Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
GENERAL
This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements, and the accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).
The discussion summarizing the significant factors affecting the results of operations and financial condition for the year ended December 31, 2017, can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on February 21, 2019 , of which Item 7 is incorporated herein by reference.
OVERVIEW
During 2019 LyondellBasell continued to exhibit strong cash generation and remained committed to our disciplined capital allocation strategy. Over each of the past six years, we have consistently delivered $5 billion to $6 billion in cash from operating activities. We affirmed our commitment to a strong and progressive dividend during 2019 by increasing our quarterly dividend for the eleventh time and returning a total of $5.2 billion in dividends and share repurchases to shareholders. Our businesses benefited from abundant and low-cost natural gas liquid feedstocks throughout the year, and we demonstrated our capability to derive value from mergers and acquisitions through the integration of the A. Schulman acquisition.
During the fourth quarter, margins within most of our businesses were impacted by slow industrial demand and typical seasonality. Refining margins improved on a higher Maya 2-1-1 crack spread and relatively strong prices for naphtha and coke. Our Technology segment achieved record licensing revenues, contributing to the most profitable year in the Company’s history for the segment.
In 2019, we developed opportunities to expand into new markets by leveraging our technologies to strengthen our position in Asia. In June, we announced new polypropylene capacity through our Thailand joint venture, HMC Polymers. In September, we signed a joint venture Memorandum of Understanding (“MoU”) with Liaoning Bora Enterprise Group to build an integrated cracker and polyolefins project expanding our footprint in the rapidly growing Chinese market. Recently, we announced our intention to expand our existing partnership with Sinopec to build a second propylene oxide and styrene monomer plant in China utilizing our advantaged technology.
Significant items that affected results in 2019 relative to 2018 include:
|
|
|
|
•
|
Lower Olefins and Polyolefins—Americas (“O&P—Americas”) segment results due to a decline in polyethylene margins while olefins margins improved;
|
|
|
|
|
•
|
Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”) segment results decreased due to unfavorable foreign exchange impacts and lower income from equity investments;
|
|
|
|
|
•
|
Intermediates and Derivatives (“I&D”) segment results declined due to margin and volume decreases primarily driven by intermediate chemicals;
|
|
|
|
|
•
|
Higher Advanced Polymer Solutions (“APS”) segment results primarily due to the contribution of results from A. Schulman product lines;
|
|
|
|
|
•
|
Lower Refining segment results due to a decline in margins; and
|
|
|
|
|
•
|
Higher Technology segment results due to increased licensing revenue.
|
Other noteworthy items in 2019 include the following:
|
|
|
|
•
|
Redeemed $1,000 million of our 5% senior notes due 2019;
|
|
|
|
|
•
|
Executed a three-year, $4,000 million senior unsecured delayed draw term loan credit facility, of which $1,950 million was outstanding as of December 31, 2019;
|
|
|
|
|
•
|
Issued €1,000 million of long-term guaranteed notes used to refinance $1,000 million of long-term debt and repay a portion of our outstanding short-term debt;
|
|
|
|
|
•
|
Issued $1,000 million of long-term guaranteed notes used to repay our indebtedness outstanding under our Term Loan due 2020;
|
|
|
|
|
•
|
Repurchased $3.8 billion of shares, primarily through the completion of a tender offer;
|
|
|
|
|
•
|
Increased quarterly dividend from $1.00 per share to $1.05 per share in the second quarter;
|
|
|
|
|
•
|
Commenced commissioning of our Hyperzone high density polyethylene plant; and
|
|
|
|
|
•
|
Continued construction of our new PO/TBA plant at our Channelview, Texas facility, which is on track to be completed in late 2021.
|
Results of operations for the periods discussed are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
|
$
|
34,727
|
|
|
$
|
39,004
|
|
|
Cost of sales
|
|
29,301
|
|
|
32,529
|
|
|
Selling, general and administrative expenses
|
|
1,199
|
|
|
1,129
|
|
|
Research and development expenses
|
|
111
|
|
|
115
|
|
|
Operating income
|
|
4,116
|
|
|
5,231
|
|
|
Interest expense
|
|
(347
|
)
|
|
(360
|
)
|
|
Interest income
|
|
19
|
|
|
45
|
|
|
Other income, net
|
|
39
|
|
|
106
|
|
|
Income from equity investments
|
|
225
|
|
|
289
|
|
|
Provision for income taxes
|
|
648
|
|
|
613
|
|
|
Income from continuing operations
|
|
3,404
|
|
|
4,698
|
|
|
Loss from discontinued operations, net of tax
|
|
(7
|
)
|
|
(8
|
)
|
|
Net income
|
|
$
|
3,397
|
|
|
$
|
4,690
|
|
RESULTS OF OPERATIONS
Revenues—Revenues decreased $4,277 million, or 11%, in 2019 compared to 2018. Average sales prices were lower for most of our products as sales prices generally correlate with crude oil prices, which decreased relative to 2018. These lower prices led to a revenue decrease of 10% in 2019. Lower sales volumes resulted in a revenue decrease of 2% relative to 2018. Unfavorable foreign exchange impacts in 2019 resulted in a revenue decrease of 2% relative to the prior period. These decreases were partially offset by the acquired operations of A. Schulman, which contributed an additional 3%, or $1,304 million, of revenues in 2019 compared to 2018.
Cost of Sales—Cost of sales decreased $3,228 million, or 10%, in 2019 compared to 2018. This decrease in cost of sales is primarily due to lower feedstock and energy costs. Costs for crude oil, heavy liquid feedstocks and natural gas liquids (“NGLs”) and other feedstocks were lower in 2019 relative to 2018. This decrease corresponds with the decrease in revenues as discussed above.
Fluctuations in our cost of sales are generally driven by changes in feedstock and energy costs. Feedstock and energy related costs generally represent approximately 75% to 80% of cost of sales, other variable costs account for approximately 10% of cost of sales on an annual basis and fixed operating costs, consisting primarily of expenses associated with employee compensation, depreciation and amortization, and maintenance, range from approximately 10% to 15% in each annual period.
In 2019, our O&P—Americas segment and APS segment recognized lower of cost or market (“LCM”) inventory valuation charges of $25 million and $8 million, respectively, primarily due to a decline in domestic polyethylene prices. Cost of sales also includes $23 million related to A. Schulman integration costs incurred during 2019.
Depreciation and amortization increased $71 million, or 6%, in 2019 compared to 2018. This increase is primarily due to the addition of A. Schulman assets acquired in August 2018. In 2020, we estimate depreciation and amortization charges will increase approximately 15% due to the completion of various capital projects, including our Hyperzone project.
SG&A Expense—Selling, general and administrative (“SG&A”) expenses increased $70 million in 2019 compared to 2018. Higher SG&A costs related to operating the A. Schulman assets acquired in August 2018 for a full year which resulted in a $115 million, or 10%, increase. Additionally, integration costs increased by $20 million compared to 2018. These increased costs were partially offset by a 5% decline in evaluation and pre-project planning costs of certain growth projects and a 2% decline in employee-related expenses, relative to 2018.
Operating Income—Operating income decreased $1,115 million in 2019 compared to 2018. Operating income for our O&P—Americas, I&D, Refining, APS and O&P—EAI segments declined by $474 million, $467 million, $212 million, $39 million and $9 million, respectively, relative to 2018. These decreases were partially offset by an increase in operating income in our Technology segment of $90 million. Operating results for each of our business segments are reviewed further in the “Segment Analysis” section below.
Other Income, Net—Other income, net decreased $67 million in 2019 compared to 2018, which included a $36 million gain on the sale of our carbon black subsidiary in France. In addition, foreign currency exchange rate fluctuations and pension and other postretirement benefits decreased Other income by $15 million and $13 million, respectively, relative to 2018.
Income from Equity Investments—Our income from equity investments decreased $64 million in 2019 primarily due to reduced polyolefin spreads for our joint ventures in our O&P—EAI segment.
Income Taxes—Our effective income tax rates of 16.0% in 2019 and 11.5% in 2018 resulted in tax provisions of $648 million and $613 million, respectively.
We monitor tax law changes and the potential impact to our results of operations. There continues to be increased attention to the tax practices of multinational companies, including certain provisions of H.R.1, also known as the U.S. Tax Cuts and Jobs Act (the “Tax Act”), the European Union’s state aid investigations, proposals by the Organization for Economic Cooperation and Development with respect to base erosion and profit shifting, and European Union tax directives and their implementation. Management does not believe that recent changes in income tax laws, other than those disclosed and reflected in our financial statements, 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.
Our effective income tax rate fluctuates based on, among other factors, changes in pre-tax income in countries with varying statutory tax rates, the U.S. domestic production activity deduction that applied to periods prior to 2018, changes in valuation allowances, changes in foreign exchange gains/losses, the amount of exempt income and changes in unrecognized tax benefits associated with uncertain tax positions.
Our exempt income primarily includes interest income, export incentives, and equity earnings of our joint ventures. Interest income earned by certain of our European subsidiaries through intercompany financings is either untaxed or taxed at rates substantially lower than the U.S. statutory rate. Export incentives relate to tax benefits derived from elections and structures available for U.S. exports. Equity earnings attributable to the earnings of our joint ventures, when paid through dividends to certain European subsidiaries, are exempt from all or portions of normal statutory income tax rates. We currently anticipate the favorable treatment for interest income, dividends, and export incentives to continue in the near term; however, this treatment is based on current law and tax rulings, which could change, including changes with respect to proposed Treasury regulations under the Tax Act if finalized. Foreign exchange gains/losses have a permanent impact on our effective income tax rate that can cause unpredictable movement in our effective income tax rate. We continue to maintain valuation allowances in various jurisdictions totaling $85 million as of 2019, which could impact our effective income tax rate in the future. We believe our effective income tax rate for 2020 will be approximately 20%.
The 2019 effective income tax rate of 16.0%, which was lower than the U.S. statutory tax rate of 21%, was favorably impacted by exempt income (-4.5%), a tax benefit related to a patent box ruling (-1.6%), a loss on the liquidation of an entity (-1.3%), and changes in unrecognized tax benefits associated with uncertain tax positions (-1.0%). These favorable items were partially offset by the effects of earnings in various countries, notably in Europe, with higher statutory tax rates (1.6%) and U.S. state and local income taxes (0.7%).
During 2019, we recognized a $113 million non-cash benefit to our effective tax rate primarily as a result of the expiration of certain statutes of limitations. This amount consists of the recognition of $100 million of previously unrecognized tax benefits and the release of $13 million of previously accrued interest.
The 2018 effective income tax rate of 11.5%, which was lower than the U.S. statutory tax rate of 21%, was favorably impacted by changes in unrecognized tax benefits associated with uncertain tax positions (-6.0%) and exempt income (-5.6%). These favorable items were partially offset by the effects of earnings in various countries, notably in Europe, with higher statutory tax rates (1.7%) and U.S. state and local income taxes (1.0%).
During 2018, we entered into various audit settlements impacting specific uncertain tax positions. These audit settlements resulted in a $358 million non-cash benefit to our effective tax rate consisting of the recognition of $299 million of previously unrecognized tax benefits as a reduction for tax positions of prior years and the release of $59 million of previously accrued interest.
Comprehensive Income
We had comprehensive income of $2,976 million in 2019 and $4,682 million in 2018. Comprehensive income decreased by $1,706 million in 2019 compared to 2018, primarily due to lower net income, net unfavorable changes in defined pension and other postretirement benefits, and net unfavorable impacts of financial derivative instruments primarily driven by periodic changes in benchmark interest rates. These decreases were partially offset by net less unfavorable impacts of unrealized changes in foreign currency translation adjustments.
The predominant functional currency for our operations outside of the U.S. is the euro. Relative to the U.S. dollar, the value of the euro decreased during 2019 resulting in net losses as reflected in the Consolidated Statements of Comprehensive Income. These net losses include pre-tax gains of $26 million in 2019, which represent the effective portion of our net investment hedges.
In 2019, the cumulative after-tax effect of our derivatives designated as cash flow hedges was a net loss of $132 million. The strengthening of the U.S. dollar against the euro in 2019 and periodic changes in benchmark interest rates resulted in a pre-tax gain of $109 million related to our cross-currency swaps. A $40 million pre-tax loss related to our cross-currency swaps was reclassified to Other income, net in 2019. In 2019, a pre-tax loss of $223 million related to forward-starting interest rate swaps was driven by changes in benchmark interest rates. The remaining change relates to our commodity cash flow hedges.
We recognized defined benefit pension and other post-retirement benefit plans pre-tax losses of $361 million in 2019 and pre-tax gains of $41 million in 2018, primarily due to the fluctuations in the discount rate assumption used in determining the net benefit liabilities for our pension and other post-retirement benefit plans. See Note 16 to the Consolidated Financial Statements for additional information regarding net actuarial losses.
Segment Analysis
We use earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of and allocate resources to our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains (losses) and components of pension and other postretirement benefit costs other than service cost, are included in “Other.” For additional information related to our operating segments, as well as a reconciliation of EBITDA to its nearest generally accepted accounting principles (“GAAP”) measure, Income from continuing operations before income taxes, see Note 22 to our Consolidated Financial Statements.
