NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
8
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 presentation 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 for the year ended December 31, 2015.
2.
|
Accounting and Reporting Changes
|
Recently Adopted Guidance
Compensation
In June 2014, the FASB issued ASU 2014-12
, Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an
Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
. Under this new guidance, entities are required to treat performance targets that affect vesting and could be achieved after the requisite service
period as a performance condition. The amendments in this ASU were effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this amendment did not have a material impact on our
Consolidated Financial Statements.
Consolidation
In February 2015, the FASB issued ASU 2015-02,
Consolidation (Topic 810): Amendments to
the Consolidation Analysis
, which amends and changes the consolidation analysis currently required under U.S. GAAP. This ASU modifies the process used to evaluate whether limited partnerships and similar entities are variable interest entities
(VIEs) or voting interest entities; affects the analysis performed by reporting entities regarding VIEs, particularly those with fee arrangements and related party relationships; and provides a scope exception for certain investment
funds. The amendments in this update were effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this amendment did not have a material impact on our Consolidated Financial
Statements.
Accounting Guidance Issued But Not Adopted as of March 31, 2016
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes the
current revenue recognition requirements in Accounting Standard Codification (ASC) 606,
Revenue Recognition.
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 the entity expects to receive in exchange for those goods or services. This ASU also requires enhanced disclosures. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date
, which deferred the original effective date for one year to annual and interim periods beginning after December 15, 2017. Retrospective and modified retrospective application is allowed. We are
currently assessing the impact of this amendment on our Consolidated Financial Statements.
Going Concern
In August 2014, the FASB issued ASU
2014-15,
Presentation of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern.
9
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Under this new guidance, management is required to perform interim and annual assessments of an entitys
ability to continue as a going concern within one year of the date the financial statements are issued (or available to be issued when applicable). Additionally, the entity must provide certain disclosures if conditions or events raise substantial
doubt about its ability to continue as a going concern. The amendments in this update are effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early adoption is permitted. The application of this amendment
is not expected to have a material impact on our Consolidated Financial Statements.
Inventories
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory.
Under this new guidance, entities that measure inventory using any method other than last-in, first-out or the retail inventory method will be required to measure
inventory at the lower of cost and net realizable value. The amendments in this ASU, which should be applied prospectively, are effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The
application of this amendment is not expected to have a material impact on our Consolidated Financial Statements.
Financial Instruments
In
January 2016, the FASB issued ASU 2016-01,
Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The new guidance in this ASU 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. Prospective application of this
ASU is required for public entities for annual and interim periods beginning on or after December 15, 2017. We are currently assessing the impact of this new guidance on our Consolidated Financial Statements.
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
creating Topic 842 which supersedes the existing guidance for
lease accounting in ASC 840,
Leases
. Under the new guidance, for leases with a term longer than 12 months a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a
right-of-use asset representing its 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. This ASU also requires enhanced disclosures. A modified retrospective transition approach is required for annual and interim periods beginning on or after December 15, 2018. Early adoption is permitted. We
are currently assessing the impact of this new guidance on our Consolidated Financial Statements.
Derivatives and Hedging
In March 2016, the
FASB issued ASU 2016-06,
Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments
. The ASU clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the
debt host, an entity is required to apply only the four-step decision sequence as described in the amended guidance. The ASU is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is
permitted. We are currently assessing the impact of the amended guidance on our Consolidated Financial Statements.
Investments
In March 2016,
the FASB issued ASU 2016-07,
InvestmentsEquity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
. This ASU simplifies the recognition and reporting requirements for investments that
become qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this ASU are effective for all entities for annual and interim periods beginning after
December 15, 2016. Prospective application is required to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. We are currently assessing the impact
of the amendments in this guidance on our Consolidated Financial Statements.
Compensation
In March 2016, the FASB issued ASU 2016-09,
CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This ASU simplifies several aspects of the
10
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. The amendments in this ASU are effective for public entities for annual and interim periods beginning after December 15, 2016. Various transition methods are prescribed depending on the aspect of accounting impacted by the amended
guidance. Early adoption is permitted. We are currently assessing the impact of the amendments in this guidance on our Consolidated Financial Statements.
Our allowance for doubtful accounts receivable, which is reflected in the
Consolidated Balance Sheets as a reduction of accounts receivable, totaled $18 million and $24 million at March 31, 2016 and December 31, 2015, respectively.
Inventories consisted of the following components:
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Finished goods
|
|
$
|
2,753
|
|
|
$
|
2,668
|
|
Work-in-process
|
|
|
138
|
|
|
|
148
|
|
Raw materials and supplies
|
|
|
1,087
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
3,978
|
|
|
$
|
4,051
|
|
|
|
|
|
|
|
|
|
|
For information related to lower of cost or market inventory valuation adjustments recognized during the first quarter of
2016, see Note 13.
11
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Long-term loans, notes and other long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Senior Notes due 2019, $2,000 million, 5.0% ($14 million of debt issuance cost)
|
|
$
|
1,963
|
|
|
$
|
1,943
|
|
Senior Notes due 2021, $1,000 million, 6.0% ($10 million of debt issuance cost)
|
|
|
990
|
|
|
|
989
|
|
Senior Notes due 2024, $1,000 million, 5.75% ($10 million of debt issuance cost)
|
|
|
990
|
|
|
|
990
|
|
Senior Notes due 2055, $1,000 million, 4.625% ($16 million of discount; $12 million of debt
issuance cost)
|
|
|
972
|
|
|
|
972
|
|
Guaranteed Notes due 2044, $1,000 million, 4.875% ($11 million of discount; $10 million of debt
issuance cost)
|
|
|
979
|
|
|
|
979
|
|
Guaranteed Notes due 2043, $750 million, 5.25% ($22 million of discount; $7 million of debt
issuance cost)
|
|
|
721
|
|
|
|
721
|
|
Guaranteed Notes due 2023, $750 million, 4.0% ($8 million of discount; $4 million of debt issuance
cost)
|
|
|
738
|
|
|
|
737
|
|
Guaranteed Notes due 2027, $300 million, 8.1%
|
|
|
300
|
|
|
|
300
|
|
Guaranteed Notes due 2022, 750 million, 1.875% ($3 million of discount; $4 million of
debt issuance cost)
|
|
|
846
|
|
|
|
|
|
Other
|
|
|
9
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,508
|
|
|
|
7,675
|
|
Less current maturities
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
8,504
|
|
|
$
|
7,671
|
|
|
|
|
|
|
|
|
|
|
Our 5% senior notes due 2019 include losses of $19 million and $9 million for the three months ended March 31, 2016 and
2015, respectively, and gains of $35 million for the year ended December 31, 2015, related to adjustments for our fixed-for-floating interest rate swaps, which are recognized in Interest expense in the Consolidated Statements of Income. Since
inception in 2014, we have recognized net gains of $23 million related to adjustments for these fixed-for-floating interest rate swaps.
