30, 2018				December 31, 2017
Millions of dollars	Notional Amount		Fair Value		Notional Amount		Fair Value		Balance Sheet Classification
Assets–
Derivatives designated as hedges:
Commodities	$	50	$	2	$	—	$	—	Prepaid expenses and other current assets
Foreign currency	235		27		—		26		Prepaid expenses and other current assets
Foreign currency	2,000		49		2,000		25		Other assets
Interest rates	1,000		45		—		20		Prepaid expenses and other current assets
Interest rates	247		1		650		1		Other assets
Derivatives not designated as hedges:
Commodities	101		7		77		20		Prepaid expenses and other current assets
Foreign currency	703		6		19		—		Prepaid expenses and other current assets
Non-derivatives:
Available-for-sale debt securities	590		590		960		960		Short-term investments
Equity securities	339		343		350		347		Short-term investments
Total	$	5,265	$	1,070	$	4,056	$	1,399
Liabilities–
Derivatives designated as hedges:
Commodities	$	2	$	—	$	97	$	8	Accrued liabilities
Commodities	2		—		5		—		Other liabilities
Foreign currency	374		24		139		29		Accrued liabilities
Foreign currency	950		102		950		140		Other liabilities
Interest rates	1,000		12		—		5		Accrued liabilities
Interest rates	2,200		73		3,350		58		Other liabilities
Derivatives not designated as hedges:
Commodities	101		6		108		29		Accrued liabilities
Foreign currency	513		1		995		11		Accrued liabilities
Non-derivatives:
Performance share awards	32		32		23		23		Accrued liabilities
Performance share awards	2		2		27		27		Other liabilities
Total	$	5,176	$	252	$	5,694	$	330

All derivatives and available-for-sale debt securities in the tables above are classified as Level 2. Our limited partnership investments included in our equity securities discussed below, are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.

At June 30, 2018, our outstanding foreign currency and commodity contracts not designated as hedges mature from July 2018 to August 2018 and from July 2018 to June 2019, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017. Short-term loans receivable, which represent our repurchase agreements, and short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. The carrying fair values of short-term and long-term debt exclude capital leases and commercial paper.



	June 30, 2018				December 31, 2017
Millions of dollars	Carrying Value		Fair Value		Carrying Value		Fair Value
Non-derivatives:
Assets:
Short-term loans receivable	$	554	$	554	$	570	$	570
Liabilities:
Short-term debt	$	73	$	69	$	64	$	75
Long-term debt	8,455		8,847		8,526		9,442
Total	$	8,528	$	8,916	$	8,590	$	9,517

All financial instruments in the table above are classified as Level 2. There were no transfers between Level 1 and Level 2 for any of our financial instruments during the six months ended June 30, 2018 and the year ended December 31, 2017.

Net Investment Hedges—In March 2018, we entered into €400 million of foreign currency contracts that were designated as net investment hedges. These foreign currency contracts expired on June 15, 2018. Upon settlement of these contracts we paid €400 million ($473 million at the expiry spot rate) to our counterparties and received $498 million from our counterparties.

In June 2018, we entered into €400 million of foreign currency contracts that were designated as net investment hedges. In 2017, we entered into €617 million of foreign currency contracts that were designated as net investment hedges.

In 2016, we issued euro denominated notes payable due 2022 with notional amounts totaling €750 million that were designated as a net investment hedge. In May 2018, we dedesignated and redesignated a €125 million tranche of our euro denominated notes payable due 2022 as a net investment hedge.

At June 30, 2018 and December 31, 2017, we had outstanding foreign currency contracts with an aggregate notional value of €1,142 million ($1,259 million) and €742 million ($789 million), respectively, designated as net investment hedges. In addition, at June 30, 2018 and December 31, 2017 we had outstanding foreign-currency denominated debt, with notional amounts totaling €750 million ($858 million) and €750 million ($899 million), respectively, designated as a net investment hedge.

There was no ineffectiveness recorded during the three and six months ended June 30, 2017 related to these hedging relationships.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Cash Flow Hedges—The following table summarizes our cash flow hedges outstanding at June 30, 2018 and December 31, 2017:



	June 30, 2018		December 31, 2017
Millions of dollars	Notional Value		Notional Value		Expiration Date
Foreign currency	$	2,300	$	2,300	2021 to 2027
Interest rates	1,300		1,000		2019 to 2021
Commodities	54		102		2018 to 2019

There was less than $1 million ineffectiveness recorded during the three and six months ended June 30, 2017 related to these hedging relationships.