Our continuing operations are managed through six reportable segments: O&P—Americas, O&P—EAI, I&D, APS, Refining and Technology. Results for our APS segment incorporates the businesses acquired from A. Schulman beginning August 21, 2018. The following tables reflect selected financial information for our reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
|
2019
|
|
2018
|
|
Sales and other operating revenues:
|
|
|
|
|
|
O&P–Americas
|
|
$
|
8,435
|
|
|
$
|
10,408
|
|
|
O&P–EAI
|
|
9,504
|
|
|
10,838
|
|
|
I&D
|
|
7,834
|
|
|
9,588
|
|
|
APS
|
|
4,850
|
|
|
4,024
|
|
|
Refining
|
|
8,251
|
|
|
9,157
|
|
|
Technology
|
|
663
|
|
|
583
|
|
|
Other, including segment eliminations
|
|
(4,810
|
)
|
|
(5,594
|
)
|
|
Total
|
|
$
|
34,727
|
|
|
$
|
39,004
|
|
|
Operating income (loss):
|
|
|
|
|
|
O&P–Americas
|
|
$
|
1,777
|
|
|
$
|
2,251
|
|
|
O&P–EAI
|
|
673
|
|
|
682
|
|
|
I&D
|
|
1,249
|
|
|
1,716
|
|
|
APS
|
|
290
|
|
|
329
|
|
|
Refining
|
|
(240
|
)
|
|
(28
|
)
|
|
Technology
|
|
374
|
|
|
284
|
|
|
Other, including segment eliminations
|
|
(7
|
)
|
|
(3
|
)
|
|
Total
|
|
$
|
4,116
|
|
|
$
|
5,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
|
2019
|
|
2018
|
|
Depreciation and amortization:
|
|
|
|
|
|
O&P–Americas
|
|
$
|
470
|
|
|
$
|
442
|
|
|
O&P–EAI
|
|
208
|
|
|
208
|
|
|
I&D
|
|
295
|
|
|
287
|
|
|
APS
|
|
133
|
|
|
69
|
|
|
Refining
|
|
169
|
|
|
192
|
|
|
Technology
|
|
37
|
|
|
43
|
|
|
Total
|
|
$
|
1,312
|
|
|
$
|
1,241
|
|
|
Income from equity investments:
|
|
|
|
|
|
O&P—Americas
|
|
$
|
46
|
|
|
$
|
58
|
|
|
O&P—EAI
|
|
172
|
|
|
225
|
|
|
I&D
|
|
7
|
|
|
6
|
|
|
Total
|
|
$
|
225
|
|
|
$
|
289
|
|
|
Other income, net:
|
|
|
|
|
|
O&P—Americas
|
|
$
|
9
|
|
|
$
|
11
|
|
|
O&P—EAI
|
|
9
|
|
|
48
|
|
|
I&D
|
|
6
|
|
|
2
|
|
|
APS
|
|
1
|
|
|
2
|
|
|
Refining
|
|
6
|
|
|
3
|
|
|
Technology
|
|
—
|
|
|
1
|
|
|
Other, including intersegment eliminations
|
|
8
|
|
|
39
|
|
|
Total
|
|
$
|
39
|
|
|
$
|
106
|
|
|
EBITDA:
|
|
|
|
|
|
O&P—Americas
|
|
$
|
2,302
|
|
|
$
|
2,762
|
|
|
O&P—EAI
|
|
1,062
|
|
|
1,163
|
|
|
I&D
|
|
1,557
|
|
|
2,011
|
|
|
APS
|
|
424
|
|
|
400
|
|
|
Refining
|
|
(65
|
)
|
|
167
|
|
|
Technology
|
|
411
|
|
|
328
|
|
|
Other, including intersegment eliminations
|
|
1
|
|
|
36
|
|
|
Total
|
|
$
|
5,692
|
|
|
$
|
6,867
|
|
Olefins and Polyolefins–Americas Segment
Overview—EBITDA declined in 2019 relative to 2018 primarily due to lower polyethylene results, partially offset by improved olefin results.
In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin. Ethylene is a major building block of olefins and polyolefins and as such, ethylene sales volumes and prices and our internal cost of ethylene production are included in management’s assessment of the segment’s performance.
Ethylene Raw Materials—Ethylene and its co-products are produced from two major raw material groups:
|
|
|
|
•
|
NGLs, principally ethane and propane, the prices of which are generally affected by natural gas prices; and
|
|
|
|
|
•
|
crude oil-based liquids (“liquids” or “heavy liquids”), including naphtha, condensates and gas oils, the prices of which are generally related to crude oil prices.
|
Although prices of these raw materials are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. We have significant flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices for both feedstocks and products change.
Strong supplies from the U.S. shale gas/oil boom resulted in ethane being a preferred feedstock in our U.S. plants in 2019. Ethane remained the preferred U.S. feedstock for ethylene despite higher prices driven by increased demand from newly-constructed U.S. olefins units and supply constraints in the Gulf Coast NGL fractionation and pipeline systems. In 2019 and 2018, we produced approximately 80% of our ethylene from ethane.
The following table sets forth selected financial information for the O&P—Americas segment including Income from equity investments, which is a component of EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
|
$
|
8,435
|
|
|
$
|
10,408
|
|
|
Income from equity investments
|
|
46
|
|
|
58
|
|
|
EBITDA
|
|
2,302
|
|
|
2,762
|
|
Revenues—Revenues decreased by $1,973 million, or 19%, in 2019 compared to 2018. Average olefins and polyethylene sales prices were lower in 2019 compared to 2018 due to increased market supply stemming from new industry capacity additions and, to a lesser extent, a lower oil price environment. Polypropylene sales prices decreased with declining propylene feedstock prices. These lower sales prices were responsible for a revenue decrease of 18% in 2019. Lower sales volumes, driven mainly by planned downtime at our Matagorda, Texas and Clinton, Iowa facilities, accompanied by softer demand, also led to a revenue decrease of 1% in 2019.
EBITDA—EBITDA decreased by $460 million, or 17%, in 2019 compared to 2018. Polyethylene results declined resulting in a 27% decrease in EBITDA driven by a $261 per ton reduction in price spreads over ethylene as a result of increased market supply. An offsetting increase in olefin results increased EBITDA by 8% as ethylene margins increased by approximately $75 per ton primarily due to lower feedstock costs partially offset by a lower propylene price. The segment recognized LCM charges of $25 million in 2019 primarily due to a decline in domestic polyethylene prices.
Planned maintenance during the first and second quarters of 2020 is expected to reduce EBITDA by approximately $25 million and $30 million, respectively. In addition, we expect additional capacity from our Hyperzone polyethylene plant in 2020.
Olefins and Polyolefins–Europe, Asia, International Segment
Overview—EBITDA declined in 2019 compared to 2018 mainly as a result of lower combined polyolefin results, lower income from equity investments and unfavorable foreign exchange impacts, partially offset by higher olefin results.
In calculating the impact of margin and volume on EBITDA, consistent with industry practice, management offsets revenues and volumes related to ethylene co-products against the cost to produce ethylene. Volume and price impacts of ethylene co-products are reported in margin. Ethylene is a major building block of our olefins and polyolefins and as such, ethylene sales volumes and prices and our internal cost of ethylene production are included in management’s assessment of the segment’s performance.
Ethylene Raw Materials—In Europe, heavy liquids are the primary raw materials for our ethylene production. In 2019 and 2018, we continued to benefit by sourcing advantaged NGLs as market opportunities arose.
The following table sets forth selected financial information for the O&P—EAI segment including Income from equity investments, which is a component of EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
$
|
9,504
|
|
|
$
|
10,838
|
|
|
Income from equity investments
|
172
|
|
|
225
|
|
|
EBITDA
|
1,062
|
|
|
1,163
|
|
Revenues—Revenues in 2019 decreased by $1,334 million, or 12%, compared to 2018. Average sales prices in 2019 were lower across most products as sales prices generally correlate with crude oil prices, which on average, decreased compared to 2018. These lower average sales prices were responsible for revenue decreases of 10%. Higher sales volumes in 2019 resulted in 2% higher revenue driven by an absence of planned maintenance compared to 2018. Foreign exchange impacts, on average, were unfavorable and led to a revenue decrease of 4% in 2019.
EBITDA—EBITDA decreased by $101 million, or 9%, in 2019 compared to 2018. Decreased polyethylene results led to a 5% decrease in EBITDA largely due to a decline in margins attributed to lower price spreads over ethylene of $35 per ton. A decline in polypropylene results decreased EBITDA by 4% as price spreads over propylene decreased $48 per ton. Joint venture equity income decreased largely due to reduced polyolefin spreads resulting in a 5% decrease in EBITDA. These decreases were partially offset by higher olefins results which led to a 5% increase of EBITDA. This increase was primarily due to increased volumes driven by improved reliability with planned and unplanned maintenance impacting 2018 results. In addition, unfavorable foreign exchange impacts reduced EBITDA by 5% in 2019.
Fourth quarter 2019 results decreased $147 million, or 51%, versus the third quarter 2019. This change was primarily driven by a decline in olefin results as ethylene margins decreased due to higher feedstock costs and a lower propylene price.
Planned maintenance during the third and fourth quarters of 2020 is expected to reduce EBITDA by approximately $15 million in each of the two quarters.
Intermediates and Derivatives Segment
Overview—EBITDA for our I&D segment was lower in 2019 compared to 2018, largely driven by margin and volume decreases primarily in our intermediate chemicals business.
The following table sets forth selected financial information for the I&D segment including Income from equity investments, which is a component of EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
$
|
7,834
|
|
|
$
|
9,588
|
|
|
Income from equity investments
|
7
|
|
|
6
|
|
|
EBITDA
|
1,557
|
|
|
2,011
|
|
Revenues—Revenues for 2019 decreased by $1,754 million, or 18%, compared to 2018. Lower average sales prices in 2019 for most products, which reflect the impacts of lower feedstock and energy costs, were responsible for a revenue decrease of 12% compared to 2018 which benefited from an elevated level of planned and unplanned industry outages. Lower sales volumes resulted in a 4% decrease in revenues in 2019. Foreign exchange impacts, on average, were unfavorable and led to a revenue decrease of 2%.
EBITDA—EBITDA decreased by $454 million, or 23%, in 2019 compared to 2018. Decreased Intermediate Chemicals results led to an EBITDA decrease of 25%. This decrease was a result of lower margins across most businesses, in particular styrene, as demand weakened in 2019. Lower Propylene Oxide and Derivatives results decreased EBITDA by 5% largely due to lower volumes as demand declined. These declines in EBITDA were partially offset by higher Oxyfuels and Related Products results mainly due to improved margins driven by price improvements and low-cost butane, resulting in a 8% increase in EBITDA. Unfavorable foreign exchange impacts also reduced EBITDA by an additional 2% in 2019.
In 2020, we have planned maintenance that is expected to reduce EBITDA by approximately $10 million in each of the first and second quarters and $25 million in each of the third and fourth quarters.
Advanced Polymer Solutions Segment
Overview—EBITDA for our APS segment increased in 2019 compared to 2018, primarily due to the contribution of EBITDA stemming from the August 2018 acquisition of A. Schulman, partly offset by integration costs and lower volumes across most products.
The following table sets forth selected financial information for the APS segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
$
|
4,850
|
|
|
$
|
4,024
|
|
|
EBITDA
|
424
|
|
|
400
|
|
Revenues—Revenues increased in 2019 by $826 million, or 21%, compared to 2018. Excluding the impacts of the August 2018 acquisition of A. Schulman, sales volumes declined in 2019 stemming from lower market demand for advanced polymer products, including lower automotive and roofing demand, which led to a 7% decrease in revenue in 2019. Lower average sales prices, as well as unfavorable foreign exchange impacts, each resulted in a 4% decrease in revenue. These declines were offset by $1,304 million of additional revenues in the APS segment due to a full year of operating the A. Schulman assets in 2019 compared to a partial year in 2018 following the acquisition in August 2018.
EBITDA—EBITDA increased in 2019 by $24 million, or 6%, compared to 2018. Compounding and Solutions results improved resulting in a 27% increase of EBITDA. This increase was largely due to an additional $108 million of EBITDA contributed by the operations of A. Schulman in 2019. Advanced Polymers results reduced EBITDA by 9% largely due to lower volumes driven by reduced automotive and roofing demand. Further, transaction and integration costs related to the acquisition of A. Schulman were $47 million higher in 2019 which reduced EBITDA by 12% relative to 2018. Unfavorable foreign exchange impacts also reduced EBITDA by an additional 3% in 2019.
Refining Segment
Overview—EBITDA for our Refining segment decreased due to lower industry margins driven by a compressed Maya differential, lower gasoline crack spreads and lower byproduct margins compared to 2018.
The following table sets forth selected financial information and heavy crude processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. Light Louisiana Sweet “LLS” is a light crude oil, while “Maya” is a heavy crude oil.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
$
|
8,251
|
|
|
$
|
9,157
|
|
|
EBITDA
|
(65
|
)
|
|
167
|
|
|
|
|
|
|
|
Thousands of barrels per day
|
|
|
|
|
Heavy crude oil processing rates
|
263
|
|
|
231
|
|
|
|
|
|
|
|
Market margins, dollars per barrel
|
|
|
|
|
Light crude oil—2-1-1
|
$
|
12.44
|
|
|
$
|
12.35
|
|
|
Light crude oil—Maya differential
|
5.14
|
|
|
7.50
|
|
|
Total Maya 2-1-1
|
$
|
17.58
|
|
|
$
|
19.85
|
|
Revenues—Revenues decreased by $906 million, or 10%, in 2019 compared to 2018. Lower product prices led to a revenue decrease of 7% relative to 2018, due to an average crude oil price decrease of approximately $6 per barrel in 2019. Although heavy crude oil processing rates increased during 2019, overall sales volumes decreased, driven by reduced rates on conversion units, due to crude selection and the optimization of refinery operations. This reduction in conversion rates resulted in a further revenue decrease of 3% during 2019.
EBITDA—EBITDA decreased by $232 million, or 139%, in 2019 compared to 2018. Lower refining margins resulted in a 200% decrease in EBITDA relative to 2018. Unusually low discounts for heavy sour crude oils on the U.S. Gulf Coast led to a lower light-to-heavy crude price differential and compression in the benchmark Maya 2-1-1 market margin. This compression, combined with the Houston refinery’s configuration which limits the amount of light sweet crude that can be processed, created a challenging market for our Refining segment. Margins were further compressed by a negative byproduct impact largely driven by weakness in Naphtha and refinery grade propylene. This margin-driven decrease in EBITDA was partly offset by a 61% increase associated with the rise in heavy crude oil processing rates due to the completion of planned maintenance in 2018.