Short-term loans,
notes, and other short-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
$2,000 million Senior Revolving Credit Facility
|
|
$
|
|
|
|
$
|
|
|
$900 million U.S. Receivables Securitization Facility
|
|
|
|
|
|
|
|
|
450 million European Receivables Securitization Facility
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
500
|
|
|
|
323
|
|
Financial payables to equity investees
|
|
|
4
|
|
|
|
4
|
|
Precious metal financings
|
|
|
90
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
$
|
594
|
|
|
$
|
353
|
|
|
|
|
|
|
|
|
|
|
12
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Long-Term Debt
Guaranteed Notes due 2022
In March 2016, 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 750 million of 1.875% guaranteed notes due 2022 at a discounted price of 99.607%.
These unsecured notes, which are fully and unconditionally guaranteed by LyondellBasell Industries N.V., rank equally in right of payment to all of LYB
Finance IIs existing and future unsecured indebtedness and to all of LyondellBasell N.V.s existing and future unsubordinated indebtedness. There are no significant restrictions that would impede the Guarantor from obtaining funds by
dividend or loan from its subsidiaries.
The indenture governing these notes contains limited covenants, including those restricting our ability and the
ability of our subsidiaries to incur indebtedness secured by significant property or by capital stock of subsidiaries that own significant property, enter into certain sale and lease-back transactions with respect to any significant property or
enter into consolidations, mergers or sales of all or substantially all of our assets.
The notes may be redeemed before the date that is three months
prior to the scheduled maturity date at a redemption price equal to the greater of 100% of the principal amount of the notes redeemed and the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the
applicable Comparable Government Bond Rate plus 35 basis points) on the notes to be redeemed. The notes may also be redeemed on or after the date that is three months prior to the final maturity date of the notes at a redemption price equal to 100%
of the principal amount of the notes redeemed plus accrued and unpaid interest. The notes are also redeemable upon certain tax events.
Short-Term Debt
Senior Revolving Credit Facility
Our revolving credit facility, which expires in June 2020, may be used for dollar and euro denominated
borrowings, has a $500 million sublimit for dollar and euro denominated letters of credit, and supports our commercial paper program. The aggregate balance of outstanding borrowings and letters of credit under this facility may not exceed $2,000
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 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 March 31, 2016. At March 31, 2016, we had $500 million of
outstanding commercial paper, no outstanding letters of credit and no outstanding borrowings under this facility.
Commercial Paper Program
We
have a commercial paper program under which we may issue up to $2,000 million of privately placed, unsecured, short-term promissory notes (commercial paper). This program is backed by our $2,000 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
Securitization Facility
Our $900 million U.S. accounts receivable securitization facility, which expires in 2018, 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
13
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
of liquidation, the bankruptcy-remote subsidiarys 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 securitization facility may be extended in accordance with the terms of the
agreement. At March 31, 2016, there were no borrowings or letters of credit outstanding under the facility.
European Receivables Securitization
Facility
Our 450 million European receivables securitization facility expired in April 2016. Under the terms of the agreement availability under the facility ceased following notification on March 15, 2016 of our intent not
to extend the facility. There were no borrowings outstanding under this facility at March 31, 2016.
Other
At March 31, 2016
and December 31, 2015, our weighted average interest rate on outstanding short-term debt was 0.7%.
Debt Discount and Issuance Costs
Amortization of debt discounts and debt issuance costs resulted in amortization expense of $4 million in each of the three months ended March 31,
2016 and 2015, which is included in Interest expense in the Consolidated Statements of Income.
Cash Concentration
Our cash equivalents are placed in high-quality
commercial paper, money market funds and time deposits with major international banks and financial institutions.
Market Risks
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.
Derivative instruments are recorded at fair value on the balance sheet. Gains and losses related to changes in the fair value of derivative instruments not designated as hedges are recorded in earnings. For derivatives that have been designated as
fair value hedges, the gains and losses of the derivatives and hedged instruments are recorded in earnings. For derivatives designated as cash flow and net investment hedges, the effective portion of the gains and losses is recorded through Other
comprehensive income (loss). The ineffective portion of cash flow and net investment hedges is recorded in earnings.
Marketable
Securities
We invest cash in investment-grade securities for periods generally not exceeding two years. Investments in securities with original maturities of three months or less are classified as Cash and cash equivalents. At
March 31, 2016 and December 31, 2015, we had marketable securities classified as Cash and cash equivalents of $580 million and $575 million, respectively.
We also have investments in marketable securities classified as available-for-sale. These securities, which are included in Short-term investments on the
Consolidated Balance Sheets, are carried at estimated fair value with unrealized gains and losses recorded as a component of Accumulated other comprehensive income (AOCI). We periodically review our available-for-sale securities for
other-than-temporary declines in fair value below the cost basis, and when events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the investment is written down to fair value, establishing a new cost
basis.
Repurchase Agreements
We invest in tri-party repurchase agreements. Under these agreements, we make cash purchases of securities
according to a pre-agreed profile from our counterparties. The counterparties have an obligation to repurchase, and we have an obligation to sell, the same or substantially the same securities at a pre-defined date for a price equal to the purchase
price plus interest. These securities, which pursuant to our policy are held by a third-party custodian and must generally have a minimum collateral value of 102%, secure the
14
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
counterpartys obligation to repurchase the securities. Depending upon maturity, these tri-party repurchase agreements are treated as short-term loans receivable and are reflected in Prepaid
expenses and other current assets or as long-term loans receivable reflected in Other investments and long-term receivables on our Consolidated Balance Sheets. The balance of our investment at March 31, 2016 and December 31, 2015 was $302
million and $387 million, respectively.
Commodity Prices
We are exposed to commodity price volatility related to anticipated purchases of
natural gas liquids, crude oil and other raw materials and sales of our products. We selectively use over-the counter commodity swaps, options and exchange traded futures contracts with various terms to manage the volatility related to these risks.
In addition, we are exposed to volatility on the prices of precious metals to the extent that we have obligations, classified as embedded derivatives, tied to the price of precious metals associated with secured borrowings. All aforementioned
contracts are generally limited to durations of one year or less. At March 31, 2016, commodity futures contracts in the notional amount of $52 million, maturing from May 2016 to October 2016, were outstanding.
Foreign Currency Rates
We have significant worldwide operations. The functional currencies of our consolidated subsidiaries through which we
operate are primarily the U.S. dollar and the euro. We enter into transactions denominated in currencies other than our designated functional currencies. As a result, we are exposed to foreign currency risk on receivables and payables. We maintain
risk management control policies intended to monitor foreign currency risk attributable to our outstanding foreign currency balances. These control policies involve the centralization of foreign currency exposure management, the offsetting of
exposures and the estimating of expected impacts of changes in foreign currency rates on our earnings. We enter into foreign currency forward contracts to reduce the effects of our net currency exchange exposures. At March 31, 2016, foreign
currency forward contracts in the notional amount of $32 million, maturing from April 2016 through June 2016, were outstanding.