In June 2018 and July 2018, we entered into forward-starting interest rate swaps with a total notional amount of $300 million and $200 million, respectively, to mitigate the risk of variability in interest rates for an expected debt issuance by November 2021. These swaps were designated as cash flow hedges and will be terminated upon debt issuance.

As of June 30, 2018, less than $1 million (on a pretax basis) is scheduled to be reclassified as a decrease to interest expense and $2 million (on a pretax basis) is scheduled to be reclassified as a decrease to cost of sales over the next twelve months.

Fair Value Hedges—In May 2018, we entered into a euro fixed-for-floating interest rate swap to mitigate the change in the fair value of €125 million ($147 million) of our €750 million notes payable due 2022 associated with the risk of variability in the 6-month EURIBOR rate (the benchmark interest rate). The fixed-rate and variable-rate are settled annually and semi-annually, respectively.

In February 2017, we entered into U.S. dollar fixed-for-floating interest rate swaps to mitigate changes in the fair value of our $1,000 million 3.5% guaranteed notes due 2027 associated with the risk of variability in the 3 Month USD LIBOR rate (the benchmark interest rate). The fixed-rate and variable-rate are settled semi-annually and quarterly, respectively.

In March 2017, concurrent with the redemption of $1,000 million of our outstanding 5% senior notes due 2019, we dedesignated the related $2,000 million fair value hedge and terminated swaps in the notional amount of $1,000 million. At the same time, we redesignated the remaining $1,000 million notional amount of swaps as a fair value hedge of the remaining $1,000 million of 5% senior notes outstanding.

We had outstanding interest rate contracts with aggregate notional amounts of $3,147 million and $3,000 million at June 30, 2018 and December 31, 2017, respectively, designated as fair value hedges. Our interest rate contracts outstanding at June 30, 2018 mature from 2019 to 2027.

There was less than $1 million of ineffectiveness recorded for the three and six months ended June 30, 2017 related to these hedging relationships.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Impact on Earnings and Other Comprehensive Income—The following table summarizes the pre-tax effect of derivative instruments and non-derivative instruments on Other comprehensive income and earnings for the three and six months ended June 30, 2018 and 2017:



	Effect of Financial Instruments
	Three Months Ended June 30,
	Gain (Loss) Recognized in AOCI					Gain (Loss) Reclassified from AOCI to Income					Gain (Loss) Recognized in Income						Income Statement
Millions of dollars	2018		2017			2018			2017		2018			2017			Classification
Derivatives designated as net investment hedges:
Foreign currency	$	78	$	(91	)	$	—		$	—	$	8		$	—		Interest expense
Derivatives designated as cash flow hedges:
Commodities	9		(6		)	—			—		—			—			Cost of sales
Foreign currency	134		(128		)	(124		)	133		11			—			Other income, net; Interest expense
Interest rates	17		(24		)	—			—		—			—			Interest expense
Derivatives designated as fair value hedges:
Interest rates	—		—			—			—		(16		)	19			Interest expense
Derivatives not designated as hedges:
Commodities	—		—			—			—		(2		)	(2		)	Sales and other operating revenues
Commodities	—		—			—			—		13			(7		)	Cost of sales
Foreign currency	—		—			—			—		36			—			Other income, net
Non-derivatives designated as net investment hedges:
Long-term debt	50		(54		)	—			—		—			—			Other income, net
Total	$	288	$	(303	)	$	(124	)	$	133	$	50		$	10

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



	Effect of Financial Instruments
	Six Months Ended June 30,
	Gain (Loss) Recognized in AOCI					Gain (Loss) Reclassified from AOCI to Income					Gain (Loss) Recognized in Income						Income Statement
Millions of dollars	2018		2017			2018			2017		2018			2017			Classification
Derivatives designated as net investment hedges:
Foreign currency	$	61	$	(114	)	$	—		$	—	$	13		$	—		Interest expense
Derivatives designated as cash flow hedges:
Commodities	6		(8		)	4			—		—			—			Cost of sales
Foreign currency	26		(135		)	(62		)	158		19			—			Other income, net; Interest expense
Interest rates	67		(17		)	—			—		—			—			Interest expense
Derivatives designated as fair value hedges:
Interest rates	—		—			—			—		(60		)	18			Interest expense
Derivatives not designated as hedges:
Commodities	—		—			—			—		(1		)	(3		)	Sales and other operating revenues
Commodities	—		—			—			—		9			(37		)	Cost of sales
Foreign currency	—		—			—			—		16			(1		)	Other income, net
Non-derivatives designated as net investment hedges:
Long-term debt	25		(64		)	—			—		—			—			Other income, net
Total	$	185	$	(338	)	$	(58	)	$	158	$	(4	)	$	(23	)

The derivative amounts excluded from effectiveness testing for foreign currency contracts designated as net investment hedges recognized in other comprehensive income for the three and six months ended June 30, 2018 were gains of $11 million and $15 million, respectively. The derivative amounts excluded from effectiveness testing for foreign currency contracts designated as net investment hedges recognized in interest expense for the three and six months ended June 30, 2018 were gains of $8 million and $13 million, respectively.

