LyondellBasell Reports Second-Quarter 2010 Results (1)

ROTTERDAM, Netherlands, Aug. 16 /PRNewswire-FirstCall/ --

Highlights

• Generated net income of $8,843 million or $203 million excluding a net $8,640 million after-tax gain on the discharge of liabilities subject to compromise related to emergence from Chapter 11 and fresh-start accounting adjustments
• EBITDAR of $1,403 million excluding emergence-related non-cash Lower of Cost or Market (LCM) inventory charge – more than double 2Q09 and 1Q10
• Generally improved business conditions across most segments; strength in U.S. olefins driven by reliable operations coupled with industry supply disruptions
• Significant cash generation; ended quarter with ~$3.8 billion cash, ~$5.0 billion liquidity, net debt of ~$3.6 billion

LyondellBasell Industries today announced net income for the second quarter 2010 of $8,843 million, or $203 million excluding a net $8,640 million after-tax gain on the discharge of liabilities subject to compromise and fresh-start accounting adjustments.  Excluding reorganization items, and a $333 million non-cash LCM inventory charge, second-quarter 2010 earnings before interest, income taxes, depreciation and amortization, and restructuring costs (EBITDAR) was $1,403 million.  Comparisons with the prior quarter, second quarter 2009 and first six months of 2009 are available in the following table.

(a) For all periods prior to May 1, 2010, EBITDAR figures in the table have been prepared on a current cost inventory basis.  For periods beginning May 1, 2010, and thereafter, net income, and EBITDAR figures have been prepared using the LIFO (Last-In, First-Out) method of inventory accounting.  

(b) Results for the second quarter 2010 represent the combined predecessor (April 1, 2010 - April 30, 2010) and successor (May 1, 2010 - June 30, 2010) periods.  See Table 8.

(c) Results for the first six months of 2010 represent the combined predecessor (January 1, 2010 - April 30, 2010) and successor (May 1, 2010 - June 30, 2010) periods.  See Table 8.

(d) Includes net income (loss) attributable to non-controlling interests.  See Table 11.

(e) Earnings before interest, income taxes, depreciation and amortization, and restructuring costs.  EBITDAR figures include dividends received from joint ventures.  See Table 9 for a reconciliation of EBITDAR to net income.

On April 30, 2010, LyondellBasell emerged from Chapter 11 bankruptcy with a greatly improved balance sheet, approximately $3.6 billion of liquidity and reduced legal and environmental exposures.  The company generated a significant amount of cash during the second quarter and ended June 30 with approximately $3.8 billion of cash, $5.0 billion of liquidity and net debt of approximately $3.6 billion.

Second-quarter 2010 EBITDAR improved versus the first quarter 2010 primarily due to improved ethylene and polyolefin margins in North America and Europe, improved refining and oxyfuel margins and a continued focus on cost control.

Additionally, results reflect the following:

"We emerged from Chapter 11 as a much stronger company," said Jim Gallogly, chief executive officer of LyondellBasell.  "Our significantly improved capital and cost structures, coupled with our industry-defining technologies and new management team, position us as a formidable competitor for the future. I am extremely proud of the job our employees have done to restructure the company and move us through bankruptcy in such a short time."

Commenting on the second quarter, Gallogly said, "The second quarter was an excellent start for our new company.  Strong U.S. ethylene margins experienced late in the first quarter continued into the second quarter.  Our feedstock flexibility and reliable operations, coupled with the leverage of our sizeable portfolio, resulted in improved earnings.  European olefins and polyolefins results also improved during the quarter due to higher margins across most products.  In the Intermediates and Derivatives segment, the strong performance of the first quarter continued through the second quarter.  Industry refining spreads remained close to where they finished the first quarter and oxyfuel margins and volumes experienced their normal seasonal uptick.  Overall, we generated a significant amount of cash during the quarter and further enhanced our liquidity."

OUTLOOK

The U.S. ethylene market is in the process of rebalancing following the turnarounds and unplanned industry downtime of the second quarter.  In Europe, unplanned industry outages have resulted in improved olefin plant co-product margins.  Refining and oxyfuel margins have experienced some decline.  Trends in the remaining businesses are generally consistent with those of the first half of the year.  

"We took advantage of supply-driven market tightness in several of our businesses during the first half of the year," said Gallogly.  "However, our view is that the long-term fundamentals have not changed appreciably.  The rates at which the world economy recovers and new capacity comes online in the Middle East and Asia will significantly influence operating rates and margins going forward."