Fourth quarter 2019 EBITDA improved $106 million, or 126%, representing a significant improvement compared to the fourth quarter 2018, which experienced a loss of $84 million. Margin improvements resulted in a 76% increase in EBITDA as the Maya 2-1-1 crack spread increased by $8.55 per barrel to $19.44 per barrel. Heavy crude oil processing rates increased by 83 thousand barrels per day in the fourth quarter of 2019 due to the completion of planned maintenance in the second half of 2018. This volume driven improvement resulted in a 50% increase in EBITDA in the fourth quarter of 2019.
We anticipate improvements in our refining results in 2020 associated with the global adoption of International Maritime Organization (“IMO”) 2020.
Technology Segment
Overview—The Technology segment recognizes revenues related to the sale of polyolefin catalysts and the licensing of chemical and polyolefin process technologies. These revenues are offset in part by the costs incurred in the production of catalysts, licensing and services activities and research and development (“R&D”) activities. In 2019 and 2018, our Technology segment incurred approximately 50% and 55%, respectively, of all R&D costs. EBITDA for our Technology segment improved in 2019 compared to 2018 largely due to higher licensing revenues.
The following table sets forth selected financial information for the Technology segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Sales and other operating revenues
|
$
|
663
|
|
|
$
|
583
|
|
|
EBITDA
|
411
|
|
|
328
|
|
Revenues—Revenues increased by $80 million, or 14%, in 2019 compared to 2018. Higher licensing revenues resulted in an increase of 18% in 2019 compared to 2018. Increases in average catalyst sales prices resulted in revenue increases of 4% in 2019. Lower catalyst sales volumes, driven by the timing of customer orders, resulted in a 3% decrease in revenue in 2019. Foreign exchange impacts that, on average, were unfavorable led to a revenue decrease of 5%.
EBITDA—EBITDA in 2019 increased by $83 million, or 25%, compared to 2018. This increase was mainly driven by higher licensing revenues as several licensing agreements signed in 2018, primarily in China, were recognized in revenue during 2019.
FINANCIAL CONDITION
Operating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Source (use) of cash:
|
|
|
|
|
Operating activities
|
$
|
4,961
|
|
|
$
|
5,471
|
|
|
Investing activities
|
(1,635
|
)
|
|
(3,559
|
)
|
|
Financing activities
|
(2,835
|
)
|
|
(3,008
|
)
|
Operating Activities—Cash of $4,961 million generated by operating activities in 2019 reflected earnings adjusted for non-cash items, payments for employee bonuses, income taxes, and cash consumed by the main components of working capital–Accounts receivable, Inventories and Accounts payable. A $113 million non-cash reduction in unrecognized tax benefits is reflected in Other operating activities in 2019. For additional information on this matter, see Note 18 to the Consolidated Financial Statements.
In 2019, the main components of working capital consumed $13 million of cash driven by a decrease in Accounts payable and an increase in Inventories, partially offset by a decrease in Accounts receivable. The decrease in Accounts payable was primarily driven by weaker demand in our APS segment and a decrease in certain raw material costs in our I&D segment. The increase in Inventories was a result of inventory builds as a result of planned and unplanned maintenance in our O&P—EAI segment. The decrease in Accounts receivable was driven by decreases in our APS, I&D and O&P—Americas segments as a result of unfavorable market conditions.
Cash of $5,471 million generated by operating activities in 2018 reflected earnings adjusted for non-cash items and net cash provided by the main components of working capital. A $358 million non-cash reduction in unrecognized tax benefits is reflected in Other operating activities in 2018. For additional information on this matter, see Note 18 to the Consolidated Financial Statements.
In 2018, the main components of working capital provided $93 million of cash. Lower Accounts receivable due primarily to lower sales volumes in our O&P—Americas, O&P—EAI and I&D segments at year end and higher Accounts payable due to higher feedstock prices were partially offset by an increase in Inventories primarily due to the lower sales volumes at year end.
Investing Activities—We invest cash in investment-grade and other high-quality instruments that provide adequate flexibility to redeploy funds as needed to meet our cash flow requirements while maximizing yield.
We received proceeds of $511 million and $423 million in 2019 and 2018, respectively, upon the sale and maturity of certain of our available-for-sale debt securities. Additionally, in 2019 and 2018, we received proceeds of $332 million and $97 million, respectively, on the sale of our investments in equity securities. In 2019, we received proceeds of $527 million upon the maturity of certain of our repurchase agreements.
In 2019 and 2018 we invested $108 million and $50 million, respectively, in debt securities that are deemed available-for-sale. We also invested $33 million and $64 million in equity securities in 2019 and 2018, respectively. Our investments in available-for-sale debt securities and equity securities are classified as Short-term investments.
Upon expiration in 2018, we settled foreign currency contracts with notional values totaling €925 million which were designated as net investment hedges of our investments in foreign subsidiaries. Payments to and proceeds from our counterparties resulted in a net cash inflow of $30 million.
In August 2018, we acquired A. Schulman for $1,776 million, which is net of $81 million of cash acquired and a liability deemed as a component of the purchase price.
In October 2018, we received net cash proceeds of $37 million for the sale of our carbon black subsidiary in France.
Capital Expenditures—The following table summarizes capital expenditures for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Capital expenditures by segment:
|
|
|
|
|
O&P—Americas
|
$
|
1,099
|
|
|
$
|
1,079
|
|
|
O&P—EAI
|
213
|
|
|
248
|
|
|
I&D
|
1,064
|
|
|
409
|
|
|
APS
|
59
|
|
|
62
|
|
|
Refining
|
149
|
|
|
250
|
|
|
Technology
|
94
|
|
|
48
|
|
|
Other
|
16
|
|
|
9
|
|
|
Consolidated capital expenditures of continuing operations
|
$
|
2,694
|
|
|
$
|
2,105
|
|
In 2019 and 2018, our capital expenditures included construction related to our PO/TBA plant at our Channelview, Texas facility and our Hyperzone polyethylene plant at our La Porte, Texas facility, turnaround activities at several sites and other plant improvement projects. The higher level of capital expenditures for our I&D segment in 2019 compared to 2018 is largely due to the construction of our PO/TBA plant.
In 2020, we expect to spend approximately $2.4 billion for capital expenditures and investment in our U.S. and European PO joint ventures. The lower level of expected capital expenditures in 2020 relative to 2019 is primarily due to the reduction in spend related to our Hyperzone polyethylene plant. We will complete construction of our Hyperzone project in early 2020. See Note 9 to the Consolidated Financial Statements for additional information regarding our U.S. and European PO joint ventures.
Financing Activities—In 2019 and 2018, we made payments of $3,752 million and $1,854 million to acquire approximately 42.7 million and 19.2 million, respectively, of our outstanding ordinary shares. We also made dividend payments totaling $1,462 million and $1,554 million in 2019 and 2018, respectively. For additional information related to our share repurchases and dividend payments, see Note 20 to the Consolidated Financial Statements.
In September 2018, we repaid the $375 million 6.875% Senior Notes due June 2023 assumed in the acquisition of A. Schulman for a price of 105.156% of par.
In February 2019, LYB Americas Finance Company LLC (“LYB Americas Finance”), a wholly owned subsidiary of LyondellBasell N.V., entered into a 364-day, $2,000 million senior unsecured term loan credit agreement and borrowed the entire amount. The proceeds of this term loan, which is fully and unconditionally guaranteed by LyondellBasell N.V. were used for general corporate purposes and to redeem the remaining $1,000 million outstanding of our 5% Senior Notes due 2019 at par.
In March 2019, LYB Americas Finance, a wholly owned subsidiary of LyondellBasell N.V., entered into a three-year $4,000 million senior unsecured delayed draw term loan credit facility that matures in March 2022 (“Term Loan due 2022”). Proceeds under this credit agreement, which is fully and unconditionally guaranteed by LyondellBasell N.V., were used for general corporate purposes. In July 2019, we borrowed $1,000 million under this facility along with $500 million from our U.S. Receivables Facility to partially fund the share repurchase price paid pursuant to a modified Dutch Auction tender offer (“tender offer”). In December 2019, we borrowed $1,950 million from our Term Loan due 2022 to repay amounts outstanding under our commercial paper program and $500 million outstanding under our U.S. Receivables Facility.
In September 2019, LYB International Finance II B.V. (“LYB Finance II”), a wholly owned finance subsidiary of LyondellBasell N.V., issued €500 million of 0.875% guaranteed notes due 2026 (the “2026 Notes”) at a discounted price of 99.642% and €500 million of 1.625% guaranteed notes due 2031 (the “2031 Notes”) at a discounted price of 98.924%. We used the net proceeds from the 2026 Notes and the 2031 Notes to repay $1,000 million outstanding under our Term Loan due 2022, and a portion of borrowings from our commercial paper program.
In October 2019, LYB International Finance III LLC (“LYB Finance III”), a wholly owned finance subsidiary of LyondellBasell N.V., issued $1,000 million of 4.2% guaranteed notes due 2049 (the “2049 Notes”) at a discounted price of 98.488%. Net proceeds from the sale of the notes of $974 million, along with commercial paper and operating cash, was used to repay $2,000 million of the indebtedness outstanding under our Term Loan due 2020.
Through the issuance and repurchase of commercial paper instruments under our commercial paper program, we made net repayments of $549 million in 2019 and received net proceeds of $810 million in 2018.
Additional information related to commercial paper and debt activity can be found in the Liquidity and Capital Resources section below and in Note 13 to the Consolidated Financial Statements.
In February 2019, we purchased the non-controlling interest in our subsidiary that holds our La Porte, Texas methanol facility for $63 million.
In January 2020, we amended the terms of certain forward-starting interest rate swaps to extend their maturities. Concurrently with the amendment of the swaps, we posted collateral of $238 million related to the liability position held with our counterparties as of the amendment date. For additional information see Note 15 to the Consolidated Financial Statements.
Liquidity and Capital Resources
Overview
We plan to fund our ongoing working capital, capital expenditures, debt service and other funding requirements with cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt, or a combination thereof, may be used to fund the purchase of shares under our share repurchase authorization.
We intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations.
We believe that our current liquidity availability and cash from operating activities provide us with sufficient financial resources to meet our anticipated capital requirements and obligations as they come due.
Cash and Liquid Investments
As of December 31, 2019, we had $1,054 million of unrestricted cash and cash equivalents as well as marketable securities classified as Short-term investments. At December 31, 2019, we held $363 million of cash in jurisdictions outside of the U.S., principally in the United Kingdom and China. There are currently no legal or economic restrictions that would materially impede our transfers of cash.
Credit Arrangements
At December 31, 2019, we had total debt, including current maturities, of $12,062 million, and $200 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities.
We had total unused availability under our credit facilities of $2,919 million at December 31, 2019, which included the following:
|
|
|
|
•
|
$2,229 million under our $2,500 million senior revolving credit facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. A small portion of our availability under this facility is impacted by changes in the euro/U.S. dollar exchange rate. At December 31, 2019, we had $262 million of outstanding commercial paper, net of discount, no outstanding letters of credit and no outstanding borrowings under the facility; and
|
|
|
|
|
•
|
$690 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. This facility had no outstanding borrowings or letters of credit at December 31, 2019.
|
Our $2,500 million senior revolving credit facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
The U.S. Receivables Facility is subject to customary warranties and covenants, including limits and reserves and the maintenance of specified financial ratios. We are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters. Performance obligations under the facility are guaranteed by LyondellBasell N.V.
In March 2019, we entered into the Term Loan due 2022. Borrowings under the credit agreement bear interest at either a base rate or LIBOR rate, as defined, plus in each case, an applicable margin determined by reference to LyondellBasell N.V.’s current credit ratings. The credit agreement contains customary representations and warranties and contains certain restrictive covenants regarding, among other things, secured indebtedness, subsidiary indebtedness, mergers and sales of assets. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
In September 2019, we issued the 2026 Notes and the 2031 Notes. The 2026 Notes and 2031 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 30 basis points in the case of the 2026 Notes and plus 35 basis points in the case of the 2031 Notes) on the notes to be redeemed. The notes may also be redeemed on or after the date that is three months prior to the scheduled 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.
In October 2019, we issued the 2049 Notes. The 2049 Notes may be redeemed before the date that is six 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 treasury yield plus 35 basis points) on the notes to be redeemed. The notes may also be redeemed on or after the date that is six 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.
We may repay or redeem our debt, including purchases of our outstanding bonds in the open market, using cash and cash equivalents, cash from our short-term investments and tri-party repurchase agreements, cash from operating activities, proceeds from the issuance of debt, proceeds from asset divestitures, or a combination thereof. In connection with any repayment or redemption of our debt, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.
In accordance with our current interest rate risk management strategy and subject to management’s evaluation of market conditions and the availability of favorable interest rates among other factors, we may from time to time enter into interest rate swap agreements to economically convert a portion of our fixed rate debt to variable rate debt or convert a portion of our variable rate debt to fixed rate debt.
For additional information, see Note 13 to our Consolidated Financial Statements.
Share Repurchases
Upon completion of the tender offer in July 2019, we repurchased 35.1 million ordinary shares at a tender offer price of $88.00 per share for a total of $3,099 million, including $6 million of fees and expenses related to the tender offer. In conjunction with the tender offer, we financed the share repurchase by borrowing $1,000 million from our Term Loan due 2022, $500 million from our U.S. Receivables Facility, and $1,280 million from our commercial paper program, with the remainder funded by operating cash.