For the three and six months ended June 30, 2018, losses of $124 million and $62 million, respectively, for our foreign currency contracts designated as cash flow hedges were reclassified from AOCI to Other income, net.

The pre-tax effect of the periodic receipt of fixed interest and payment of variable interest associated with our fixed-for-floating interest rate swaps resulted in a $1 million loss recognized in Interest expense during the three months ended June 30, 2018, a $6 million gain during the three months ended June 30, 2017 and gains of $2 million and $13 million during the six months ended June 30, 2018 and 2017, respectively. These gains and losses are not included in the table above.

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Investments in Available-for-Sale Debt Securities—The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of our available-for-sale debt securities that are outstanding as of June 30, 2018 and December 31, 2017:



	June 30, 2018
Millions of dollars	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale debt securities:
Bonds	$	590	$	1	$	(1	)	$	590
Total available-for-sale debt securities	$	590	$	1	$	(1	)	$	590



	December 31, 2017
Millions of dollars	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Commercial paper	$	180	$	—	$	—		$	180
Bonds	630		—		—			630
Certificates of deposit	150		—		—			150
Limited partnership investments	350		2		(5		)	347
Total available-for-sale securities	$	1,310	$	2	$	(5	)	$	1,307

No losses related to other-than-temporary impairments of our available-for-sale debt securities have been recorded in Accumulated other comprehensive loss during the three and six months ended June 30, 2018 and the year ended December 31, 2017.

As of June 30, 2018, bonds classified as available-for-sale debt securities had maturities between five and twenty-eight months.

The proceeds from maturities and sales of our available-for-sale debt securities during the three and six months ended June 30, 2018 and 2017 are summarized in the following table:



	Three Months Ended June 30,				Six Months Ended June 30,
Millions of dollars	2018		2017		2018		2017
Proceeds from maturities of securities	$	75	$	149	$	410	$	487
Proceeds from sales of securities	—		—		—		—

No gain or loss was realized in connection with the sales of our available-for-sale debt securities during the three and six months ended June 30, 2018 and 2017.

During the three and six months ended June 30, 2017, we had maturities of our held-to-maturity securities of $31 million and $75 million, respectively.

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LYONDELLBASELL INDUSTRIES N.V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following table summarizes the fair value and unrealized losses related to available-for-sale debt securities that were in a continuous unrealized loss position for less than and greater than twelve months as of June 30, 2018 and December 31, 2017:



	June 30, 2018
	Less than 12 months					Greater than 12 months
Millions of dollars	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale debt securities:
Bonds	$	338	$	(1	)	$	—	$	—



	December 31, 2017
	Less than 12 months					Greater than 12 months
Millions of dollars	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale securities:
Limited partnership investments	$	117	$	(5	)	$	—	$	—

Investments in Equity Securities—Our equity securities primarily consist of our limited partnership investments, which include investments in, among other things, equities and equity related securities, debt securities, credit instruments, global interest rate products, currencies, commodities, futures, options, warrants and swaps. These investments may be redeemed at least monthly with advance notice ranging up to ninety days. These investments have a notional amount of $339 million and a fair value of $343 million at June 30, 2018.

The following table summarizes the portion of unrealized gains and losses for the equity securities that are outstanding as of June 30, 2018:



Millions of dollars
Net gains recognized during the period	$	9
Less: Net gains recognized during the period on securities sold	1
Unrealized gains recognized during the period	$	8

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

8. Pension and Other Postretirement Benefits

Net periodic pension benefits included the following cost components for the periods presented:



	U.S. Plans
	Three Months Ended June 30,						Six Months Ended June 30,
Millions of dollars	2018			2017			2018			2017
Service cost	$	12		$	12		$	25		$	24
Interest cost	15			15			30			30
Expected return on plan assets	(31		)	(31		)	(61		)	(61		)
Actuarial and investment loss amortization	6			6			11			11
Net periodic benefit costs	$	2		$	2		$	5		$	4