For forward
contracts that economically hedge recognized monetary assets and liabilities in foreign currencies and that are not designated as net investment hedges, no hedge accounting is applied. Changes in the fair value of foreign currency forward contracts,
which are reported in the Consolidated Statements of Income, are offset in part by the currency translation results recognized on the assets and liabilities.
Foreign Currency Gain (Loss)
Other income, net, in the Consolidated Statements of Income reflected a loss of $3 million and a gain of $8 million
for the three months ended March 31, 2016 and 2015, respectively.
Basis Swaps
In 2015, we entered into cross-currency
floating-to-floating interest rate swaps (basis swaps) to reduce the volatility in stockholders equity resulting from changes in currency exchange rates of our foreign subsidiaries with respect to the U.S. dollar. Under the terms
of these contracts, which have been designated as net investment hedges, we will make interest payments in euros at 3 Month EURIBOR plus basis and will receive interest in U.S. dollars at 3 Month LIBOR. Upon the maturities of these contracts, we
will pay the principal amount in euros and receive U.S. dollars from our counterparties.
We use the long-haul method to assess hedge effectiveness using
a regression analysis approach under the hypothetical derivative method. We perform the regression analysis of our basis swap contracts at least on a quarterly basis over an observation period of three years, utilizing data that is relevant to the
hedge duration. We use the forward method to measure ineffectiveness.
The effective portion of the unrealized gains and losses on these basis swap
contracts is reported within Foreign currency translation adjustments in Accumulated other comprehensive loss and reclassified to earnings only when realized upon the sale or upon complete or substantially complete liquidation of the investment in
the foreign entity. Cash flows from basis swaps are reported in Cash flows from investing activities in the Consolidated Statement of Cash Flows.
15
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
There was no ineffectiveness recorded during the three months ended March 31, 2016.
The following table summarizes the notional and fair value of our basis swaps outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Millions of dollars
|
|
Notional Value
|
|
|
Fair Value
Liabilities
|
|
|
Notional Value
|
|
|
Fair Value
Assets
|
|
Basis swaps expiring in 2016
|
|
$
|
500
|
|
|
$
|
(12
|
)
|
|
$
|
500
|
|
|
$
|
10
|
|
Basis swaps expiring in 2017
|
|
|
305
|
|
|
|
(8
|
)
|
|
|
305
|
|
|
|
6
|
|
Basis swaps expiring in 2018
|
|
|
139
|
|
|
|
(4
|
)
|
|
|
139
|
|
|
|
2
|
|
Forward Exchange Contracts
In 2015, we entered into forward exchange contracts with an aggregate notional value of
750 million ($795 million) to mitigate the risk associated with the fluctuations in the Euro to U.S. Dollar exchange rate related to our investments in foreign subsidiaries.
These forward exchange contracts, which were designated as net investment hedges, expired on March 31, 2016. Upon settlement of these contracts, we paid
750 million ($850 million at the expiry spot rate) to our counterparties and received $795 million from our counterparties. The $55 million difference, which includes a $30 million loss in the first quarter of 2016, is reflected within
foreign currency translation adjustments in Accumulated other comprehensive loss. Cash flows from these forward exchange contracts are reported in Cash flows from investing activities in the Consolidated Statement of Cash Flows.
There was no ineffectiveness recorded for this hedging relationship during the three months ended March 31, 2016.
Guaranteed Euro Notes Due 2022
In March 2016, we issued euro denominated notes payable due 2022 (Euro notes) with notional
amounts totaling 750 million. To mitigate the risk to our investments in foreign subsidiaries associated with fluctuations in the euro to U.S. Dollar exchange rate, we designated these Euro notes as a net investment hedge.
We use the critical terms match to assess both prospective and retrospective hedge effectivenessby comparing the spot rate change in the Euro notes and the
spot rate change in the designated net investment. We use the hypothetical derivative method to measure hedge ineffectiveness.
The effective portion of
the gain or loss is recorded within foreign currency translation adjustments in Accumulated other comprehensive loss and will be reclassified to earnings only when realized upon the sale of or the complete or substantially complete liquidation of
the investment in the foreign entity. In periods where the hedging relationship is deemed ineffective, changes in remeasurement of the Euro notes due to changes in the spot exchange rate will be recorded directly to Other income, net in the
Consolidated Statements of Income. Cash flows related to our Euro notes are reported in Cash flows from financing activities and related interest payments are reported in Cash flows from operating activities in the Consolidated Statement of Cash
Flows.
There was no ineffectiveness recorded for this hedging relationship in the three months ended March 31, 2016.
Cross-Currency Swaps
We have cross-currency swap contracts that reduce our exposure to the foreign currency exchange risk associated with certain
intercompany loans. Under the terms of these contracts, which have been designated as cash flow hedges, we will make interest payments in euros and receive interest in U.S. dollars. Upon the maturities of these contracts, we will pay the principal
amount of the loans in euros and receive U.S. dollars from our counterparties.
16
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
We use the long-haul method to assess hedge effectiveness using a regression analysis approach under the
hypothetical derivative method. We perform the regression analysis over an observation period of three years, utilizing data that is relevant to the hedge duration. We use the dollar offset method under the hypothetical derivative method to measure
ineffectiveness.
The effective portion of the unrealized gains and losses on these cross-currency swap contracts is reported in Accumulated other
comprehensive loss and reclassified to earnings over the period that the hedged intercompany loans affect earnings based on changes in spot rates. The ineffective portion of the unrealized gains and losses is recorded directly to Other income, net
in the Consolidated Statements of Income. In addition, the swaps are marked-to-market each reporting period with the euro notional values measured based on the current foreign exchange spot rate.
There was no ineffectiveness recorded during each of the three months ended March 31, 2016 and 2015.