In September 2019, our shareholders approved a proposal to authorize us to repurchase up to 33.3 million of our ordinary shares through March 12, 2021, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In 2019, we purchased approximately 42.7 million shares under our share repurchase authorizations for approximately $3,728 million.
As of February 18, 2020, we had approximately 33.3 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. For additional information related to our share repurchase authorization, see Note 20 to the Consolidated Financial Statements.
Capital Budget
In 2020, we expect to spend approximately $2.4 billion in our capital budget, which includes approximately $75 million for investments in our U.S. and European PO joint ventures. Our capital budget includes investment to build our world-scale PO/TBA plant in Channelview, Texas which will have the capacity to produce 470 thousand tons of PO and 1.0 million tons of tertiary butyl alcohol. We broke ground on this project in August 2018 and anticipate the project will be completed in late 2021. See Note 9 to the Consolidated Financial Statements for additional information regarding our U.S. and European PO joint ventures.
Contractual and Other Obligations—The following table summarizes, as of December 31, 2019, our future minimum payments for long-term debt, including current maturities, short-term debt, and contractual and other obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Payments Due By Period
|
|
Millions of dollars
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
|
Total debt
|
$
|
12,167
|
|
|
$
|
448
|
|
|
$
|
3,795
|
|
|
$
|
1,751
|
|
|
$
|
6,173
|
|
|
Interest on total debt
|
6,306
|
|
|
468
|
|
|
841
|
|
|
616
|
|
|
4,381
|
|
|
Contract liabilities
|
124
|
|
|
103
|
|
|
18
|
|
|
—
|
|
|
3
|
|
|
Other
|
1,801
|
|
|
1,235
|
|
|
115
|
|
|
33
|
|
|
418
|
|
|
Deferred income taxes
|
2,015
|
|
|
371
|
|
|
279
|
|
|
250
|
|
|
1,115
|
|
|
Other obligations:
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
Take-or-pay contracts
|
26,004
|
|
|
3,019
|
|
|
5,568
|
|
|
5,434
|
|
|
11,983
|
|
|
Other contracts
|
22,065
|
|
|
6,650
|
|
|
6,260
|
|
|
2,727
|
|
|
6,428
|
|
|
Operating leases
|
2,422
|
|
|
479
|
|
|
549
|
|
|
423
|
|
|
971
|
|
|
Total
|
$
|
72,904
|
|
|
$
|
12,773
|
|
|
$
|
17,425
|
|
|
$
|
11,234
|
|
|
$
|
31,472
|
|
Total Debt—Our debt includes unsecured senior notes, guaranteed notes and various other U.S. and non-U.S. loans. See Note 13 to the Consolidated Financial Statements for a discussion of covenant requirements under our credit facilities and indentures and additional information regarding our debt facilities.
Interest on Total Debt—Our debt and related party debt agreements contain provisions for the payment of monthly, quarterly or semi-annual interest at a stated or variable rate of interest over the term of the debt. Interest on variable rate debt is calculated based on the rate in effect as of December 31, 2019.
Pension and other Postretirement Benefits—We maintain several defined benefit pension plans, as described in Note 16 to the Consolidated Financial Statements. Many of our U.S. and non-U.S. plans are subject to minimum funding requirements; however, the amounts of required future contributions for all our plans are not fixed and can vary significantly due to changes in economic assumptions, liability experience and investment return on plan assets. As a result, we have excluded pension and other postretirement benefit obligations from the Contractual and Other Obligations table above. Our annual contributions may include amounts in excess of minimum required funding levels. Contributions to our non-U.S. plans in years beyond 2020 are not expected to be materially different than the expected 2020 contributions disclosed in Note 16 to the Consolidated Financial Statements. At December 31, 2019, the projected benefit obligation for our pension plans exceeded the fair value of plan assets by $1,287 million. Subject to future actuarial gains and losses, as well as future asset earnings, we, together with our consolidated subsidiaries, will be required to fund the discounted obligation of $1,287 million in future years. We contributed $97 million and $100 million to our pension plans in 2019 and 2018, respectively. We provide other postretirement benefits, primarily medical benefits to eligible participants, as described in Note 16 to the Consolidated Financial Statements. We pay other unfunded postretirement benefits as incurred.
Contract Liabilities—We are obligated to deliver products or services in connection with sales agreements under which customer payments were received before transfer of control to the customers occurs. These contract liabilities will be recognized in earnings when control of the product or service is transferred to the customer, which range from 1 to 20 years. The long-term portion of such advances totaled $21 million as of December 31, 2019.
Other—Other primarily consists of accruals for taxes and employee-related expenses.
Deferred Income Taxes—The scheduled settlement of the deferred tax liabilities shown in the table is based on the scheduled reversal of the underlying temporary differences. Actual cash tax payments will vary depending upon future taxable income. See Note 18 to the Consolidated Financial Statements for additional information related to our deferred tax liabilities.
Purchase Obligations—We are party to various obligations to purchase products and services, principally for raw materials, utilities and industrial gases. These commitments are designed to ensure sources of supply and are not expected to be in excess of normal requirements. The commitments are segregated into take-or-pay contracts and other contracts. Under the take-or-pay contracts, we are obligated to make minimum payments whether or not we take the product or service. Other contracts include contracts that specify minimum quantities; however, in the event that we do not take the contractual minimum, we are only obligated for any resulting economic loss suffered by the vendor. The payments shown for the other contracts assume that minimum quantities are purchased. For contracts with variable pricing terms, the minimum payments reflect the contract price at December 31, 2019.
Operating Leases—We lease various facilities and equipment under noncancelable lease arrangements for various periods. See Note 14 to the Consolidated Financial Statements for related lease disclosures.
CURRENT BUSINESS OUTLOOK
Our foundations of operational excellence, cost management and disciplined capital allocation continue to serve us well in the current challenging environment. We anticipate typical seasonal improvements for our businesses as we progress through the second and third quarters of 2020. Favorable resolution of trade policies and a rebound in industrial demand could provide significant upside for our industry. We expect benefits from the IMO 2020 regulations for our Houston Refinery and the completion of our new Hyperzone project in 2020.
RELATED PARTY TRANSACTIONS
We have related party transactions with our joint venture partners. We believe that such transactions are effected on terms substantially no more or less favorable than those that would have been agreed upon by unrelated parties on an arm’s length basis. See Note 5 to the Consolidated Financial Statements for additional related party disclosures.
CRITICAL ACCOUNTING POLICIES
Management applies those accounting policies that it believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the U.S. (see Note 2 to the Consolidated Financial Statements). Our more critical accounting policies include those related to the valuation of inventories, goodwill, accruals for long-term employee benefit costs such as pension and other postretirement costs, and accruals for taxes based on income. Inherent in such policies are certain key assumptions and estimates made by management. Management periodically updates its estimates used in the preparation of the financial statements based on its latest assessment of the current and projected business and general economic environment.
Inventories—We account for our raw materials, work-in-progress and finished goods inventories using the last-in, first-out (“LIFO”) method of accounting.
The cost of raw materials, which represents a substantial portion of our operating expenses, and energy costs generally follow price trends for crude oil and/or natural gas. Crude oil and natural gas prices are subject to many factors, including changes in economic conditions.
Since our inventory consists of manufactured products derived from crude oil, natural gas, natural gas liquids and correlated materials, as well as the associated feedstocks and intermediate chemicals, our inventory market values are generally influenced by changes in the benchmark of crude oil and heavy liquid values and prices for manufactured finished goods. The degree of influence of a particular benchmark may vary from period to period, as the composition of the dollar value LIFO pools change. Due to natural inventory composition changes, variation in pricing from period to period does not necessarily result in a linear lower of cost or market (“LCM”) impact.
Additionally, an LCM condition may arise due to a volumetric decline in a particular material that had previously provided a positive impact within a pool. As a result, market valuations and LCM conditions are dependent upon the composition and mix of materials on hand at the balance sheet date. In the measurement of an LCM adjustment, the numeric input value for determining the crude oil market price includes pricing that is weighted by volume of inventories held at a point in time, including WTI, Brent and Maya crude oils.
As indicated above, fluctuation in the prices of crude oil, natural gas and correlated products from period to period may result in the recognition of charges to adjust the value of inventory to the lower of cost or market in periods of falling prices and the reversal of those charges in subsequent interim periods as market prices recover. Accordingly, our cost of sales and results of operations may be affected by such fluctuations.
During the fourth quarter of 2019, EBITDA for our O&P—Americas segment and APS segment results include a non-cash, LCM inventory valuation charges of $25 million and $8 million, respectively, primarily due to a decline in domestic polyethylene prices.
Goodwill—As of December 31, 2019, we have goodwill of $1,891 million. Of this amount, $1,357 million is related to the acquisition of A. Schulman in 2018, which is included in our APS segment, and is mainly attributed to acquired workforce and expected synergies. The remaining goodwill at December 31, 2019, primarily represents the tax effect of the differences between the tax and book bases of our assets and liabilities resulting from the revaluation of those assets and liabilities to fair value in connection with the Company’s emergence from bankruptcy and fresh-start accounting in 2010. Additional information on the amount of goodwill allocated to our reporting units appears in Note 8 and Note 22 to the Consolidated Financial Statements.
We evaluate the recoverability of the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the reporting units include, but are not limited to, changes in long-term commodity prices, discount rates, competitive environments, planned capacity, cost factors such as raw material prices, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.
We also have the option to proceed directly to the quantitative impairment test. Under the quantitative impairment test, the fair value of each reporting unit, calculated using a discounted cash flow model, is compared to its carrying value, including goodwill. The discounted cash flow model inherently utilizes a significant number of estimates and assumptions, including operating margins, tax rates, discount rates, capital expenditures and working capital changes. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit.
For 2019 and 2018, management performed a qualitative impairment assessment of our reporting units, which indicated that the fair value of our reporting units was more likely than not greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required, and no goodwill impairment was recognized in 2019 or 2018.
Long-Term Employee Benefit Costs—Our costs for long-term employee benefits, particularly pension and other postretirement medical and life insurance benefits, are incurred over long periods of time, and involve many uncertainties over those periods. The net periodic benefit cost attributable to current periods is based on several assumptions about such future uncertainties and is sensitive to changes in those assumptions. It is management’s responsibility, often with the assistance of independent experts, to select assumptions that in its judgment represent its best estimates of the future effects of those uncertainties and to review those assumptions periodically to reflect changes in economic or other factors.
The current benefit service costs, as well as the existing liabilities, for pensions and other postretirement benefits are measured on a discounted present value basis. The discount rate is a current rate, related to the rate at which the liabilities could be settled. Our assumed discount rate is based on yield information for high-quality corporate bonds with durations comparable to the expected cash settlement of our obligations. For the purpose of measuring the benefit obligations at December 31, 2019, we used a weighted average discount rate of 3.16% for the U.S. plans, which reflects the different terms of the related benefit obligations. The weighted average discount rate used to measure obligations for non-U.S. plans at December 31, 2019, was 1.03%, reflecting market interest rates. The discount rates in effect at December 31, 2019, will be used to measure net periodic benefit cost during 2020.
The benefit obligation and the periodic cost of other postretirement medical benefits are also measured based on assumed rates of future increase in the per capita cost of covered health care benefits. As of December 31, 2019, the assumed rate of increase for our U.S. plans was 6.1%, decreasing to 4.5% in 2038 and thereafter. However, changing the assumed health care cost trend rates by one percentage point in each year would increase or decrease the accumulated other postretirement benefit liability as of December 31, 2019, by $24 million and $15 million, respectively, for non-U.S. plans and by less than $1 million for U.S. plans. A one percentage point change would not have a material effect on the aggregate service and interest cost components of the net periodic other postretirement benefit cost for the year then ended.
The net periodic cost of pension benefits included in expense is affected by the expected long-term rate of return on plan assets assumption. Investment returns that are recognized currently in net income represent the expected long-term rate of return on plan assets applied to a market-related value of plan assets, which is defined as the market value of assets. The expected rate of return on plan assets is a longer-term rate and is expected to change less frequently than the current assumed discount rate, reflecting long-term market expectations, rather than current fluctuations in market conditions.
The weighted average expected long-term rate of return on assets in our U.S. plans of 7.50% is based on the average level of earnings that our independent pension investment advisor advised could be expected to be earned over time. The weighted average expected long-term rate of return on assets in our non-U.S. plans of 2.79% is based on expectations and asset allocations that vary by region. The asset allocations are summarized in Note 16 to the Consolidated Financial Statements.
The actual rate of return on plan assets may differ from the expected rate due to the volatility normally experienced in capital markets. Management’s goal is to manage the investments over the long term to achieve optimal returns with an acceptable level of risk and volatility.
Net periodic pension cost recognized each year includes the expected asset earnings, rather than the actual earnings or loss. Along with other gains and losses, this unrecognized amount, to the extent it cumulatively exceeds 10% of the projected benefit obligation for the respective plan, is recognized as additional net periodic benefit cost over the average remaining service period of the participants in each plan.
The following table reflects the sensitivity of the benefit obligations and the net periodic benefit costs of our pension plans to changes in the actuarial assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects on
Benefit Obligations
in 2019
|
|
Effects on Net
Periodic Pension
Costs in 2020
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Projected benefit obligations at December 31, 2019
|
$
|
1,965
|
|
|
$
|
2,017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Projected net periodic pension costs in 2020
|
—
|
|
|
—
|
|
|
29
|
|
|
73
|
|
|
Discount rate increases by 100 basis points
|
(180
|
)
|
|
(286
|
)
|
|
(6
|
)
|
|
(8
|
)
|
|
Discount rate decreases by 100 basis points
|
219
|
|
|
353
|
|
|
7
|
|
|
23
|
|
The sensitivity of our postretirement benefit plans obligations and net periodic benefit costs to changes in actuarial assumptions are reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects on
Benefit Obligations
in 2019
|
|
Effects on Net
Periodic Benefit
Costs in 2020
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Projected benefit obligations at December 31, 2019
|
$
|
251
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Projected net periodic benefit costs in 2020
|
—
|
|
|
—
|
|
|
6
|
|
|
7
|
|
|
Discount rate increases by 100 basis points
|
(22
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
Discount rate decreases by 100 basis points
|
26
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Additional information on the key assumptions underlying these benefit costs appears in Note 16 to the Consolidated Financial Statements.