LYONDELLBASELL INDUSTRIES BUSINESS RESULTS DISCUSSION BY REPORTING SEGMENT

LyondellBasell operates in five business segments: 1) Olefins & Polyolefins – Americas; 2) Olefins & Polyolefins – Europe, Asia, International; 3) Intermediates & Derivatives; 4) Refining & Oxyfuels; and 5) Technology.

Olefins & Polyolefins - Americas Segment - The primary products of this segment are ethylene, ethylene co-products (propylene, butadiene and benzene), polyethylene, polypropylene, and Catalloy process resins.  

(a)  For all periods prior to May 1, 2010, operating income and EBITDAR figures in the table have been prepared on a current cost inventory basis.  For periods beginning May 1, 2010, and thereafter, operating income and EBITDAR figures have been prepared using the LIFO method of inventory accounting.  See Table 8.  

(b)  Represents the combined second quarter 2010 predecessor (April 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods.  See Table 8.

(c)  Represents the combined predecessor (January 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods for the first six months of 2010.  See Table 8.

2Q10 v. 1Q10 – Excluding a non-cash second-quarter 2010 Lower of Cost or Market (LCM) inventory charge of $171 million, underlying EBITDAR results improved by $311 million versus the first quarter 2010, as an average ethylene sales price decrease of approximately 5 cents per pound was more than offset by an approximately 9 cent per pound decline in the company's average cost-of-ethylene-production metric (COE).  Ethylene sales volumes decreased by approximately 90 million pounds compared to the first quarter 2010, due in part to the scheduled maintenance turnaround at the Morris, Ill., facility.  Segment polyethylene (PE) results improved by approximately $100 million versus the first quarter as PE benefitted from the lower ethylene price.  Polypropylene (including Catalloy) results for the second quarter improved approximately $15 million.  Total polyolefins sales volumes were nearly unchanged versus the first quarter 2010.

2Q10 v. 2Q09 – Excluding a non-cash second-quarter 2010 LCM inventory charge of $171 million, segment results improved significantly versus the second quarter 2009 as the average ethylene sales price increased approximately 18 cents per pound while the company's average cost-of-ethylene-production metric (COE) decreased approximately 2 cents per pound.  Ethylene sales volumes increased by approximately 100 million pounds versus the second quarter 2009.  Segment polyethylene results were relatively unchanged versus the second quarter 2009 as lower volumes due to the Morris, Ill., maintenance turnaround were offset by improved margins.  Polypropylene (including Catalloy) results for the second quarter 2010 were also relatively unchanged versus second quarter 2009.  Total polyolefins sales volumes decreased approximately 50 million pounds (3 percent) versus the second quarter 2009.  Reduced polyethylene sales, partially related to the Morris, Ill., maintenance activity and optimization in favor of spot ethylene sales, accounted for the majority of the volume decrease.

Olefins & Polyolefins – Europe, Asia, International Segment - The primary products of this segment are ethylene, ethylene co-products (propylene, butadiene and benzene), polyethylene, polypropylene, global polypropylene compounds, Catalloy process resins and Polybutene-1 resins.  

(a)  For all periods prior to May 1, 2010, operating income and EBITDAR figures in the table have been prepared on a current cost inventory basis.  For periods beginning May 1, 2010, and thereafter, operating income and EBITDAR figures have been prepared using the LIFO method of inventory accounting.  See Table 8.

(b)  Represents the combined second quarter 2010 predecessor (April 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods.  See Table 8.

(c)  Represents the combined predecessor (January 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods for the first six months of 2010.  See Table 8.

2Q10 v. 1Q10 – Excluding a non-cash second-quarter 2010 LCM inventory charge of $5 million, segment EBITDAR increased approximately $105 million versus the first quarter 2010.  Higher prices for butadiene and increased volumes of polymers helped drive results.  Higher margins for polypropylene and low density polyethylene in Europe also were key, contributing an approximate $45 million to the improved second-quarter results.  Dividends also increased approximately $30 million with the majority originating in one of our Saudi Arabian joint ventures.

2Q10 v. 2Q09 – Excluding a non-cash second-quarter 2010 LCM inventory charge of $5 million, segment EBITDAR increased $148 million versus the second quarter 2009.  Improved olefins and polyolefins margins accounted for the majority of the improved performance.  Volume growth in polypropylene and polypropylene compounding, due in large part to increased demand from the automotive sector, accounted for the remainder of the improvement.  