The following table summarizes our cross-currency swaps outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Millions of dollars, except expiration date and rates
|
|
Expiration
Date
|
|
Average
Interest Rate
|
|
|
Notional
Value
|
|
|
Fair
Value
|
|
|
Notional
Value
|
|
|
Fair
Value
|
|
Pay Euro
|
|
2021
|
|
|
4.55
|
%
|
|
$
|
1,000
|
|
|
$
|
104
|
|
|
$
|
1,000
|
|
|
$
|
141
|
|
Receive U.S. dollars
|
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Euro
|
|
2024
|
|
|
4.37
|
%
|
|
|
1,000
|
|
|
|
103
|
|
|
|
1,000
|
|
|
|
145
|
|
Receive U.S. dollars
|
|
|
|
|
5.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Euro
|
|
2027
|
|
|
3.69
|
%
|
|
|
300
|
|
|
|
(6
|
)
|
|
|
300
|
|
|
|
14
|
|
Receive U.S. dollars
|
|
|
|
|
5.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Starting Interest Rate Swaps
In March 2015, we entered into forward-starting interest rate swaps to
mitigate the risk of adverse changes in the benchmark interest rates on the anticipated refinancing of our senior notes due 2019. These interest rate swaps will be terminated upon debt issuance. The total notional amount of these forward-starting
interest rate swaps was $1,000 million at March 31, 2016. The ineffectiveness recorded for this hedging relationship was less than $1 million in the three months ended March 31, 2016. There was no ineffectiveness recorded for this hedging
relationship in the three months ended March 31, 2015.
In January 2015, we entered into forward-starting interest rate swaps with a total notional
value of $750 million to mitigate the risk of adverse changes in the benchmark interest rates on the Companys planned issuance of fixed-rate debt in 2015. These forward-starting interest rate swaps were terminated upon issuance of the $1,000
million senior notes due 2055 in March 2015. The ineffectiveness recorded for this hedging relationship was less than $1 million during the three months ended March 31, 2015.
We have elected to designate these forward-starting interest rate swaps as cash flow hedges. The effective portion of the gain or loss is recorded in
Accumulated other comprehensive loss. In periods where the hedging relationship is deemed ineffective, changes in the fair value will be recorded as Interest expense in the Consolidated Statements of Income.
We use a regression analysis approach under the hypothetical derivative method to assess both prospective and retrospective hedge effectiveness. We use the
dollar-offset method under the hypothetical derivative method to measure hedge ineffectiveness.
17
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
There was no settlement of our forward-starting swap agreements during the three months ended March 31,
2016. We recognized a gain of $15 million in Accumulated other comprehensive loss related to the settlement of our forward-starting interest rate swap agreements during the three months ended March 31, 2015. The related deferred gains and
losses recognized in Accumulated other comprehensive loss are amortized to interest expense over the original term of the related swaps using the effective interest method.
As of March 31, 2016, less than $1 million (on a pretax basis) is scheduled to be reclassified as an increase to interest expense over the next
twelve months.
Fixed-for-Floating Interest Rate Swaps
We have U.S. dollar fixed-for-floating interest rate swaps with third party financial
institutions to mitigate changes in the fair value of our $2,000 million 5% senior notes due 2019 associated with the risk of variability in the 3 Month USD LIBOR rate (the benchmark interest rate). These interest rate swaps are used as part of our
current interest rate risk management strategy to achieve a desired proportion of variable versus fixed rate debt.
Under these arrangements, we exchange
fixed-rate for floating-rate interest payments to effectively convert our fixed-rate debt to floating rate-debt. The fixed and variable cash payments related to the interest rate swaps are net settled semi-annually and classified as Other, net, in
the Cash flows from operating activities section of the Consolidated Statements of Cash Flows.
We have elected to designate these fixed-for-floating
interest rate swaps as fair value hedges. We use the long-haul method to assess hedge effectiveness using a regression analysis approach. We perform the regression analysis over an observation period of three years, utilizing data that is relevant
to the hedge duration. We use the dollar offset method to measure ineffectiveness.
Changes in the fair value of the derivatives and changes in the value
of the hedged items based on changes in the benchmark interest rate are recorded as Interest expense in our Consolidated Statements of Income. We evaluate the effectiveness of the hedging relationship periodically and calculate the changes in the
fair value of the derivatives and the underlying hedged items separately. We recognized net gains of $9 million and $11 million for the three months ended March 31, 2016 and 2015, respectively, related to the ineffectiveness of our hedging
relationships.
At March 31, 2016, we had outstanding interest rate swap agreements with notional amounts of $2,000 million, maturing on
April 15, 2019.
Available-for-Sale Securities
The following table summarizes the amortized cost, gross unrealized gains and losses, and
fair value of available-for-sale securities measured on a recurring basis that are outstanding as of March 31, 2016 and December 31, 2015. Refer to Note 7 for additional information regarding the fair value of available-for-sale
securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Millions of dollars
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Commercial paper
|
|
$
|
656
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
656
|
|
Bonds
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
Certificates of deposit
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
249
|
|
Limited partnership investments
|
|
|
350
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
1,343
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Millions of dollars
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Commercial paper
|
|
$
|
329
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
329
|
|
Bonds
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
Certificates of deposit
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
Limited partnership investments
|
|
|
350
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
1,069
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our limited partnership investments 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, which include both long and short positions, may be redeemed at least monthly with advance notice
ranging up to ninety days. The fair value of these funds is estimated using the net asset value (NAV) per share of the respective pooled fund investment.
No losses related to other-than-temporary impairments of our available-for-sale investments have been recorded in Accumulated other comprehensive loss during
the three months ended March 31, 2016 and the year ended December 31, 2015.
As of March 31, 2016, the commercial paper securities held by
the Company had maturities between two and twelve months, bonds had maturities between five and eighteen months, certificates of deposit mature between ten and twenty four months,; and limited partnership investments mature between one and three
months.
The proceeds from maturities and sales of our available-for-sale securities during the three months ended March 31, 2016 and 2015 are
summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Millions of dollars
|
|
2016
|
|
|
2015
|
|
Proceeds from maturities of securities
|
|
$
|
240
|
|
|
$
|
265
|
|
Proceeds from sales of securities
|
|
|
|
|
|
|
172
|
|
No gain or loss was realized in connection with the sales of securities during the three months ended March 31, 2016. We
recognized realized a gain of less than $1 million in connection with the sale of securities during the three months ended 2015.
The specific
identification method was used to identify the cost of the securities sold and the amounts reclassified out of Accumulated other comprehensive income into earnings.