Accruals for Taxes Based on Income—The determination of our provision for income taxes and the calculation of our tax benefits and liabilities is subject to management’s estimates and judgments due to the complexity of the tax laws and regulations in the tax jurisdictions in which we operate. Uncertainties exist with respect to interpretation of these complex laws and regulations.
Deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
We recognize future tax benefits to the extent that the realization of these benefits is more likely than not. Our current provision for income taxes is impacted by the recognition and release of valuation allowances related to net deferred tax assets in certain jurisdictions. Further changes to these valuation allowances may impact our future provision for income taxes, which will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.
We recognize the financial statement benefits with respect to an uncertain income tax position that we have taken or may take on an income tax return when we believe it is more likely than not that the position will be sustained with the tax authorities.
ACCOUNTING AND REPORTING CHANGES
For a discussion of the potential impact of new accounting pronouncements on our Consolidated Financial Statements, see Note 2 to the Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data.
Index to the Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
LYONDELLBASELL INDUSTRIES N.V.
|
|
|
|
|
|
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
We conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of LyondellBasell Industries N.V.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of LyondellBasell Industries N.V. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Taxation - Provisions for unrecognized tax benefits
As described in Notes 2, 11, 12, and 18 to the consolidated financial statements, as of December 31, 2019, the Company has recorded income taxes from continuing operations of $648 million, income tax receivables of $175 million, income tax payables of $66 million, and net deferred tax liabilities of $1,977 million related to which they have reported $238 million of unrecognized tax benefits. The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subjected to review by tax authorities. As a result, there is an uncertainty in income taxes recognized in the Company’s consolidated financial statements. Management recognizes uncertain income tax positions when it is more likely than not, based on the technical merits, that the position or a portion thereof will be sustained upon examination. As disclosed by management, there has been increased attention, both in the U.S. and globally, to the tax practices of multinational companies, including the European Union’s state aid investigations, proposals by the Organization for Economic Cooperation and Development with respect to base erosion and profit shifting, and European Union tax directives and their implementation.
The principal considerations for our determination that performing procedures relating to the provision for unrecognized tax benefits is a critical audit matter are there was significant judgment by management when determining provisions for tax uncertainties, including a high degree of estimation uncertainty relative to the complexity of tax laws, frequency of tax audits, and potential for adjustments as a result of such tax audits. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the timely identification of provisions for tax uncertainties. Also, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the liabilities for unrecognized tax benefits and controls addressing completeness of the uncertain tax positions. These procedures also included, among others, testing management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit
expected to be sustained, testing the completeness of management’s assessment of both the identification and possible outcomes of uncertain tax positions, and evaluating the status and results of tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in evaluating the completeness of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions are more likely than not of being sustained and the amount of potential benefit to be realized, as well as the determination and the application of relevant tax laws.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 20, 2020
We have served as the Company’s auditor since 2008.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF INCOME
(In millions of dollars, except earnings per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
Trade
|
$
|
33,908
|
|
|
$
|
38,126
|
|
|
$
|
33,705
|
|
|
Related parties
|
819
|
|
|
878
|
|
|
779
|
|
|
|
34,727
|
|
|
39,004
|
|
|
34,484
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
Cost of sales
|
29,301
|
|
|
32,529
|
|
|
28,059
|
|
|
Selling, general and administrative expenses
|
1,199
|
|
|
1,129
|
|
|
859
|
|
|
Research and development expenses
|
111
|
|
|
115
|
|
|
106
|
|
|
|
30,611
|
|
|
33,773
|
|
|
29,024
|
|
|
Operating income
|
4,116
|
|
|
5,231
|
|
|
5,460
|
|
|
Interest expense
|
(347
|
)
|
|
(360
|
)
|
|
(491
|
)
|
|
Interest income
|
19
|
|
|
45
|
|
|
24
|
|
|
Other income, net
|
39
|
|
|
106
|
|
|
179
|
|
|
Income from continuing operations before equity investments and income taxes
|
3,827
|
|
|
5,022
|
|
|
5,172
|
|
|
Income from equity investments
|
225
|
|
|
289
|
|
|
321
|
|
|
Income from continuing operations before income taxes
|
4,052
|
|
|
5,311
|
|
|
5,493
|
|
|
Provision for income taxes
|
648
|
|
|
613
|
|
|
598
|
|
|
Income from continuing operations
|
3,404
|
|
|
4,698
|
|
|
4,895
|
|
|
Loss from discontinued operations, net of tax
|
(7
|
)
|
|
(8
|
)
|
|
(18
|
)
|
|
Net income
|
3,397
|
|
|
4,690
|
|
|
4,877
|
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
2
|
|
|
Net income attributable to LyondellBasell Industries N.V.
|
3,397
|
|
|
4,690
|
|
|
4,879
|
|
|
Dividends on redeemable non-controlling interests
|
(7
|
)
|
|
(2
|
)
|
|
—
|
|
|
Net income attributable to the Company shareholders
|
$
|
3,390
|
|
|
$
|
4,688
|
|
|
$
|
4,879
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Net income (loss) attributable to the Company shareholders —
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
Continuing operations
|
$
|
9.61
|
|
|
$
|
12.06
|
|
|
$
|
12.28
|
|
|
Discontinued operations
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.05
|
)
|
|
|
$
|
9.59
|
|
|
$
|
12.04
|
|
|
$
|
12.23
|
|
|
Diluted:
|
|
|
|
|
|
|
Continuing operations
|
$
|
9.60
|
|
|
$
|
12.03
|
|
|
$
|
12.28
|
|
|
Discontinued operations
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.05
|
)
|
|
|
$
|
9.58
|
|
|
$
|
12.01
|
|
|
$
|
12.23
|
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net income
|
$
|
3,397
|
|
|
$
|
4,690
|
|
|
$
|
4,877
|
|
|
Other comprehensive income (loss), net of tax—
|
|
|
|
|
|
|
Financial derivatives
|
(132
|
)
|
|
54
|
|
|
(45
|
)
|
|
Unrealized losses on available-for-sale debt securities
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Unrealized gains on equity securities and equity securities held by equity investees
|
—
|
|
|
—
|
|
|
17
|
|
|
Defined benefit pension and other postretirement benefit plans
|
(269
|
)
|
|
30
|
|
|
77
|
|
|
Foreign currency translations
|
(20
|
)
|
|
(92
|
)
|
|
178
|
|
|
Total other comprehensive income (loss), net of tax
|
(421
|
)
|
|
(8
|
)
|
|
226
|
|
|
Comprehensive income
|
2,976
|
|
|
4,682
|
|
|
5,103
|
|
|
Dividends on redeemable non-controlling interests
|
(7
|
)
|
|
(2
|
)
|
|
—
|
|
|
Comprehensive loss attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
2
|
|
|
Comprehensive income attributable to the Company shareholders
|
$
|
2,969
|
|
|
$
|
4,680
|
|
|
$
|
5,105
|
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
858
|
|
|
$
|
332
|
|
|
Restricted cash
|
30
|
|
|
69
|
|
|
Short-term investments
|
196
|
|
|
892
|
|
|
Accounts receivable:
|
|
|
|
|
Trade, net
|
2,981
|
|
|
3,355
|
|
|
Related parties
|
121
|
|
|
148
|
|
|
Inventories
|
4,588
|
|
|
4,515
|
|
|
Prepaid expenses and other current assets
|
736
|
|
|
1,255
|
|
|
Total current assets
|
9,510
|
|
|
10,566
|
|
|
Operating lease assets
|
1,468
|
|
|
—
|
|
|
Property, plant and equipment, net
|
14,130
|
|
|
12,477
|
|
|
Investments and long-term receivables:
|
|
|
|
|
Investment in PO joint ventures
|
504
|
|
|
469
|
|
|
Equity investments
|
1,602
|
|
|
1,611
|
|
|
Other investments and long-term receivables
|
22
|
|
|
23
|
|
|
Goodwill
|
1,891
|
|
|
1,814
|
|
|
Intangible assets, net
|
869
|
|
|
965
|
|
|
Other assets
|
439
|
|
|
353
|
|
|
Total assets
|
$
|
30,435
|
|
|
$
|
28,278
|
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except shares and par value data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
Current maturities of long-term debt
|
$
|
3
|
|
|
$
|
5
|
|
|
Short-term debt
|
445
|
|
|
885
|
|
|
Accounts payable:
|
|
|
|
|
Trade
|
2,516
|
|
|
2,560
|
|
|
Related parties
|
412
|
|
|
527
|
|
|
Accrued liabilities
|
1,822
|
|
|
1,536
|
|
|
Total current liabilities
|
5,198
|
|
|
5,513
|
|
|
Long-term debt
|
11,614
|
|
|
8,497
|
|
|
Operating lease liabilities
|
1,216
|
|
|
—
|
|
|
Other liabilities
|
2,213
|
|
|
1,897
|
|
|
Deferred income taxes
|
2,015
|
|
|
1,975
|
|
|
Commitments and contingencies
|
|
|
|
|
Redeemable non-controlling interests
|
116
|
|
|
116
|
|
|
Shareholders’ equity:
|
|
|
|
|
Ordinary shares, €0.04 par value, 1,275 million shares authorized, 333,476,883 and 375,696,661 shares outstanding, respectively
|
19
|
|
|
22
|
|
|
Additional paid-in capital
|
5,954
|
|
|
7,041
|
|
|
Retained earnings
|
4,435
|
|
|
6,763
|
|
|
Accumulated other comprehensive loss
|
(1,784
|
)
|
|
(1,363
|
)
|
|
Treasury stock, at cost, 6,568,745 and 24,513,619 ordinary shares, respectively
|
(580
|
)
|
|
(2,206
|
)
|
|
Total Company share of shareholders’ equity
|
8,044
|
|
|
10,257
|
|
|
Non-controlling interests
|
19
|
|
|
23
|
|
|
Total equity
|
8,063
|
|
|
10,280
|
|
|
Total liabilities, redeemable non-controlling interests and equity
|
$
|
30,435
|
|
|
$
|
28,278
|
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
3,397
|
|
|
$
|
4,690
|
|
|
$
|
4,877
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
1,312
|
|
|
1,241
|
|
|
1,174
|
|
|
Amortization of debt-related costs
|
11
|
|
|
14
|
|
|
15
|
|
|
Charges related to repayment of debt
|
—
|
|
|
—
|
|
|
49
|
|
|
Share-based compensation
|
48
|
|
|
39
|
|
|
55
|
|
|
Inventory valuation adjustment
|
33
|
|
|
—
|
|
|
—
|
|
|
Equity investments—
|
|
|
|
|
|
|
Equity income
|
(225
|
)
|
|
(289
|
)
|
|
(321
|
)
|
|
Distribution of earnings, net of tax
|
247
|
|
|
307
|
|
|
309
|
|
|
Deferred income taxes
|
209
|
|
|
260
|
|
|
(587
|
)
|
|
Gain on sales of business and equity investments
|
(5
|
)
|
|
(36
|
)
|
|
(108
|
)
|
|
Changes in assets and liabilities that provided (used) cash:
|
|
|
|
|
|
|
Accounts receivable
|
367
|
|
|
433
|
|
|
(521
|
)
|
|
Inventories
|
(129
|
)
|
|
(141
|
)
|
|
(237
|
)
|
|
Accounts payable
|
(251
|
)
|
|
(199
|
)
|
|
165
|
|
|
Other, net
|
(53
|
)
|
|
(848
|
)
|
|
336
|
|
|
Net cash provided by operating activities
|
4,961
|
|
|
5,471
|
|
|
5,206
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Expenditures for property, plant and equipment
|
(2,694
|
)
|
|
(2,105
|
)
|
|
(1,547
|
)
|
|
Acquisition of A. Schulman, net of cash acquired
|
—
|
|
|
(1,776
|
)
|
|
—
|
|
|
Payments for repurchase agreements
|
—
|
|
|
—
|
|
|
(512
|
)
|
|
Proceeds from repurchase agreements
|
527
|
|
|
—
|
|
|
381
|
|
|
Purchases of available-for-sale debt securities
|
(108
|
)
|
|
(50
|
)
|
|
(653
|
)
|
|
Proceeds from sales and maturities of available-for-sale debt securities
|
511
|
|
|
423
|
|
|
499
|
|
|
Proceeds from maturities of held-to-maturity securities
|
—
|
|
|
—
|
|
|
75
|
|
|
Purchases of equity securities
|
(33
|
)
|
|
(64
|
)
|
|
—
|
|
|
Proceeds from sales of equity securities
|
332
|
|
|
97
|
|
|
—
|
|
|
Net proceeds from sales of business and equity investments
|
5
|
|
|
37
|
|
|
155
|
|
|
Proceeds from settlement of net investment hedges
|
—
|
|
|
1,108
|
|
|
609
|
|
|
Payments for settlement of net investment hedges
|
—
|
|
|
(1,078
|
)
|
|
(658
|
)
|
|
Other, net
|
(175
|
)
|
|
(151
|
)
|
|
(105
|
)
|
|
Net cash used in investing activities
|
(1,635
|
)
|
|
(3,559
|
)
|
|
(1,756
|
)
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Repurchases of Company ordinary shares
|
(3,752
|
)
|
|
(1,854
|
)
|
|
(866
|
)
|
|
Dividends paid - common stock
|
(1,462
|
)
|
|
(1,554
|
)
|
|
(1,415
|
)
|
|
Purchase of non-controlling interest
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
Issuance of long-term debt
|
5,031
|
|
|
—
|
|
|
990
|
|
|
Repayments of long-term debt
|
(2,974
|
)
|
|
(394
|
)
|
|
(1,000
|
)
|
|
Debt extinguishment costs
|
—
|
|
|
—
|
|
|
(65
|
)
|
|
Payments of debt issuance costs
|
(22
|
)
|
|
—
|
|
|
(8
|
)
|
|
Issuance of short-term debt
|
2,500
|
|
|
—
|
|
|
—
|
|
|
Repayments of short-term debt
|
(1,526
|
)
|
|
—
|
|
|
—
|
|
|
Net (repayments of) proceeds from commercial paper
|
(549
|
)
|
|
810
|
|
|
(493
|
)
|
|
Other, net
|
(18
|
)
|
|
(16
|
)
|
|
(2
|
)
|
|
Net cash used in financing activities
|
(2,835
|
)
|
|
(3,008
|
)
|
|
(2,859
|
)
|
|
Effect of exchange rate changes on cash
|
(4
|
)
|
|
(31
|
)
|
|
59
|
|
|
Increase (decrease) in cash and cash equivalents and restricted cash
|
487
|
|
|
(1,127
|
)
|
|
650
|
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
401
|
|
|
1,528
|
|
|
878
|
|
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
888
|
|
|
$
|
401
|
|
|
$
|
1,528
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
$
|
318
|
|
|
$
|
333
|
|
|
$
|
333
|
|
|
Net income taxes paid
|
$
|
403
|
|
|
$
|
1,209
|
|
|
$
|
1,044
|
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Company
Share of
Shareholders’
Equity
|
|
Non-
Controlling
Interests
|
|
|
Issued
|
|
Treasury
|
|
|
Balance, December 31, 2016
|
$
|
31
|
|
|
$
|
(14,945
|
)
|
|
$
|
10,191
|
|
|
$
|
12,282
|
|
|
$
|
(1,511
|
)
|
|
$
|
6,048
|
|
|
$
|
25
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
4,879
|
|
|
—
|
|
|
4,879
|
|
|
(2
|
)
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226
|
|
|
226
|
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
41
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
Dividends - common stock ($3.55 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,415
|
)
|
|
—
|
|
|
(1,415
|
)
|
|
—
|
|
|
Repurchases of Company ordinary shares