Intermediates & Derivatives Segment - The primary products of this segment are propylene oxide (PO) and its co-products (styrene monomer, tertiary butyl alcohol (TBA), isobutylene and tertiary butyl hydroperoxide) and derivatives (propylene glycol, propylene glycol ethers and butanediol); acetyls, ethylene oxide and its derivatives, and flavors and fragrances chemicals.  

(a)  For all periods prior to May 1, 2010, operating income and EBITDAR figures in the table have been prepared on a current cost inventory basis.  For periods beginning May 1, 2010, and thereafter, operating income and EBITDAR figures have been prepared using the LIFO method of inventory accounting.  See Table 8.

(b)  Represents the combined second quarter 2010 predecessor (April 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods.  See Table 8.

(c)  Represents the combined predecessor (January 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods for the first six months of 2010.  See Table 8.

2Q10 v. 1Q10 – Excluding a non-cash second-quarter 2010 LCM inventory charge of $25 million, segment EBITDAR improved approximately $13 million versus the first quarter 2010.  PO and PO derivatives results declined by approximately $15 million primarily due to reduced volumes sold to cover first-quarter competitor outages and seasonal deicer demand.  Overall demand for PO and its derivatives, however, remains good.  Intermediates results improved approximately $30 million versus the first quarter 2010.  Expanded acetyls margins, a result of lower ethylene and natural gas prices, and increased acetyls volumes drove the improvement.

2Q10 v. 2Q09 – Segment results improved significantly versus the second quarter 2009.  Excluding a non-cash second-quarter 2010 LCM inventory charge of $25 million, PO and PO derivatives improved by approximately $99 million due to higher sales volumes and lower fixed costs.  Intermediates results improved by approximately $30 million primarily as a result of improved TBA Intermediates results.  

Refining & Oxyfuels Segment - The primary products of this segment are gasoline, diesel, heating oil, jet fuel, petrochemical raw materials, methyl tertiary butyl ether (MTBE) and ethyl tertiary butyl ether (ETBE).  

(a)  For all periods prior to May 1, 2010, operating income and EBITDAR figures in the table have been prepared on a current cost inventory basis.  For periods beginning May 1, 2010, and thereafter, operating income and EBITDAR figures have been prepared using the LIFO method of inventory accounting.  See Table 8.  

(b)  Represents the combined second quarter 2010 predecessor (April 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods.  See Table 8.

(c)  Represents the combined predecessor (January 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods for the first six months of 2010.  See Table 8.

2Q10 v. 1Q10 – Excluding a non-cash second-quarter 2010 LCM inventory charge of $132 million, segment EBITDAR improved $225 million versus the first quarter 2010.  Houston refinery performance improved by approximately $145 million.  Crude volumes at the Houston refinery decreased approximately 74,000 barrels per day primarily as a result of the May 17 crude unit fire; however, it was possible to purchase intermediate streams to keep downstream units running closer to capacity during the crude unit outage.  The direct cost impact of crude unit downtime was approximately $14 million, and lost opportunity costs are estimated to be approximately $60 million.  The average industry benchmark margin increased approximately $4 per barrel during the quarter as gasoline and distillate spreads widened while our results outpaced this improvement.  At the Berre refinery, industry benchmark margins increased by approximately $1 per barrel, while volumes increased with the completion of first-quarter maintenance at the facility.  Oxyfuels results, following seasonal trends, improved in the second quarter 2010.  Higher sales volumes and margins drove the improvement.

2Q10 v. 2Q09 – Excluding a non-cash second-quarter 2010 LCM inventory charge of $132 million, segment EBITDAR improved $167 million versus the second quarter 2009.  At the Houston refinery, an increase in the industry benchmark margin of approximately $8 per barrel more than offset a crude volume decline of 42,000 barrels per day.  Berre refinery results improved as a result of an increase in the industry benchmark margin of approximately $2 per barrel.  Oxyfuels results declined from a very strong second quarter 2009 due to lower margins.

Technology Segment – The principal products of the Technology segment are polyolefin catalysts and production process technology licenses.