19
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 securities
that were in a continuous unrealized loss position for less than and greater than twelve months as of March 31, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Less than 12 months
|
|
|
Greater than 12 months
|
|
Millions of dollars
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Commercial paper
|
|
$
|
136
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Bonds
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
Limited partnership investments
|
|
|
339
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
483
|
|
|
$
|
(11
|
)
|
|
$
|
10
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Less than 12 months
|
|
|
Greater than 12 months
|
|
Millions of dollars
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Bonds
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
35
|
|
|
$
|
|
|
Certificates of deposit
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnership investments
|
|
|
345
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
541
|
|
|
$
|
(5
|
)
|
|
$
|
35
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Financial Instruments
The following table summarizes financial instruments outstanding as of
March 31, 2016 and December 31, 2015 that are measured at fair value on a recurring basis. Refer to Note 7 for additional information regarding the fair value of financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Millions of dollars
|
|
Balance Sheet
Classification
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis swaps
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
500
|
|
|
$
|
10
|
|
Basis swaps
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
444
|
|
|
|
8
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Other assets
|
|
|
2,000
|
|
|
|
191
|
|
|
|
2,300
|
|
|
|
291
|
|
Cross-currency swaps
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
9
|
|
Forward-starting interest rate swaps
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
8
|
|
|
|
|
|
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-for-floating interest rate swaps
|
|
Other assets
|
|
|
2,000
|
|
|
|
47
|
|
|
|
2,000
|
|
|
|
19
|
|
Fixed-for-floating interest rate swaps
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
Prepaid expenses and other current assets
|
|
|
49
|
|
|
|
10
|
|
|
|
73
|
|
|
|
8
|
|
Embedded derivatives
|
|
Prepaid expenses and other current assets
|
|
|
26
|
|
|
|
2
|
|
|
|
42
|
|
|
|
4
|
|
Foreign currency
|
|
Prepaid expenses and other current assets
|
|
|
10
|
|
|
|
|
|
|
|
105
|
|
|
|
1
|
|
|
|
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
Short-term investments
|
|
|
1,340
|
|
|
|
1,332
|
|
|
|
1,073
|
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,425
|
|
|
$
|
1,610
|
|
|
$
|
7,137
|
|
|
$
|
1,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Millions of dollars
|
|
Balance Sheet
Classification
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis swaps
|
|
Accrued liabilities
|
|
$
|
500
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Other liabilities
|
|
|
444
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
795
|
|
|
|
24
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Other liabilities
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Forward-starting interest rate swaps
|
|
Other liabilities
|
|
|
1,000
|
|
|
|
86
|
|
|
|
400
|
|
|
|
6
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
Accrued liabilities
|
|
|
3
|
|
|
|
|
|
|
|
67
|
|
|
|
2
|
|
Embedded derivatives
|
|
Accrued liabilities
|
|
|
64
|
|
|
|
6
|
|
|
|
21
|
|
|
|
|
|
Foreign currency
|
|
Accrued liabilities
|
|
|
22
|
|
|
|
|
|
|
|
75
|
|
|
|
3
|
|
|
|
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share awards
|
|
Accrued liabilities
|
|
|
12
|
|
|
|
12
|
|
|
|
23
|
|
|
|
23
|
|
Performance share awards
|
|
Other liabilities
|
|
|
10
|
|
|
|
10
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,355
|
|
|
$
|
145
|
|
|
$
|
1,398
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes the pretax effect of derivative instruments charged directly to income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Financial Instruments
|
|
|
Three Months Ended March 31, 2016
|
Millions of dollars
|
|
Gain (Loss)
Recognized
in AOCI
|
|
|
Gain (Loss)
Reclassified
from AOCI
to Income
|
|
|
Additional
Gain (Loss)
Recognized
in Income
|
|
|
Income Statement
Classification
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis swaps
|
|
$
|
(40
|
)
|
|
$
|
|
|
|
$
|
|
|
|
Other income, net
|
Forward exchange contracts
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
Derivatives designated as cash-flow hedges:
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
(106
|
)
|
|
|
90
|
|
|
|
|
|
|
Other income, net
|
Forward-starting interest rate swaps
|
|
|
(88
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
Interest expense
|
|
|
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
Fixed-for-floating interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
Interest expense
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
Commodities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
Sales and other operating revenues
|
Commodities
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
Cost of sales
|
Embedded derivatives
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
Cost of sales
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
Other income, net
|
|
|
|
Non-derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
Euro notes payable
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(268
|
)
|
|
$
|
90
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
Millions of dollars
|
|
Gain (Loss)
Recognized
in AOCI
|
|
|
Gain (Loss)
Reclassified
from AOCI
to Income
|
|
|
Additional
Gain (Loss)
Recognized
in Income
|
|
|
Income Statement
Classification
|
Derivatives designated as cash-flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
$
|
267
|
|
|
$
|
(220
|
)
|
|
$
|
|
|
|
Other income, net
|
Forward-starting interest rate swaps
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-for-floating interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
Interest expense
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
Sales and other operating revenues
|
Commodities
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
Cost of sales
|
Embedded derivatives
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
Cost of sales
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
(78
|
)
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
252
|
|
|
$
|
(220
|
)
|
|
$
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pretax effect of additional gain recognized in income for the fixed-for-floating interest rate swaps includes the net
value for accrued interest of $6 million and $8 million for the three months ended March 31, 2016 and 2015, respectively.
24
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
7.
|
Fair Value Measurement
|
The following table presents the financial instruments outstanding as of
March 31, 2016 and December 31, 2015 that are measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Millions of dollars
|
|
Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis swaps
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
Cross-currency swaps
|
|
|
207
|
|
|
|
|
|
|
|
207
|
|
|
|
|
|
Fixed-for-floating interest rate swaps
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
Commodities
|
|
|
10
|
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
Embedded derivatives
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
993
|
|
|
|
|
|
|
|
993
|
|
|
|
|
|
Available-for-sale securities measured at net assets value*
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,610
|
|
|
$
|
7
|
|
|
$
|
1,264
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis swaps
|
|
$
|
25
|
|
|
$
|
|
|
|
$
|
25
|
|
|
$
|
|
|
Cross-currency swaps
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Forward-starting interest rate swaps
|
|
|
86
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
Embedded derivatives
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share awards
|
|
|
22
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
145
|
|
|
$
|
22
|
|
|
$
|
123
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Millions of dollars
|
|
Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis swaps
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
|
|
Cross-currency swaps
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
Forward-starting interest rate swaps
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Fixed-for-floating interest rate swaps
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
Commodities
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Foreign currency
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
719
|
|
|
|
|
|
|
|
719
|
|
|
|
|
|
Available-for-sale securities measured at net assets value*
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,428
|
|
|
$
|
8
|
|
|
$
|
1,075
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
|
|
Forward-starting interest rate swaps
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Commodities
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Foreign currency
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share awards
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75
|
|
|
$
|
40
|
|
|
$
|
35
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
In accordance with Fair Measurement Topic 820, Subtopic 10, certain investments measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair
value hierarchy. The amounts presented in this table are intended to facilitate reconciliation to the Consolidated Balance Sheets.
|
There
were no transfers between Level 1 and Level 2 during the three months ended March 31, 2016 and the year ended December 31, 2015.