	Non-U.S. Plans
	Three Months Ended June 30,						Six Months Ended June 30,
Millions of dollars	2018			2017			2018			2017
Service cost	$	8		$	10		$	17		$	19
Interest cost	8			6			16			11
Expected return on plan assets	(6		)	(5		)	(12		)	(9		)
Settlement loss	1			—			1			—
Actuarial and investment loss amortization	2			3			5			7
Net periodic benefit costs	$	13		$	14		$	27		$	28

Net periodic other postretirement benefits included the following cost components for the periods presented:



	U.S. Plans
	Three Months Ended June 30,				Six Months Ended June 30,
Millions of dollars	2018		2017		2018		2017
Service cost	$	—	$	1	$	1	$	2
Interest cost	3		2		5		4
Net periodic benefit costs	$	3	$	3	$	6	$	6



	Non-U.S. Plans
	Three Months Ended June 30,				Six Months Ended June 30,
Millions of dollars	2018		2017		2018		2017
Service cost	$	—	$	—	$	1	$	1
Interest cost	1		1		1		1
Actuarial loss amortization	—		—		—		1
Net periodic benefit costs	$	1	$	1	$	2	$	3

The components of net periodic benefit cost other than the service cost component are included in Other income, net in the Consolidated Statements of Income.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

9. Income Taxes

Our effective income tax rate for the three months ended June 30, 2018 was -1.3% compared with 28.8% for the three months ended June 30, 2017. For the six months ended June 30, 2018, the effective income tax rate was 8.9% compared with 28.5% for the first six months ended June 30, 2017. Our effective income tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pretax income in countries with varying statutory tax rates, changes in valuation allowances, changes in foreign exchange gains/losses, the amount of exempt income, and changes in unrecognized tax benefits associated with uncertain tax positions.

Compared with the three and six months ended June 30, 2017, the lower effective tax rates for the three and six months ended June 30, 2018 were primarily attributable to changes in unrecognized tax benefits associated with uncertain tax positions, the impact of the reduction to the U.S. federal statutory tax rate as a result of the Tax Act and increases in exempt income, partially offset by the repeal of the U.S. domestic production activity deduction.

During the three months ended June 30, 2018, we entered into an audit settlement impacting specific uncertain tax positions. This audit settlement resulted in a $346 million non-cash benefit to our effective tax rate consisting of the recognition of $288 million of previously unrecognized tax benefits as a reduction for tax positions of prior years and the release of $58 million of previously accrued interest. This non-cash reduction in unrecognized tax benefits is reflected on our Consolidated Balance Sheet in Other liabilities and on our Consolidated Statement of Cash Flows in Other operating activities. Tax benefits totaling $252 million and $544 million were unrecognized as of June 30, 2018 and December 31, 2017, respectively.

We recognize interest associated with unrecognized tax benefits in income tax expense. Income tax expense includes a benefit of interest totaling $49 million in the six months ended June 30, 2018, and interest expense totaling $16 million in the year ended December 31, 2017. We had accrued approximately $14 million and $63 million for interest and penalties as of June 30, 2018 and December 31, 2017, respectively.

We monitor income tax developments in countries where we conduct business. On December 22, 2017, the Tax Act was enacted with some provisions effective as early as 2017 while others were delayed until 2018. This change in U.S. tax law included a reduction in the federal corporate tax rate from 35% to 21% for years beginning after 2017, which resulted in the remeasurement of our U.S. net deferred income tax liabilities. Our 2017 income tax provision included a provisional estimate of $819 million income tax benefit related to the remeasurement of our U.S. net deferred income tax liabilities. The impact of the Tax Act may differ from this reasonable estimate due to additional guidance that may be issued, changes in assumptions made, and the finalization of certain U.S. income tax positions with the filing of our 2017 U.S. income tax return which will allow for the ability to conclude whether any further adjustments are necessary to our deferred tax assets and liabilities. Any adjustments to these provisional amounts will be reported as a component of income tax expense in the reporting period in which any such adjustments are identified which will be no later than the fourth quarter of 2018. We will continue to analyze the Tax Act to determine the full effects of the new law.

10. Commitments and Contingencies

Financial Assurance Instruments—We have obtained letters of credit, performance and surety bonds and have issued financial and performance guarantees to support trade payables, potential liabilities and other obligations. Considering the frequency of claims made against the financial instruments we use to support our obligations, and the magnitude of those financial instruments in light of our current financial position, management does not expect that any claims against or draws on these instruments would have a material adverse effect on our Consolidated Financial Statements. We have not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for our current operations.