(a)  For all periods prior to May 1, 2010, operating income and EBITDAR figures in the table have been prepared on a current cost inventory basis.  For periods beginning May 1, 2010, and thereafter, operating income and EBITDAR figures have been prepared using the LIFO method of inventory accounting.  See Table 8.

(b)  Represents the combined second quarter 2010 predecessor (April 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods.  See Table 8.

(c)  Represents the combined predecessor (January 1, 2010 – April 30, 2010) and successor (May 1, 2010 – June 30, 2010) periods for the first six months of 2010.  See Table 8.

2Q10 v. 1Q10 – As in the first quarter, the majority of the EBITDAR generated during the second quarter was through the sale of catalysts.

2Q10 v. 2Q09 – Segment results declined versus the second quarter 2009 primarily due to reduced licensing and technology services income.

Liquidity

Company liquidity, defined as cash and cash equivalents plus funds available through established lines of credit (less appropriate reserves and letters of credit), was approximately $5.0 billion at June 30, 2010.  The $5.0 billion of liquidity consisted of approximately $3.8 billion cash and $1.2 billion of undrawn funds available through the $1.75 billion asset-based loan facility.

Key "Fresh-Start" and Other Accounting Impacts

As a result of emergence from Chapter 11, LyondellBasell Industries N.V. has applied "fresh-start" accounting to the opening May 2010 consolidated financial statements as required under ASC 852, "Reorganizations."  Under "fresh-start" accounting, LyondellBasell's consolidated assets and liabilities are revalued at their estimated fair values as of the emergence date (April 30, 2010) in a manner similar to purchase accounting and consistent with the Bankruptcy Court-approved total reorganized enterprise value of approximately $15.2 billion.

Listed below are key fair value adjustments applied to the opening balance sheet on May 1, 2010:

• Property, Plant, and Equipment reduction of approximately $7.5 billion
• Inventory increase of approximately $1.3 billion
• Goodwill recognition of approximately $1.1 billion

Annual depreciation and amortization expenses will decline by approximately $1.0 billion as a result of the changes listed above.

Listed below are additional key items related to the reorganization of the company:

• Debt decrease of approximately $18.3 billion
• After-tax gain on settlement of pre-petition liabilities and "fresh-start" accounting adjustments of approximately $8.6 billion
• Cash interest expense reduction to approximately $170 million per quarter

For a more complete listing of the "fresh-start" adjustments applied to the opening balance sheet, please see the LyondellBasell Industries N.V. Quarterly Financial Report for the period ending June 30, 2010 which will be posted on our website, www.lyondellbasell.com.

LCM Adjustment

Upon emergence from bankruptcy, LyondellBasell Industries N.V. adopted the Last-In, First-Out, or LIFO, inventory accounting methodology for U.S. GAAP purposes.  In addition, as part of "fresh-start" accounting associated with our emergence from bankruptcy, inventories were written up by approximately $1.3 billion to their estimated fair market values as of April 30.  At April 30, crude oil was selling for approximately $85 per barrel, and benchmark U.S. ethylene and propylene prices were approximately 55 and 75 cents per pound, respectively.  By June 30, the end of the quarter, crude oil prices had fallen to approximately $75 per barrel, and U.S. ethylene and propylene benchmark prices had fallen to approximately 35 and 55 cents, respectively.  In accordance with U.S. GAAP, it became necessary, due to the fall in the market value of the inventory, to make a non-cash Lower of Cost or Market (LCM) adjustment to the book value of the inventory.  The LCM adjustment made in the second quarter 2010 was $333 million.  This LCM adjustment is included in reported second-quarter 2010 and first six months 2010 net income, operating income and EBITDAR.

CONFERENCE CALL

LyondellBasell will host a conference call today, August 16, 2010, at 12:00 noon Eastern Time (ET). Participating on the call will be: Jim Gallogly, chief executive officer; Kent Potter, executive vice president and chief financial officer; and Doug Pike, vice president of Investor Relations.  The toll-free dial-in number in the U.S. is 800-369-1176.  For international numbers, please go to our website, www.lyondellbasell.com/teleconference for a complete listing of toll-free numbers by country.  The pass code for all numbers is 4465383.

A replay of the call will be available from 3:00 p.m. ET August 16 to 12:59 a.m. ET on September 17. The dial-in numbers are 800-934-9468 (U.S.) and +1 203-369-3394 (international). The pass code for each is 3692.

A copy of the slides that accompany the call will be available on our website at http://www.lyondellbasell.com/earnings.