26
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 March 31, 2016 and December 31, 2015. 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 and fair values of short-term and long-term debt exclude capital leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Millions of dollars
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans receivable
|
|
$
|
302
|
|
|
$
|
302
|
|
|
$
|
|
|
|
$
|
302
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
90
|
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
94
|
|
|
$
|
|
|
Long-term debt
|
|
|
8,503
|
|
|
|
9,172
|
|
|
|
|
|
|
|
9,169
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,593
|
|
|
$
|
9,266
|
|
|
$
|
|
|
|
$
|
9,263
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Millions of dollars
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans receivable
|
|
$
|
289
|
|
|
$
|
289
|
|
|
$
|
|
|
|
$
|
289
|
|
|
$
|
|
|
Long-term loans receivable
|
|
|
98
|
|
|
|
98
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
387
|
|
|
$
|
387
|
|
|
$
|
|
|
|
$
|
387
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
26
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
|
|
Long-term debt
|
|
|
7,671
|
|
|
|
8,034
|
|
|
|
|
|
|
|
8,032
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,697
|
|
|
$
|
8,057
|
|
|
$
|
|
|
|
$
|
8,055
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of all non-derivative financial instruments included in Current assets, including Cash and cash equivalents,
Restricted cash and Accounts receivable, and Current liabilities, including Short-term debt excluding precious metal financings, and Accounts payable, approximates the applicable carrying value due to the short maturity of those instruments.
We use the following inputs and valuation techniques to estimate the fair value of our financial instruments:
Basis Swaps
The fair value of our basis swap contracts is calculated using the present value of future cash flows discounted using observable
inputs such as known notional value amounts, yield curves, spot and forward exchange rates.
Cross-Currency Swaps
The fair value of our
cross-currency swaps is calculated using the present value of future cash flows discounted using observable inputs with the foreign currency leg revalued using published spot and future exchange rates on the valuation date.
27
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Forward-Starting Interest Rate Swaps
The fair value of our forward-starting interest rate swaps
is calculated using the present value of future cash flows method and based on observable inputs such as benchmark interest rates.
Fixed-for-Floating
Interest Rate Swaps
The fair value of our fixed-for-floating interest rate swaps is calculated using the present value of future cash flows method and based on observable inputs such as interest rates and market yield curves.
Commodity and Embedded Derivatives
The fair values of our commodity derivatives classified as Level 1 and embedded derivatives are measured using
closing market prices at the end of the reporting period obtained from the New York Mercantile Exchange and from third-party broker quotes and pricing providers.
The fair value of our commodity swaps classified as Level 2 is determined using a combination of observable and unobservable inputs. The observable inputs
consist of future market values of various crude and heavy fuel oils, which are readily available through public data sources. The unobservable input, which is the estimated discount or premium used in the market pricing, is calculated using an
internally-developed, multi-linear regression model based on the observable prices of the known components and their relationships to historical prices. A significant change in this unobservable input would not have a material impact on the fair
value measurement of our level 2 commodity swaps.
Foreign Currency Derivatives and Forward Exchange Contracts
The fair value of our foreign
currency derivatives is based on forward market rates.
Available-for-Sale Securities
Fair value is calculated using observable market data
for similar securities and broker quotes from recognized purveyors of market data or the net asset value for limited partnership investments provided by the fund administrator.
Performance Share Awards
Fair value is determined using the quoted market price of our stock.
Short-Term and Long-Term Loans Receivable
Valuations are based on discounted cash flows, which consider prevailing market rates for the respective
instrument maturity in addition to corroborative support from the minimum underlying collateral requirements.
Short-Term Debt
Fair values of
short-term borrowings related to precious metal financing arrangements are determined based on the current market price of the associated precious metal.
Long-Term Debt
Fair value is calculated using pricing data obtained from well-established and recognized vendors of market data for debt
valuations.
28
LYONDELLBASELL INDUSTRIES N.V.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Millions of dollars
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
Service cost
|
|
$
|
11
|
|
|
$
|
8
|
|
|
$
|
11
|
|
|
$
|
9
|
|
Interest cost
|
|
|
22
|
|
|
|
8
|
|
|
|
21
|
|
|
|
9
|
|
Expected return on plan assets
|
|
|
(35
|
)
|
|
|
(6
|
)
|
|
|
(36
|
)
|
|
|
(6
|
)
|
Actuarial and investment loss amortization
|
|
|
5
|
|
|
|
2
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit costs (credits)
|
|
$
|
3
|
|
|
$
|
12
|
|
|
$
|
(1
|
)
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic other postretirement benefits included the following cost components for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Millions of dollars
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
Interest cost
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
Actuarial loss amortization
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total net periodic cost of our pension and other postretirement benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Millions of dollars
|
|
2016
|
|
|
2015
|
|
Pension plans
|
|
$
|
15
|
|
|
$
|
13
|
|
Other postretirement benefit plans
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
21
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
Our effective income tax rate for the first quarter of 2016 was 29.5% compared with 27.4%
for the first quarter of 2015. Our effective tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, the U.S. domestic production activity deduction, changes in valuation allowances
and changes in unrecognized tax benefits associated with uncertain tax positions.
Compared with the first quarter of 2015, the higher effective tax rate
for the first quarter of 2016 was primarily attributable to adjustments to our deferred tax liabilities, an increase in foreign exchange gains, partially offset by release of our valuation allowance in Spain. We released the valuation allowance
related to Spanish net deferred tax assets associated with operating losses as the Spanish operations are now in a three-year cumulative income position, and based on current projections, management now expects the operating losses will be fully
utilized
29
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
within the next three years. Other items which had an impact to the effective tax rate included changes in pretax income in countries with varying statutory tax rates, increased exempt income, a
reduced U.S. domestic production activity deduction and changes in uncertain tax positions.
A portion of the Companys interest income from internal
financing is either untaxed or taxed at rates substantially lower than the U.S. statutory rate. This treatment may be prospectively impacted by potential changes in the law, including adoption of certain proposals for base erosion and profit
shifting.
We monitor income tax legislative developments in countries where we conduct business. Management does not believe that recent changes in
income tax laws will have a material impact on our Consolidated Financial Statements, although new or proposed changes to tax laws could affect our tax liabilities in the future.
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 $106 million as of March 31, 2016 and December 31, 2015. At March 31, 2016, the accrued liabilities for individual sites range from less than $1 million to $20 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 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Millions of dollars
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
106
|
|
|
$
|
106
|
|
Changes in estimates
|
|
|
(1
|
)
|
|
|
|
|
Amounts paid
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Foreign exchange effects
|
|
|
3
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
106
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
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 attorneys fees and expenses, arising out of 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
30
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Weisfelner
lawsuit, the plaintiffs seek to recover from Access the return of all amounts earned by the Access Entities related to their purchase of shares of 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 trial that was scheduled for October 2011 has been postponed.
The Access Entities have also demanded $100 million in management fees under a 2007 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 thousand for amounts allegedly owed under the 2007 management agreement. In April 2011, Lyondell Chemical filed an objection to the claim and brought a declaratory judgment action for a
determination that the demands are not valid. The declaratory judgment action is stayed pending the outcome of the
Weisfelner
lawsuit.