|
—
|
|
|
(845
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(845
|
)
|
|
—
|
|
|
Purchase of non-controlling interests
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(22
|
)
|
|
Balance, December 31, 2017
|
31
|
|
|
(15,749
|
)
|
|
10,206
|
|
|
15,746
|
|
|
(1,285
|
)
|
|
8,949
|
|
|
1
|
|
|
Adoption of accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
(70
|
)
|
|
25
|
|
|
—
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
4,690
|
|
|
—
|
|
|
4,690
|
|
|
—
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
(8
|
)
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
37
|
|
|
28
|
|
|
(2
|
)
|
|
—
|
|
|
63
|
|
|
—
|
|
|
Dividends - common stock ($4.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,554
|
)
|
|
—
|
|
|
(1,554
|
)
|
|
—
|
|
|
Dividends - redeemable non-controlling interests
($15.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
Repurchases of Company ordinary shares
|
—
|
|
|
(1,878
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,878
|
)
|
|
—
|
|
|
Purchase of non-controlling interests
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
Cancellation of Treasury shares
|
(9
|
)
|
|
15,384
|
|
|
(3,165
|
)
|
|
(12,210
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Acquisition of A. Schulman
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
Balance, December 31, 2018
|
22
|
|
|
(2,206
|
)
|
|
7,041
|
|
|
6,763
|
|
|
(1,363
|
)
|
|
10,257
|
|
|
23
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
3,397
|
|
|
—
|
|
|
3,397
|
|
|
—
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(421
|
)
|
|
(421
|
)
|
|
—
|
|
|
Share-based compensation
|
—
|
|
|
42
|
|
|
33
|
|
|
(3
|
)
|
|
—
|
|
|
72
|
|
|
—
|
|
|
Dividends - common stock ($4.15 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,462
|
)
|
|
—
|
|
|
(1,462
|
)
|
|
—
|
|
|
Dividends - redeemable non-controlling interests
($60.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
Repurchases of Company ordinary shares
|
—
|
|
|
(3,728
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,728
|
)
|
|
—
|
|
|
Purchase of non-controlling interests
|
—
|
|
|
—
|
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
|
—
|
|
|
Distribution to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
Cancellation of Treasury shares
|
(3
|
)
|
|
5,312
|
|
|
(1,056
|
)
|
|
(4,253
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance, December 31, 2019
|
$
|
19
|
|
|
$
|
(580
|
)
|
|
$
|
5,954
|
|
|
$
|
4,435
|
|
|
$
|
(1,784
|
)
|
|
$
|
8,044
|
|
|
$
|
19
|
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
1.
|
|
|
|
|
|
|
|
2.
|
|
|
|
|
|
|
|
3.
|
|
|
|
|
|
|
|
4.
|
|
|
|
|
|
|
|
5.
|
|
|
|
|
|
|
|
6.
|
|
|
|
|
|
|
|
7.
|
|
|
|
|
|
|
|
8.
|
|
|
|
|
|
|
|
9.
|
|
|
|
|
|
|
|
10.
|
|
|
|
|
|
|
|
11.
|
|
|
|
|
|
|
|
12.
|
|
|
|
|
|
|
|
13.
|
|
|
|
|
|
|
|
14.
|
|
|
|
|
|
|
|
15.
|
|
|
|
|
|
|
|
16.
|
|
|
|
|
|
|
|
17.
|
|
|
|
|
|
|
|
18.
|
|
|
|
|
|
|
|
19.
|
|
|
|
|
|
|
|
20.
|
|
|
|
|
|
|
|
21.
|
|
|
|
|
|
|
|
22.
|
|
|
|
|
|
|
|
23.
|
|
|
|
|
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Company and Operations
LyondellBasell Industries N.V. is a limited liability company (Naamloze Vennootschap) incorporated under Dutch law by deed of incorporation dated October 15, 2009. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).
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 the production of polymers.
2. Summary of Significant Accounting Policies
Basis of Preparation and Consolidation
The accompanying Consolidated Financial Statements have been prepared from the books and records of LyondellBasell N.V. under accounting principles generally accepted in the United States (“U.S. GAAP”). Subsidiaries are defined as being those companies over which we, either directly or indirectly, have control through a majority of the voting rights or the right to exercise control or to obtain the majority of the benefits and be exposed to the majority of the risks. Subsidiaries are consolidated from the date on which control is obtained until the date that such control ceases. All intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
Our cash equivalents consist of highly liquid debt instruments such as certificates of deposit, commercial paper and money market accounts with major international banks and financial institutions. Cash equivalents include instruments with maturities of three months or less when acquired and exclude restricted cash.
Although, we have no current requirements for compensating balances in a specific amount at a specific point in time, we may maintain compensating balances at our discretion for some of our banking services and products.
Short-Term Investments
Our investments in debt securities are classified as available-for-sale and held-to-maturity on the basis of our intent and ability to hold the investments. Investments classified as available-for-sale are carried at fair value with changes reflected in other comprehensive income. Credit-related impairment, measured using the expected cash flows and limited to the amount by which the amortized cost basis of a security exceeds its fair value, is recognized through an allowance for expected credit losses, and adjusted subsequently if conditions change, with a corresponding impact in earnings. Where there is an intention or a requirement to sell an impaired available-for-sale debt security, the entire impairment is recognized in earnings with a corresponding adjustment to the amortized cost basis of the security.
Investments classified as held-to-maturity are carried at amortized cost less allowance for credit losses recorded through net income.
We account for investments in equity securities at fair value with changes in fair value recognized in net income.
Trade Receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business and are carried at transaction price net of allowance for credit losses. Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates. The corresponding expense for the loss allowance is reflected in Selling, general and administrative expenses.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Loans Receivable
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 internal policies are held by a third-party custodian and must generally have a minimum collateral value of 102%, secure the counterparty’s obligation to repurchase the securities. The investment in tri-party repurchase agreements is carried at amortized cost. We have elected the practical expedient to recognize zero credit losses for the investment in tri-party repurchase agreements given the counterparty’s requirement to maintain collateral of fair value equal to or exceeding the amortized cost basis of the investment.
Depending upon maturity, these 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.
Inventories
Cost of our raw materials, work-in-progress and finished goods inventories is determined using the last-in, first-out (“LIFO”) method and is carried at the lower of cost or market value. Cost of our materials and supplies inventory is determined using the moving average cost method and is carried at the lower of cost and net realizable value.
Inventory exchange transactions, which involve fungible commodities, are not accounted for as purchases and sales. Any resulting volumetric exchange balances are accounted for as inventory, with cost determined using the LIFO method.
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Costs may also include borrowing costs incurred on debt during construction of major projects exceeding one year, costs of major maintenance arising from turnarounds of major units and committed decommissioning costs. Routine maintenance costs are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of assets to their residual values. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, whenever events or circumstances indicate that a revision is warranted. Land is not depreciated.
We evaluate property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which, for us, is generally at the plant group level (or, at times, individual plants in certain circumstances where we have isolated production units with separately identifiable cash flows). If it is determined that an asset or asset group’s undiscounted future cash flows will not be sufficient to recover the carrying amount, the asset is written down to its estimated fair value.
Gain or loss on retirement or sale of property, plant and equipment is reflected in the Consolidated Statements of Income.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Equity Investments
We account for equity method investments (“equity investments”) using the equity method of accounting if we have the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if we have an ownership interest representing between 20% and 50% of the voting rights. Under the equity method of accounting, investments are stated initially at cost and are adjusted for subsequent additional investments and our proportionate share of profit or losses and distributions.
We record our share of the profits or losses of the equity investments, net of income taxes, in the Consolidated Statements of Income. When our share of losses in an equity investment equals or exceeds our interest in the equity investment, including any other unsecured receivables, we do not recognize further losses, unless we have guaranteed obligations or are otherwise committed to provide further financial support to the investee.
We assess our equity investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other-than-temporary, the investment is written down to its estimated fair value.
Business Combination
We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any difference compared to the purchase consideration recorded as goodwill or gain from a bargain purchase. Subsequent to the acquisition, and no later than one year from the acquisition date, we may record adjustments to the estimated fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments of the estimated fair values are recorded to earnings. Acquisition-related costs are expensed as incurred.
Redeemable Non-controlling Interests
Our redeemable non-controlling interests relate to shares of cumulative perpetual special stock (“redeemable non-controlling interest stock”) issued by our consolidated subsidiary, formerly known as A. Schulman, Inc. (“A. Schulman”). Holders of redeemable non-controlling interest stock are entitled to receive cumulative dividends at the rate of 6% per share on the liquidation preference of $1,000 per share. Redeemable non-controlling interest stock may be redeemed at any time at the discretion of the holders and is reported in the Consolidated Balance Sheets outside of permanent equity.
The redeemable non-controlling interests were recorded at fair value at the date of acquisition and is subsequently carried at the greater of estimated redemption value at the end of each reporting period or the initial amount recorded at the date of acquisition adjusted for subsequent redemptions. Dividends on these shares are deducted from or added to the amount of Income (loss) attributable to the Company shareholders if and when declared by the Company.
Goodwill
Goodwill is tested for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the fair value of a reporting unit with goodwill is below its carrying amount.
We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the reporting units include, but are not limited to, changes in long-term commodity prices, discount rates, competitive environments, planned capacity, cost factors such as raw material prices, and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized up to a maximum amount of goodwill allocated to that reporting unit.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In 2019 and 2018, management performed qualitative impairment assessments of our reporting units which indicated that the fair value of our reporting units was greater than their carrying value including goodwill. Accordingly, a quantitative goodwill impairment test was not required and no goodwill impairment was recognized.
Intangible Assets
Intangible Assets—Intangible assets consist of customer relationships, trade names and trademarks, know-how, emission allowances, various contracts, in-process research and development costs and software costs. These assets are amortized using the straight-line method over their estimated useful lives or over the term of the related agreement. We evaluate definite-lived intangible assets with the associated long-lived asset group for impairment whenever impairment indicators are present.
Research and Development—Research and development (“R&D”) costs are expensed when incurred. Subsidies for R&D are included in Other income (expense), net. Depreciation expense related to assets employed in R&D is included as a cost of R&D.
Income Taxes
The income tax for the period comprises current and deferred tax. Income tax is recognized in the Consolidated Statements of Income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In these cases, the applicable tax amount is recognized in other comprehensive income or directly in equity, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the net tax effects of net operating loss carryforwards. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
We recognize uncertain income tax positions in our financial statements when we believe it is more likely than not, based on the technical merits, that the position or a portion thereof will be sustained upon examination. For a position that is more likely than not to be sustained, the benefit recognized is measured at the largest cumulative amount that is greater than 50 percent likely of being realized.
Other Provisions
Environmental Remediation Costs—Environmental remediation liabilities include liabilities related to sites we currently own, sites we no longer own, as well as sites where we have operated that belong to other parties. Liabilities for anticipated expenditures related to investigation and remediation of contaminated sites are accrued when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated. Only ongoing operating and monitoring costs, the timing of which can be determined with reasonable certainty, are discounted to present value. Future legal costs associated with such matters, which generally are not estimable, are not included in these liabilities.