ABOUT LYONDELLBASELL

LyondellBasell is one of the world's largest plastics, chemical and refining companies. The company manufactures products at 59 sites in 18 countries. LyondellBasell products and technologies are used to make items that improve the quality of life for people around the world including packaging, electronics, automotive components, home furnishings, construction materials and biofuels. More information about LyondellBasell can be found at www.lyondellbasell.com.

FORWARD-LOOKING STATEMENTS

The statements in this release and the related teleconference relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon assumptions of management which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. Actual results could differ materially based on factors including, but not limited to, the ability to comply with the terms of our credit facilities and other financing arrangements; the costs and availability of financing; the ability to maintain adequate liquidity; the ability to implement business strategies; availability, cost and price volatility of raw materials and utilities; supply/demand balances; industry production capacities and operating rates; uncertainties associated with the U.S. and worldwide economies; legal, tax and environmental proceedings; cyclical nature of the chemical and refining industries; operating interruptions; current and potential governmental regulatory actions; terrorist acts; international political unrest; competitive products and pricing; technological developments; risks of doing business outside of the United States; access to capital markets; and other risk factors. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in our financial reports, which are available at www.lyondellbasell.com/InvestorRelations.

(1) NON-GAAP MEASURES

This release makes reference to certain "non-GAAP" financial measures as defined in Regulation G of the U.S. Securities Exchange Act of 1934, as amended.  We report our financial results in accordance with U.S. generally accepted accounting principles, but believe that certain non-GAAP financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of the company's ongoing operations and are useful for period-over-period comparisons of such operations. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with GAAP.

As a result of the company's emergence from Chapter 11 bankruptcy and the application of fresh-start accounting, the company is reporting its second quarter financial information for a predecessor period ending on April 30, 2010, the date of emergence, and a successor period after such date in accordance with GAAP.  For purposes of this press release, we have presented "combined" results of operations for the second quarter and six months ended June 30, 2010.  The combined results for the three months ended June 30, 2010 are the sum of (i) the predecessor period of April 1, 2010 through April 30, 2010 and (ii) the successor period of May 1, 2010 through June 30, 2010.  For the six months ended June 30, 2010, the combined results are the sum of (i) the first quarter 2010 results of operations; (ii) the predecessor period of April 1, 2010 through April 30, 2010 and (ii) the successor period of May 1, 2010 through June 30, 2010.  The results of operations on the combined basis are non-GAAP because they combine two separate reporting entities.  We have included the combined financial information because we believe it gives investors a better understanding of the year-over-year and sequential quarter comparisons.

We also include certain other non-GAAP measures, such as EBITDAR and net debt.  While we believe that EBITDAR is a measure commonly used by investors, EBITDAR, as presented herein, may not be comparable to a similarly titled measure reported by other companies due to differences in the way the measure is calculated. For purposes of this release, EBITDAR means earnings before interest, taxes, depreciation, amortization and restructuring costs. EBITDAR should not be considered as an alternative to profit or operating profit for any period as an indicator of our performance, or as an alternative to operating cash flows as a measure of our liquidity.  While we also believe that net debt is a measure commonly used by investors, net debt, as presented herein, may not be comparable to a similarly titled measure reported by other companies due to differences in the way the measure is calculated. For purposes of this release, net debt means short-term debt plus current maturities of long-term debt plus long-term debt minus cash and cash equivalents.

Prior to emergence from Chapter 11, we utilized a combination of First-In, First-Out and Last-In, First-Out inventory methods for financial reporting. For purposes of evaluating segment results, management reviewed operating results using current cost, which approximates LIFO. As supplementary information, and for our segment reporting, we provide EBITDAR information on a current cost basis for periods prior to our emergence from Chapter 11. Since emergence from Chapter 11, we have utilized the LIFO inventory methodology and EBITDAR information for periods after our emergence is on a LIFO basis.  The combined financial results and measures that are disclosed in this press release, including EBITDAR, therefore use both current cost and LIFO methodologies.

Reconciliations of certain non-GAAP financial measures to their nearest comparable GAAP financial measures are provided in the financial tables at the end of this release.

This release contains time sensitive information that is accurate only as of the time hereof. Information contained in this release is unaudited and subject to change. LyondellBasell undertakes no obligation to update the information presented herein except to the extent required by law.

SOURCE LyondellBasell Industries