We do not
believe that the 2007 management agreement is in effect or that the Company or any Company-affiliated entity owes any obligations under the management agreement, including for management fees or for indemnification. We intend to vigorously defend
our position in any proceedings and against any claims or demands that may be asserted.
We cannot at this time estimate the reasonably possible loss or
range of loss that may be incurred in the
Weisfelner
lawsuit; therefore, we cannot estimate the loss that may be sought by way of indemnity.
409A Matter
Certain of the Companys current and former executives are being audited by the Internal Revenue Service for the 2012 tax year.
The IRS has issued proposed assessments of additional taxes to these individuals for wages and penalties under Section 409A of the Internal Revenue Code. The IRS has argued that stock options awarded to the individuals in 2010 in connection
with the Companys emergence from bankruptcy should not have used the exercise price set under the bankruptcy court approved plan of reorganization but instead should have used an exercise price based on pre-emergence trading by parties not
controlled by the Company. If the individuals are unsuccessful in their defenses against these audits, or any audits for subsequent tax years, the Company believes it is reasonably possible that it may be liable to the individual executive taxpayers
for the additional amounts they may owe to the IRS as a result of the stock options allegedly not meeting the exemption from Section 409A. Any amount that may be owed by the Company is dependent on the ultimate resolution of the IRS audits, but
the Company believes that such amount could range from no liability to up to $165 million. The Company intends to vigorously defend its compensation practices.
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 arrangements typically include provisions pertaining to third party claims relating to environmental and tax matters and various types of
litigation. As of March 31, 2016, 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.
31
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Dividend Distributions
On March 14, 2016, we paid a cash
dividend of $0.78 per share for an aggregate of $336 million to shareholders of record on February 29, 2016.
Share Repurchase
Programs
During the second quarter of 2015, we completed the repurchase of shares under the share repurchase program authorized by our shareholders in April 2014 (April 2014 Share Repurchase Program). We were authorized to
purchase up to 10% of our outstanding shares under this program. In May 2015, our shareholders approved a proposal to authorize us to repurchase up to an additional 10% of our outstanding ordinary shares through November 2016 (May 2015 Share
Repurchase Program). These repurchases, which are determined at the discretion of our Management Board, may be executed from time to time through open market or privately negotiated transactions. The repurchased shares, which are recorded at
cost, are recorded as Treasury stock and may be retired or used for general corporate purposes, including for various employee benefit and compensation plans.
During the three months ended March 31, 2016, we repurchased approximately 12.3 million shares for $968 million at an average price of $78.70 per
share, including commissions, under the May 2015 Share Repurchase Program. During the three months ended March 31, 2015, we repurchased approximately 15.7 million shares for $1,306 million at an average price of $83.18 per share, including
commissions, under the April 2014 Share Repurchase Program.
Due to the timing of settlements, total cash paid for share repurchases for the three months
ended March 31, 2016 and 2015 was $986 million and $1,359 million, respectively.
Ordinary Shares
The changes in the outstanding
amounts of ordinary shares are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Ordinary shares outstanding:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
440,150,069
|
|
|
|
486,969,402
|
|
Share-based compensation
|
|
|
284,818
|
|
|
|
4,098,673
|
|
Warrants exercised
|
|
|
|
|
|
|
954
|
|
Employee stock purchase plan
|
|
|
17,855
|
|
|
|
7,022
|
|
Purchase of ordinary shares
|
|
|
(12,294,388
|
)
|
|
|
(15,696,514
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
428,158,354
|
|
|
|
475,379,537
|
|
|
|
|
|
|
|
|
|
|
32
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Treasury Shares
The changes in the amounts of treasury shares held by the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Ordinary shares held as treasury shares:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
138,285,201
|
|
|
|
91,463,729
|
|
Share-based compensation
|
|
|
(284,818
|
)
|
|
|
(4,098,673
|
)
|
Warrants exercised
|
|
|
|
|
|
|
150
|
|
Employee stock purchase plan
|
|
|
(17,855
|
)
|
|
|
(7,022
|
)
|
Purchase of ordinary shares
|
|
|
12,294,388
|
|
|
|
15,696,514
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
150,276,916
|
|
|
|
103,054,698
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
The components of, and after-tax changes in, Accumulated other
comprehensive income (loss) as of and for the three months ended March 31, 2016 and 2015 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
Financial
Derivatives
|
|
|
Net Unrealized
Holding Gains
on Investments
Net of Tax
|
|
|
Defined
Pension
and Other
Postretirement
Benefit Plans
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Total
|
|
Balance January 1, 2016
|
|
$
|
(79
|
)
|
|
$
|
(5
|
)
|
|
$
|
(428
|
)
|
|
$
|
(926
|
)
|
|
$
|
(1,438
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(141
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
93
|
|
|
|
(54
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
90
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
(51
|
)
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
93
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2016
|
|
$
|
(130
|
)
|
|
$
|
(11
|
)
|
|
$
|
(423
|
)
|
|
$
|
(833
|
)
|
|
$
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2015
|
|
$
|
(80
|
)
|
|
$
|
|
|
|
$
|
(449
|
)
|
|
$
|
(497
|
)
|
|
$
|
(1,026
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
(511
|
)
|
|
|
(324
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(220
|
)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
(33
|
)
|
|
|
|
|
|
|
4
|
|
|
|
(511
|
)
|
|
|
(540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2015
|
|
$
|
(113
|
)
|
|
$
|
|
|
|
$
|
(445
|
)
|
|
$
|
(1,008
|
)
|
|
$
|
(1,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The amounts reclassified out of each component of Accumulated other comprehensive income (loss) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Affected Line Item on
|
|
|
March 31,
|
|
|
the Consolidated
|
Millions of dollars
|
|
2016
|
|
|
2015
|
|
|
Statements of Income
|
Reclassification adjustments for:
|
|
|
|
|
|
|
|
|
|
|
Defined pension and other postretirement benefit plan items:
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
$
|
8
|
|
|
$
|
6
|
|
|
|
Financial derivatives:
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
90
|
|
|
|
(220
|
)
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications, before tax
|
|
|
98
|
|
|
|
(214
|
)
|
|
|
Income tax expense
|
|
|
3
|
|
|
|
2
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified out of Accumulated other comprehensive loss
|
|
$
|
95
|
|
|
$
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and actuarial loss are included in the computation of net periodic pension and other
postretirement benefit costs (see Note 8).
34
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Basic earnings per share is based upon the weighted average number of shares of common
stock outstanding during the periods. Diluted earnings per share includes the effect of certain stock option awards and other equity-based compensation awards. We have unvested restricted stock units that are considered participating securities for
earnings per share.