Asset Retirement Obligations—At some sites, we are contractually obligated to decommission our plants upon site exit. Asset retirement obligations are recorded at the present value of the estimated costs to retire the asset at the time the obligation is incurred. That cost, which is capitalized as part of the related long-lived asset, is depreciated on a straight-line basis over the remaining useful life of the related asset. Accretion expense in connection with the discounted liability is also recognized over the remaining useful life of the related asset. Such depreciation and accretion expenses are included in Cost of sales.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Translation and Remeasurement
Functional and Reporting Currency—Items included in the financial information of each of LyondellBasell N.V.’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”) and then translated to the U.S. dollar (“the reporting currency”) through Other comprehensive income as follows:
|
|
|
|
•
|
Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
|
|
|
|
|
•
|
Income and expenses for each income statement are translated at monthly average exchange rates; and
|
|
|
|
|
•
|
All resulting exchange differences are recognized as a separate component within Other comprehensive income (foreign currency translation).
|
Transactions and Balances—Foreign currency transactions are recorded in their respective functional currency using exchange rates prevailing at the dates of the transactions. Exchange gains and losses resulting from the settlement of such transactions and from remeasurement of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the Consolidated Statements of Income.
Revenue Recognition
Substantially all our revenues are derived from contracts with customers. We account for contracts when both parties have approved the contract and are committed to perform, the rights of the parties and payment terms have been identified, the contract has commercial substance and collectability is probable.
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. This generally occurs at the point in time when performance obligations are fulfilled and control transfers to the customer. In most instances, control transfers upon transfer of risk of loss and title to the customer, which usually occurs when we ship products to the customer from our manufacturing facility. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Customer incentives are generally based on volumes purchased and recognized over the period earned. Sales, value-added, and other taxes that we collect concurrent with revenue-producing activities are excluded from the transaction price as they represent amounts collected on behalf of third parties. We apply the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. Shipping and handling costs are treated as a fulfillment cost and not a separate performance obligation.
Payments are typically required within a short period following the transfer of control of the product to the customer. We occasionally require customers to prepay purchases to ensure collectability. Such prepayments do not represent financing arrangements, since payment and fulfillment of the performance obligation occurs within a short time frame. We apply the practical expedient which permits us not to adjust the promised amount of consideration for the effects of a significant financing component when, at contract inception, we expect that payment will occur in one year or less.
Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. Our contract liabilities, which are reflected in our Consolidated Financial Statements as Accrued liabilities and Other liabilities, consist primarily of customer payments for products or services received before the transfer of control to the customer occurs.
Share-Based Compensation
The Company recognizes compensation expense in the financial statements for equity-classified share-based compensation awards based upon the grant date fair value over the vesting period.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Compensation expense for liability-classified share-based awards are recognized on a straight-line basis over the vesting period as a liability and re-measured, at fair value, at the balance sheet date. See Note 17 to the Consolidated Financial Statements for additional information.
Leases
At inception of a contract, we determine if the contract contains a lease. When a lease is identified, we recognize a leased asset and a corresponding lease liability based on the present value of the lease payments over the lease term, discounted using our incremental borrowing rate, unless an implicit rate is readily determinable. Lease payments include fixed and variable lease components. Options to extend or terminate a lease are reflected in the lease payments and lease term when it is reasonably certain that we will exercise those options. Variable components are derived from usage or market-based indices, such as the consumer price index. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Income. The majority of our leases are operating leases for which we recognize lease expense on a straight-line basis over the lease term. We apply the practical expedient to account for lease and associated non-lease components as a single lease component for all asset classes with the exception of utilities and pipeline assets within major manufacturing equipment. For these assets, non-lease components are separated from lease components and accounted for as normal operating expenses. Leases with an initial term of 12 months or less are recognized in the Consolidated Statements of Income on a straight-line basis over the lease term.
Financial Instruments and Hedging Activities
Pursuant to our risk management policies, we selectively enter into derivative transactions to manage market risk volatility associated with changes in commodity pricing, currency exchange rates and interest rates. Derivatives used for this purpose are generally designated as net investment hedges, cash flow hedges or fair value hedges. 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.
Cash flows from derivatives designated as hedges are reported in our Consolidated Statements of Cash Flows under the same category as the cash flows from the hedged items unless the derivative contract contains a significant financing element. Cash flows for derivatives with a significant financing element are classified as Cash flows from financing activities.
Net Investment Hedges—We enter into foreign currency derivatives and foreign currency denominated debt to reduce the volatility in shareholders’ equity resulting from changes in currency exchange rates of our foreign subsidiaries with respect to the U.S. dollar. Our foreign currency derivatives consist of cross-currency basis swap contracts and forward exchange contracts.
We use the critical terms approach through the application of the spot method to assess hedge effectiveness at least quarterly. For derivatives designated as net investment hedges, gains or losses attributable to changes in spot foreign exchange rates over the designation period are reflected in foreign currency translation adjustments within Other comprehensive income (loss). Recognition in earnings is delayed until the net investment is sold or liquidated. At that time, the amount recognized is reported in the same line item as the gain or loss on the liquidation of the hedged foreign operations. For our basis swaps, the associated interest receipts and payments are recorded in Interest expense. For our foreign currency forward contracts, we amortize initial forward point values on a straight-line basis to Interest expense over the life of the hedging instrument. We monitor on a quarterly basis for any over-hedged positions requiring de-designation and re-designation of the hedge to remove such over-hedged condition.
Cash Flow Hedges—We enter into cash flow hedges to manage the variability in cash flows of a future transaction. Our cash flow hedges include cross currency swaps, forward starting interest rate swaps and commodity futures and swaps. For derivatives designated as cash flow hedges, the gains and losses are recorded in Other comprehensive income (loss) and released to earnings in the same line item and in the same period during which the hedged item affects earnings.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We use the critical terms and the quantitative long-haul methods to assess hedge effectiveness and monitor, at least quarterly, any change in effectiveness.
We have cross-currency swap contracts designated as cash flow hedges to reduce our exposure to the foreign currency exchange risk associated with certain intercompany loans. Under the terms of these contracts, we 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.
We enter into forward-starting interest rate contracts to mitigate the risk of adverse changes in benchmark interest rates on future anticipated debt issuances.
We also execute commodity futures and swaps to manage the volatility of the commodity price related to anticipated purchases of raw materials and product sales. We enter into over-the-counter commodity swaps with one or more counterparties whereby we pay a predetermined fixed price and receive a price based on the average monthly rate of a specified index for the specified nominated volumes.
Fair Value Hedges—We use interest rate swaps 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. For derivatives that have been designated as fair value hedges, the gains and losses of the derivatives and hedged items are recorded in earnings.
We use the long-haul method to assess hedge effectiveness using a regression analysis approach at least quarterly. We perform the regression analysis over an observation period of three years, utilizing data that is relevant to the hedge duration.
Fair Value Measurements
We categorize assets and liabilities, measured at fair value, into one of three different levels depending on the observability of the inputs employed in the measurement:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable.
Level 3—Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
Changes in Fair Value Levels—Management reviews the disclosures regarding fair value measurements at least quarterly. If an instrument classified as Level 1 subsequently ceases to be actively traded, it is transferred out of Level 1. In such cases, instruments are reclassified as Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is reclassified as Level 3.
We use the following inputs and valuation techniques to estimate the fair value of our financial instruments disclosed in Note 15 to the Consolidated Financial Statements:
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, basis curves and 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.
Forward-Starting and Fixed-for-Floating Interest Rate Swaps—The fair value of our forward-starting and fixed-for-floating interest rate swaps is calculated using the present value of future cash flows using observable inputs such as benchmark interest rates and market yield curves.
Commodity Derivatives—The fair values of our commodity derivatives are measured using closing market prices of public exchanges 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.
Forward Exchange Contracts—The fair value of our forward exchange contracts is based on forward market rates.
Available-for-Sale Debt Securities—The fair value of our available-for-sale debt securities is calculated using observable market data for similar securities and broker quotes from recognized purveyors of market data.
Equity Securities—The fair value of our investment in equity securities is based on the net asset value provided by the fund administrator.
Loans Receivable—The fair value of our tri-party repurchase agreements 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—The fair value of short-term borrowings related to precious metal financing arrangements accounted for as embedded derivatives are determined based on the market price of the associated precious metal.
Long-Term Debt—The fair value of our senior and guaranteed notes is calculated using pricing data obtained from well-established and recognized vendors of market data for debt valuations. The fair value of our term loan is determined based on a discounted cash flow model using observable inputs such as benchmark interest rates and public information regarding our credit risk.
Due to the short maturity, the fair value of all non-derivative financial instruments included in Current assets and Current liabilities approximates the applicable carrying value. Current assets include Cash and cash equivalents, Restricted cash, Short-term investments and Accounts receivable. Current liabilities include Accounts payable and Short-term debt excluding precious metal financings.
We use the following inputs and valuation techniques to estimate the fair value of our pension assets disclosed in Note 16 to the Consolidated Financial Statements:
Common and Preferred Stock—Valued at the closing price reported on the market on which the individual securities are traded.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fixed Income Securities—Certain securities that are not traded on an exchange are valued at the closing price reported by pricing services. Other securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
Commingled Funds—Valued based upon the unit values of such collective trust funds held at year end by the pension plans. Unit values are based on the fair value of the underlying assets of the fund derived from inputs principally from, or corroborated by, observable market data by correlation or other means.
Real Estate—Valued on the basis of a discounted cash flow approach, which includes the future rental receipts, expenses, and residual values as the highest and best use of the real estate from a market participant view as rental property.
Hedge Funds—Valued based upon the unit values of such alternative investments held at year end by the pension plans. Unit values are based on the fair value of the underlying assets of the fund.
Private Equity—Valued based upon the unit values of such alternative investments held at year end by the pension plans. Unit values are based on the fair value of the underlying assets of the fund. Certain securities held in the fund are valued at the closing price reported on an exchange or other established quotation service for over-the-counter securities. Other assets held in the fund are valued based on the most recent financial statements prepared by the fund manager.
Convertible Securities—Valued at the quoted prices for similar assets or liabilities in active markets.
U.S. Government Securities—Certain securities are valued at the closing price reported on the active market on which the individual securities are traded. Other securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
Cash and Cash Equivalents—Valued at the quoted prices for identical assets or liabilities in active markets.
Non-U.S. Insurance Arrangements—Valued based upon the estimated cash surrender value of the underlying insurance contract, which is derived from an actuarial determination of the discounted benefits cash flows.
Employee Benefits
Pension Plans—We have funded and unfunded defined benefit plans and defined contribution plans. For the defined benefit plans, a projected benefit obligation is calculated annually by independent actuaries using the projected unit credit method. Pension costs primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of expected return on plan assets.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity and are reflected in Accumulated other comprehensive income in the period in which they arise.
Other Post-Employment Obligations—Certain employees are entitled to postretirement medical benefits upon retirement. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment applying the same accounting methodology used for defined benefit plans.
Termination Benefits—Contractual termination benefits are payable when employment is terminated due to an event specified in the provisions of a social/labor plan or statutory law. A liability is recognized for one-time termination benefits when we are committed to (i) make payments and the number of affected employees and the benefits received are known to both parties, and (ii) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal and can reasonably estimate such amount. Benefits falling due more than 12 months after the balance sheet date are discounted to present value.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recently Adopted Guidance
Leases—Effective January 1, 2019, we adopted the Financial Accounting Standards Board’s (“FASB”) Standard, Leases (Topic 842) as amended. This guidance establishes a right-of-use model that requires a lessee to recognize a leased asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the timing and classification of expense recognition.
We used the modified retrospective method and recognized at January 1, 2019, Operating leased assets and Operating lease liabilities of $1,533 million and $1,553 million, respectively. We also reduced Accrued liabilities and Other liabilities by $2 million and $18 million, respectively. We elected the practical expedients permitted under the transition guidance that allowed us not to reassess our prior conclusions about lease identification, lease classification, initial direct costs and whether existing land easements that were not accounted for as leases under previous accounting standards are, or contain, a lease under the new standard. The adoption of this new guidance did not have a material impact on our Consolidated Statements of Income or Cash Flows. Comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 14 to the Consolidated Financial Statements for the disclosures related to the adoption of this guidance.
Financial Instruments—Effective January 1, 2019, we early adopted the FASB’s update Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance amends the impairment model to utilize an expected credit loss method in place of the incurred loss method for financial instruments measured at amortized cost, which may result in earlier recognition of credit losses. The expected credit loss is recorded using a valuation allowance and considers the risk of loss over the asset’s contractual life, even if remote, historical experience, current conditions and forecasts. This guidance also modifies the impairment model for available-for-sale debt securities by eliminating the concept of “other than temporary” impairment. Our early adoption of this guidance, including subsequent amendments, did not have a material impact on our Consolidated Financial Statements.
Accounting Guidance Issued But Not Adopted as of December 31, 2019
Intangibles—Effective January 1, 2020, we will adopt FASB update, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires a customer in a hosted, cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized costs are amortized over the term of the hosting arrangement when the recognized asset is ready for its intended use. The adoption of this guidance will not have a material impact on our Consolidated Financial Statements.
Fair Value Measurement—Effective January 1, 2020, we will adopt FASB update, Fair Value Measurement (Topic 820): Disclosure Framework—Change to the Disclosure Requirements for Fair Value Measurement. This guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. It removes transfer disclosures between Level 1 and Level 2 of the fair value hierarchy, and adds disclosures for the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of this guidance will not have a material impact on our Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Taxes—In December 2019, the FASB issued the update, Income Taxes (Topic 742): Simplifying the Accounting for Income Taxes. This guidance enhances and simplifies various aspects of income tax accounting by removing exceptions for recognizing deferred taxes for changes from a subsidiary to an equity method investment and vice versa, performing intraperiod allocation and calculating income taxes in interim periods. The new guidance also reduces complexity in certain areas, including the tax basis step-up in goodwill in a transaction that is not a business combination and interim period accounting for enacted changes in tax law. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2020 using a combination of retrospective, modified retrospective and prospective basis. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our Consolidated Financial Statements.