Environmental Remediation—Our accrued liability for future environmental remediation costs at current and former plant sites and other remediation sites totaled $95 million and $102 million as of June 30, 2018 and December 31, 2017, respectively. At June 30, 2018, the accrued liabilities for individual sites range from less than $1 million to $18 million. The remediation expenditures are expected to occur over a number of years, and not to be concentrated in any single year. In our opinion, it is reasonably possible that losses in excess of the liabilities recorded 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

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as involvement in investigations by regulatory agencies, could require us to reassess our potential exposure related to environmental matters.

The following table summarizes the activity in our accrued environmental liability included in “Accrued liabilities” and “Other liabilities:”



	Six Months Ended June 30,
Millions of dollars	2018			2017
Beginning balance	$	102		$	95
Changes in estimates	1			3
Amounts paid	(6		)	(4		)
Foreign exchange effects	(2		)	5
Ending balance	$	95		$	99

Access Indemnity Demand—In December 2010, one of our subsidiaries received demand letters from affiliates of Access Industries (collectively, “Access Entities”), a more than five percent shareholder of the Company, demanding indemnity for losses, including attorney’s fees and expenses, arising out of a 2007 management agreement and a pending lawsuit styled Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust v. Leonard Blavatnik, et al., Adversary Proceeding No. 09-1375 (REG), in the United States Bankruptcy Court, Southern District of New York. In the Weisfelner lawsuit, the plaintiffs sought recovery from Access all amounts earned by the Access Entities related to their purchase of shares of Lyondell Chemical Company (“Lyondell Chemical”) prior to its acquisition by Basell AF S.C.A.; distributions by Basell AF S.C.A. to its shareholders before it acquired Lyondell Chemical; and management and transaction fees and expenses.

The Access Entities also demanded $100 million in management fees under the management agreement between an Access affiliate and the predecessor of LyondellBasell AF, as well as other unspecified amounts relating to advice purportedly given in connection with financing and other strategic transactions.

In June 2009, an Access affiliate filed a proof of claim in Bankruptcy Court against LyondellBasell AF seeking “no less than $723,963.65” for the amounts allegedly owed under the 2007 management agreement.

We did not believe that the 2007 management agreement was in effect or that the Company or any Company-affiliated entity owed any obligation under the management agreement, including for management fees or for indemnification. We defended our position in proceedings and against any claims or demands that were asserted. In April 2011, Lyondell Chemical filed an objection to the claim and brought a declaratory judgment action for a determination that the demands were not valid and the declaratory judgment action was stayed per the parties’ agreement pending the outcome of the Weisfelner lawsuit.

The Weisfelner lawsuit went to trial in October 2016. In April 2017, the trial court awarded $12.6 million to the plaintiffs and denied all other relief, and in May 2017 the court issued its Final Judgment reflecting this ruling. The plaintiffs filed an appeal to the Federal District Court for the Southern District of New York, which largely affirmed the Final Judgment on January 24, 2018.

In April 2018, the Company and the Access Entities agreed to settle all claims, including under the 2009 Proof of Claim and 2007 Management Agreement, described in the April 2011 declaratory judgment action and the Access Entities’ December 2010 demand letters. No payments were required by either side under the settlement agreement; the declaratory judgment action was dismissed and the Proof of Claim was withdrawn.

Indemnification—We are parties to various indemnification arrangements, including arrangements entered into in connection with acquisitions, divestitures and the formation and dissolution of joint ventures. Pursuant to these arrangements, we provide indemnification to and/or receive indemnification from other parties in connection with liabilities that may arise in connection with the transactions and in connection with activities prior to completion of the transactions. These indemnification

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arrangements typically include provisions pertaining to third party claims relating to environmental and tax matters and various types of litigation. As of June 30, 2018, we had not accrued any significant amounts for our indemnification obligations, and we are not aware of other circumstances that would likely lead to significant future indemnification obligations. We cannot determine with certainty the potential amount of future payments under the indemnification arrangements until events arise that would trigger a liability under the arrangements.

As part of our technology licensing contracts, we give indemnifications to our licensees for liabilities arising from possible patent infringement claims with respect to certain proprietary licensed technologies. Such indemnifications have a stated maximum amount and generally cover a period of five to ten years.

11. Stockholders’ Equity

Dividend Distributions—The following table summarizes the dividends paid in the periods presented:



Millions of dollars, except per share amounts	Dividend Per Ordinary Share	Aggregate Dividends Paid	Date of Record
March