Earnings per share data and dividends declared per share of common stock are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Millions of dollars
|
|
Continuing
Operations
|
|
|
Discontinued
Operations
|
|
|
Continuing
Operations
|
|
|
Discontinued
Operations
|
|
Net income (loss)
|
|
$
|
1,030
|
|
|
$
|
|
|
|
$
|
1,167
|
|
|
$
|
(3
|
)
|
Less: net loss attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company shareholders
|
|
|
1,030
|
|
|
|
|
|
|
|
1,169
|
|
|
|
(3
|
)
|
Net income attributable to participating securities
|
|
|
(1
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to ordinary shareholders basic and diluted
|
|
$
|
1,029
|
|
|
$
|
|
|
|
$
|
1,165
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of shares, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common stock outstanding
|
|
|
433
|
|
|
|
433
|
|
|
|
479
|
|
|
|
479
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
MTI, QPA and PSU awards
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential dilutive shares
|
|
|
434
|
|
|
|
434
|
|
|
|
481
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.38
|
|
|
$
|
|
|
|
$
|
2.43
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.37
|
|
|
$
|
|
|
|
$
|
2.42
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participating securities
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
|
$
|
0.78
|
|
|
$
|
|
|
|
$
|
0.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
13.
|
Segment and Related Information
|
Our operations are managed through five operating segments, as
shown below. We disclose the results of each of our operating segments in accordance with ASC 280,
Segment Reporting
. Each of our operating segments is managed by a senior executive reporting directly to our Chief Executive Officer, the chief
operating decision maker. Discrete financial information is available for each of the segments, and our Chief Executive Officer uses the operating results of each of the operating segments for performance evaluation and resource allocation. The
activities of each of our segments from which they earn revenues and incur expenses are described below:
|
|
|
Olefins and PolyolefinsAmericas (O&PAmericas). Our O&PAmericas segment produces and markets olefins, including ethylene and ethylene co-products, and polyolefins.
|
|
|
|
Olefins and PolyolefinsEurope, Asia, International (O&PEAI). Our O&PEAI segment produces and markets olefins, including ethylene and ethylene co-products, polyolefins and specialty
products, including polybutene-1 and polypropylene compounds.
|
|
|
|
Intermediates and Derivatives (I&D). Our I&D segment produces and markets propylene oxide and its co-products and derivatives, acetyls, including methanol, ethylene oxide and its derivatives, ethanol
and oxygenated fuels, or oxyfuels.
|
|
|
|
Refining. Our Refining segment refines heavy, high-sulfur crude oils and other crude oils of varied types and sources available on the U.S. Gulf Coast.
|
|
|
|
Technology. Our Technology segment develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts.
|
Our chief operating decision maker uses EBITDA as the primary measure for reviewing our segments profitability and therefore, in accordance with
ASC 280,
Segment Reporting
, we have presented EBITDA for all segments. We define EBITDA as earnings before interest, taxes and depreciation and amortization.
Intersegment eliminations and items that are not directly related or allocated to business operations are included in Other. Sales between
segments are made primarily at prices approximating prevailing market prices.
36
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Summarized financial information concerning reportable segments is shown in the following table for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Millions of dollars
|
|
O&P
Americas
|
|
|
O&P
EAI
|
|
|
I&D
|
|
|
Refining
|
|
|
Technology
|
|
|
Other
|
|
|
Total
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
$
|
1,595
|
|
|
$
|
2,545
|
|
|
$
|
1,676
|
|
|
$
|
821
|
|
|
$
|
106
|
|
|
$
|
|
|
|
$
|
6,743
|
|
Intersegment
|
|
|
520
|
|
|
|
33
|
|
|
|
26
|
|
|
|
134
|
|
|
|
26
|
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,115
|
|
|
|
2,578
|
|
|
|
1,702
|
|
|
|
955
|
|
|
|
132
|
|
|
|
(739
|
)
|
|
|
6,743
|
|
|
|
|
|
|
|
|
|
Income from equity investments
|
|
|
22
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
878
|
|
|
|
509
|
|
|
|
326
|
|
|
|
14
|
|
|
|
83
|
|
|
|
(3
|
)
|
|
|
1,807
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Millions of dollars
|
|
O&P
Americas
|
|
|
O&P
EAI
|
|
|
I&D
|
|
|
Refining
|
|
|
Technology
|
|
|
Other
|
|
|
Total
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
$
|
1,853
|
|
|
$
|
2,863
|
|
|
$
|
1,876
|
|
|
$
|
1,484
|
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
8,185
|
|
Intersegment
|
|
|
698
|
|
|
|
48
|
|
|
|
42
|
|
|
|
123
|
|
|
|
27
|
|
|
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,551
|
|
|
|
2,911
|
|
|
|
1,918
|
|
|
|
1,607
|
|
|
|
136
|
|
|
|
(938
|
)
|
|
|
8,185
|
|
|
|
|
|
|
|
|
|
Income from equity investments
|
|
|
7
|
|
|
|
57
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
1,031
|
|
|
|
357
|
|
|
|
337
|
|
|
|
149
|
|
|
|
76
|
|
|
|
2
|
|
|
|
1,952
|
|
Operating results for our O&PEAI segment includes a non-cash charge of $40 million in the first quarter of 2016
related to a lower of cost or market (LCM) inventory valuation adjustment driven primarily by declines in the prices of several of our polyolefins products and naphtha. Operating results for our I&D segment reflect a non-cash charge
of $28 million in the first quarter of 2016 related to LCM inventory valuation adjustments primarily driven by declines in the prices of benzene and styrene. Our O&PAmericas and O&PEAI segments also benefited from gains of $57
million and $21 million, respectively, related to the sale of our wholly owned subsidiary, Petroken Petroquimica Ensenada S.A.
In the first quarter of
2015, operating results for our O&PAmericas, I&D and Refining segments include non-cash charges of $43 million, $44 million and $5 million, respectively, related to lower of cost or market inventory valuation adjustments,
primarily driven by a decline in the prices of many chemical products, notably benzene and ethylene glycol in our I&D segment, and ethylene and crude C4s in our O&PAmericas segment.
37
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A reconciliation of EBITDA to Income from continuing operations before income taxes is shown in the following
table for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Millions of dollars
|
|
2016
|
|
|
2015
|
|
EBITDA:
|
|
|
|
|
|
|
|
|
Total segment EBITDA
|
|
$
|
1,810
|
|
|
$
|
1,950
|
|
Other EBITDA
|
|
|
(3
|
)
|
|
|
2
|
|
Less:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
(268
|
)
|
|
|
(287
|
)
|
Interest expense
|
|
|
(82
|
)
|
|
|
(69
|
)
|
Add:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
1,462
|
|
|
$
|
1,607
|
|
|
|
|
|
|
|
|
|
|
The depreciation and amortization expense for the three months ended March 31, 2015 reflected in the table above includes
$35 million of amortization expense related to expired emission allowance credits, $33 million of which was recognized by our Refining segment.
38