LyondellBasell Industries N.V. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual report, not a standalone fourth-quarter filing; fourth-quarter figures are included. The company operates globally across chemicals, polymers, refining and technology. Its five segments are O&P–Americas, O&P–EAI, Intermediates and Derivatives, Refining and Oxyfuels, and Technology.
Comparability: 2011 is a full-year Successor period, while 2010 straddles the April 30, 2010 emergence from bankruptcy and adoption of fresh-start accounting. Successor and Predecessor financial statements use different accounting bases, so year-over-year comparisons require caution.
Financial performance and position
| Metric | FY 2011 | Comparison or context |
|---|---|---|
| Revenue | $51.035 billion | Up 24% from combined 2010 revenue of $41.151 billion, principally from higher selling prices and raw-material costs. |
| Operating income | $3.998 billion | Reported combined 2010 operating income was $2.944 billion; accounting-basis differences limit comparison. |
| Operating margin | Approximately 7.8% | Calculated as reported operating income divided by revenue. |
| Net income attributable to the company | $2.147 billion | Continuing-operations diluted EPS was $3.74. FY 2011 included significant debt-prepayment charges and other unusual items. |
| Cash from operating activities | $2.869 billion | Included pension contributions, taxes, debt-prepayment costs and litigation-related payments. |
| Capital expenditures | $1.050 billion | Approximate operating cash flow less capital expenditures was $1.819 billion; this is a simple, non-GAAP calculation. |
| Cash and debt at year-end | $1.065 billion cash; $4.032 billion total debt | Net debt was approximately $2.967 billion, calculated from these reported balances. |
| Liquidity | $2.183 billion unused credit-facility availability | In addition to unrestricted cash; availability is subject to borrowing-base terms. |
| Current assets and liabilities | $11.435 billion; $5.018 billion | Inventories were $5.499 billion at year-end. |
| Dividend paid | $4.50 per share special dividend; $0.55 per share other 2011 dividends | Total cash dividends paid in 2011 were $2.893 billion. Future dividends are not assured. |
Fourth quarter and segments
- Fourth quarter: Revenue was $11.444 billion and operating income was $201 million, compared with $13.297 billion and $1.467 billion in the third quarter. The company recorded a $218 million net loss, versus $895 million net income in Q3.
- Q4 drivers: Weaker European demand, lower product margins and volumes, and a sharp fall in refining margins contributed to the decline. Q4 also included $614 million of pretax charges, including debt-prepayment costs, Berre refinery closure costs, restructuring and environmental items.
- FY segment operating income: O&P–Americas $1.857 billion; O&P–EAI $475 million; Intermediates and Derivatives $862 million; Refining and Oxyfuels $718 million; Technology $107 million. Segment revenue figures and operating results are presented on differing bases; segment reporting includes intersegment sales.
- Management attributed strong 2011 results in several businesses to favorable U.S. natural-gas-derived feedstock economics, improved margins and higher Houston refinery runs. Results weakened materially in Q4 as economic conditions deteriorated, particularly in Europe.
Changes, outlook and significant items
- Revenue rose 24% in 2011, mainly on higher average selling prices; higher sales volumes contributed a smaller share. Raw-material costs, especially crude-oil-based inputs, also increased.
- Operating income included $307 million of net charges from Berre-related costs, corporate restructuring, impairments and other items, partly offset by gains and settlements. Net income also included $443 million of pretax premiums and charges related to early debt repayments.
- The company repaid approximately $2.8 billion principal amount of notes in November 2011, issued $1.0 billion of 6% notes due 2021, and ended the year with $4.032 billion of debt. Debt prepayments reduced interest expense, but the related premiums were substantial.
- Operations at the Berre refinery in France were suspended January 4, 2012 after a sale process attracted no offers. A $136 million Q4 charge primarily reflected the estimated social-plan cost and inventory write-downs; final costs depended on consultations, and further costs were expected.
- Management forecast 2012 capital expenditures of approximately $1.458 billion. Regulatory-related capital spending was estimated at $204 million in 2012 and $210 million in 2013. The filing provides no specific earnings or revenue guidance.
- Risks include cyclical chemical and refining markets, feedstock and energy price volatility, inability to pass through cost increases, operating outages, European economic and currency exposure, environmental regulation and remediation, and substantial debt and pension obligations.
Contingencies and governance
- FCPA investigation: The company voluntarily disclosed a payment under an agreement connected with a former Kazakhstan project to the U.S. Department of Justice and was cooperating. The investigation was ongoing; potential penalties could not be estimated.
- Tax uncertainty: The IRS was examining whether U.S. anti-inversion rules apply to the company or certain intercompany transactions. The company warned that an adverse determination could materially increase taxes. Bankruptcy-related tax-attribute reductions also mean higher U.S. cash taxes than in 2009–2010 were expected.
- Environmental matters: Accrued remediation liability was $120 million. Management said additional losses were reasonably possible but could not estimate a range. Regulatory-related capital expenditures may rise if requirements tighten.
- Legal matters: A BASF dispute was settled for a $100 million payment and an $80 million unsecured claim payable from the litigation trust; bankruptcy-court approval was obtained in January 2012. An Access-affiliate indemnity and management-fee demand remained disputed, with loss not estimable.
- Pensions: Defined-benefit pension obligations exceeded plan assets by $1.079 billion at year-end. The company contributed $526 million to pension plans in 2011.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2011. The auditor issued an unqualified opinion on the Successor financial statements.
Important facts for investors to verify
- Review the full-year and quarterly statements alongside the fresh-start accounting disclosures; 2010 is not directly comparable with 2011.
- Assess whether operating performance and cash generation can withstand the Q4 margin and demand deterioration, especially in Europe and refining.
- Track Berre closure costs, the outcome of works-council consultations, and any operational or financial effects of the suspension.
- Verify debt repayment plans, facility availability and covenant headroom, and the sustainability of dividends after the $2.893 billion paid in 2011.
- Monitor the FCPA inquiry, IRS examination, Access-related claims, environmental exposure and the funding of the pension deficit.