Compensation—In August 2018, FASB issued update, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This guidance changes disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. It eliminates the requirement of certain disclosures that are no longer considered cost beneficial; however, it adds more pertinent disclosures. This guidance will be effective for public entities for annual periods ending after December 15, 2020. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our Consolidated Financial Statements.
3. Business Combination and Disposition
Business Combination
On August 21, 2018, we acquired all of the outstanding common stock of A. Schulman Inc., a Delaware corporation, for an adjusted aggregate purchase price of $1,933 million. The purchase price was allocated based on the fair value of the acquired assets and liabilities, redeemable non-controlling interests and non-controlling interests assumed. During 2019, we made certain measurement period adjustments resulting in a $86 million increase of goodwill with corresponding adjustments to property, plant and equipment, contingencies and deferred taxes. For additional information on the goodwill allocated to our reporting units, see Note 8 and Note 22 to the Consolidated Financial Statements.
Disposition
In October 2018, we received net cash proceeds of $37 million upon the sale of our carbon black subsidiary in France. The net cash proceeds are reflected in Cash flows from investing activities in the Consolidated Statements of Cash Flows. In connection with the sale, we recognized a pre-tax gain of $36 million, which is reflected in Other income, net in the Consolidated Income Statements.
4. Revenues
Contract Balances—Contract liabilities were $124 million and $138 million at December 31, 2019 and 2018, respectively. Revenue recognized in each reporting period included in the contract liability balance at the beginning of the period was immaterial.
Disaggregation of Revenues—We participate globally across the petrochemical value chain and are an industry leader in many of our product lines. Our chemicals businesses consist primarily of large processing plants that convert large volumes of liquid and gaseous hydrocarbon feedstocks into plastic resins and other chemicals. Our chemical products tend to be basic building blocks for other chemicals and plastics. Our plastic products are used in large volumes as well as smaller specialty applications. Our refining business consists of our Houston refinery, which processes crude oil into refined products such as gasoline, diesel and jet fuel.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenues disaggregated by key products are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
Olefins & co-products
|
$
|
2,957
|
|
|
$
|
3,679
|
|
|
$
|
4,304
|
|
|
Polyethylene
|
6,070
|
|
|
7,439
|
|
|
7,368
|
|
|
Polypropylene
|
5,010
|
|
|
5,703
|
|
|
5,005
|
|
|
Propylene oxide and derivatives
|
1,924
|
|
|
2,378
|
|
|
2,059
|
|
|
Oxyfuels and related products
|
3,116
|
|
|
3,399
|
|
|
3,022
|
|
|
Intermediate chemicals
|
2,516
|
|
|
3,568
|
|
|
3,196
|
|
|
Compounding and solutions
|
4,096
|
|
|
3,091
|
|
|
2,139
|
|
|
Advanced polymers
|
750
|
|
|
930
|
|
|
783
|
|
|
Refined products
|
7,599
|
|
|
8,221
|
|
|
6,165
|
|
|
Other
|
689
|
|
|
596
|
|
|
443
|
|
|
Total
|
$
|
34,727
|
|
|
$
|
39,004
|
|
|
$
|
34,484
|
|
The following table presents our revenues disaggregated by geography, based upon the location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
United States
|
$
|
16,349
|
|
|
$
|
18,671
|
|
|
$
|
16,618
|
|
|
Germany
|
2,708
|
|
|
2,949
|
|
|
2,746
|
|
|
Mexico
|
1,634
|
|
|
2,308
|
|
|
1,504
|
|
|
Italy
|
1,435
|
|
|
1,582
|
|
|
1,352
|
|
|
France
|
1,345
|
|
|
1,460
|
|
|
1,306
|
|
|
Japan
|
1,039
|
|
|
1,257
|
|
|
1,185
|
|
|
China
|
1,225
|
|
|
1,137
|
|
|
1,024
|
|
|
The Netherlands
|
929
|
|
|
1,050
|
|
|
1,069
|
|
|
Other
|
8,063
|
|
|
8,590
|
|
|
7,680
|
|
|
Total
|
$
|
34,727
|
|
|
$
|
39,004
|
|
|
$
|
34,484
|
|
Transaction Price Allocated to the Remaining Performance Obligations—We have elected to exclude contracts which have an initial term of one year or less from this disclosure. Our contracts with customers are commodity supply arrangements that settle based on market prices at future delivery dates; therefore, transaction prices are entirely variable. Transaction prices are known at the time revenue is recognized since they are generally determined by the commodity price index at a specific date, at month-end or at the month average once products are shipped to our customers. Future estimates of transaction prices for disclosure purposes are substantially constrained as they are highly susceptible to factors outside our influence, including volatility in commodity markets, industry production capacities and operating rates, planned and unplanned industry operating interruptions, foreign exchange rates and worldwide geopolitical trends.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Related Party Transactions
We have related party transactions with our joint venture partners, which are classified as equity investees (see Notes 9 and 10 to the Consolidated Financial Statements). These related party transactions include the sales and purchases of goods in the normal course of business as well as certain financing arrangements. In addition, under contractual arrangements with certain of our equity investees, we receive certain services, utilities and materials at some of our manufacturing sites, and we provide certain services to our equity investees.
We have guaranteed $40 million of the indebtedness of two of our joint ventures as of December 31, 2019.
Related party transactions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
The Company billed related parties for:
|
|
|
|
|
|
|
Sales of products—
|
|
|
|
|
|
|
Joint venture partners
|
$
|
819
|
|
|
$
|
878
|
|
|
$
|
779
|
|
|
Shared service agreements—
|
|
|
|
|
|
|
Joint venture partners
|
8
|
|
|
9
|
|
|
16
|
|
|
Related parties billed the Company for:
|
|
|
|
|
|
|
Sales of products—
|
|
|
|
|
|
|
Joint venture partners
|
$
|
2,830
|
|
|
$
|
2,999
|
|
|
$
|
2,759
|
|
|
Shared service agreements—
|
|
|
|
|
|
|
Joint venture partners
|
71
|
|
|
70
|
|
|
75
|
|
6. Accounts Receivable
We sell our products primarily to other industrial concerns in the petrochemicals and refining industries. We perform ongoing credit evaluations of our customers’ financial conditions and, in certain circumstances, require letters of credit or corporate guarantees from them. Our Accounts receivable are reflected in the Consolidated Balance Sheets net of allowance for credit losses of $16 million in each of the years ended December 31, 2019 and 2018. We recorded provisions for credit losses for receivables, which are reflected in the Consolidated Statements of Income, of less than $1 million in 2019, 2018 and 2017.
7. Inventories
Inventories consisted of the following components at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Finished goods
|
$
|
3,083
|
|
|
$
|
3,066
|
|
|
Work-in-process
|
130
|
|
|
138
|
|
|
Raw materials and supplies
|
1,375
|
|
|
1,311
|
|
|
Total inventories
|
$
|
4,588
|
|
|
$
|
4,515
|
|
At December 31, 2019 and 2018, approximately 85% of our inventories were valued using the last in, first out (“LIFO”) method and the remaining inventories, consisting primarily of materials and supplies, were valued at the moving average cost method. At December 31, 2019 and 2018, our LIFO cost exceeded current replacement cost under the first-in first-out method. The excess of our inventories at estimated net realizable value over LIFO cost after lower of cost or market (“LCM”) charges was approximately $670 million and $798 million at December 31,
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2019 and 2018, respectively. For information related to LCM inventory valuation charges recognized during 2019, see Note 22 to the Consolidated Financial Statements.
8. Property, Plant and Equipment, Goodwill and Intangible Assets
Property, Plant and Equipment—The components of property, plant and equipment, at cost, and the related accumulated depreciation are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Estimated Useful Life (years)
|
|
2019
|
|
2018
|
|
Major manufacturing equipment
|
25
|
|
$
|
11,572
|
|
|
$
|
10,684
|
|
|
Light equipment and instrumentation
|
5
|
-
|
20
|
|
2,968
|
|
|
2,639
|
|
|
Construction in progress
|
|
|
3,310
|
|
|
2,255
|
|
|
Major turnarounds
|
4
|
-
|
7
|
|
1,866
|
|
|
1,750
|
|
|
Buildings
|
30
|
|
1,090
|
|
|
924
|
|
|
Land
|
|
|
359
|
|
|
364
|
|
|
Information system equipment
|
3
|
-
|
5
|
|
69
|
|
|
60
|
|
|
Office furniture
|
15
|
|
26
|
|
|
25
|
|
|
Total property, plant and equipment
|
|
|
21,260
|
|
|
18,701
|
|
|
Less accumulated depreciation
|
|
|
(7,130
|
)
|
|
(6,224
|
)
|
|
Property, plant and equipment, net
|
|
|
$
|
14,130
|
|
|
$
|
12,477
|
|
Capitalized Interest—We capitalize interest costs incurred on funds used to construct property, plant and equipment. In 2019, 2018 and 2017, we capitalized interest of $87 million, $45 million and $20 million, respectively.
Intangible Assets—The components of identifiable intangible assets, at cost, and the related accumulated amortization are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Millions of dollars
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Emission allowances
|
|
$
|
874
|
|
|
$
|
(593
|
)
|
|
$
|
281
|
|
|
$
|
807
|
|
|
$
|
(531
|
)
|
|
$
|
276
|
|
|
Various contracts
|
|
506
|
|
|
(359
|
)
|
|
147
|
|
|
508
|
|
|
(329
|
)
|
|
179
|
|
|
Customer relationships
|
|
299
|
|
|
(32
|
)
|
|
267
|
|
|
300
|
|
|
(8
|
)
|
|
292
|
|
|
In-process research and development costs
|
|
109
|
|
|
(82
|
)
|
|
27
|
|
|
111
|
|
|
(75
|
)
|
|
36
|
|
|
Trade name and trademarks
|
|
102
|
|
|
(37
|
)
|
|
65
|
|
|
104
|
|
|
(7
|
)
|
|
97
|
|
|
Know-how
|
|
84
|
|
|
(15
|
)
|
|
69
|
|
|
84
|
|
|
(4
|
)
|
|
80
|
|
|
Software costs
|
|
74
|
|
|
(61
|
)
|
|
13
|
|
|
64
|
|
|
(59
|
)
|
|
5
|
|
|
Total intangible assets
|
|
$
|
2,048
|
|
|
$
|
(1,179
|
)
|
|
$
|
869
|
|
|
$
|
1,978
|
|
|
$
|
(1,013
|
)
|
|
$
|
965
|
|
Amortization of these identifiable intangible assets for the next five years is expected to be $167 million in 2020, $76 million in 2021, $72 million in 2022, $65 million in 2023 and $57 million in 2024.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Depreciation and Amortization Expense—Depreciation and amortization expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Property, plant and equipment
|
$
|
1,092
|
|
|
$
|
1,075
|
|
|
$
|
1,023
|
|
|
Investment in PO joint ventures
|
49
|
|
|
41
|
|
|
41
|
|
|
Emission allowances
|
63
|
|
|
63
|
|
|
67
|
|
|
Various contracts
|
32
|
|
|
31
|
|
|
27
|
|
|
Customer relationships
|
24
|
|
|
8
|
|
|
—
|
|
|
In-process research and development costs
|
8
|
|
|
7
|
|
|
9
|
|
|
Trade name and trademarks
|
30
|
|
|
7
|
|
|
—
|
|
|
Know-how
|
12
|
|
|
4
|
|
|
—
|
|
|
Software costs
|
2
|
|
|
5
|
|
|
7
|
|
|
Total depreciation and amortization
|
$
|
1,312
|
|
|
$
|
1,241
|
|
|
$
|
1,174
|
|
Asset Retirement Obligations—In certain cases, we are contractually obligated to decommission our plants upon site exit. In such cases, we have accrued the net present value of the estimated costs. The majority of our asset retirement obligations are related to facilities in Europe. The changes in our asset retirement obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Beginning balance
|
$
|
58
|
|
|
$
|
58
|
|
|
Payments
|
—
|
|
|
(2
|
)
|
|
Changes in estimates
|
7
|
|
|
2
|
|
|
Accretion expense
|
1
|
|
|
2
|
|
|
Effects of exchange rate changes
|
(1
|
)
|
|
(2
|
)
|
|
Ending balance
|
$
|
65
|
|
|
$
|
58
|
|
Although, we may have asset retirement obligations associated with some of our other facilities, the present value of those obligations is not material in the context of an indefinite expected life of the facilities. We continually review the optimal future alternatives for our facilities. Any decision to retire one or more facilities may result in an increase in the present value of such obligations.
We began reporting the Berre refinery as a discontinued operation in the second quarter of 2012. The estimated cost and associated cash flows pertaining to the final closure and dismantle of our Berre refinery from the Prefect of Bouches du Rhone are not deemed to be material.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill—The changes in the carrying amount of goodwill in each of the Company’s reportable segments for the years ended December 31, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
O&P –
Americas
|
|
O&P –
EAI
|
|
I&D
|
|
APS
|
|
Technology
|
|
Total
|
|
December 31, 2017
|
$
|
162
|
|
|
$
|
121
|
|
|
$
|
237
|
|
|
$
|
41
|
|
|
$
|
9
|
|
|
$
|
570
|
|
|
Acquisition of A. Schulman
|
—
|
|
|
—
|
|
|
—
|
|
|
1,259
|
|
|
—
|
|
|
1,259
|
|
|
Measurement period adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
(7
|
)
|
|
(8
|
)
|
|
(12
|
)
|
|
—
|
|
|
(27
|
)
|
|
December 31, 2018
|
162
|
|
|
114
|
|
|
229
|
|
|
1,300
|
|
|
9
|
|
|
1,814
|
|
|
Measurement period adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
86
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(6
|
)
|
|
—
|
|
|
(9
|
)
|
|
December 31, 2019
|
$
|
162
|
|
|
$
|
112
|
|
|
$
|
228
|
|
|
$
|
1,380
|
|
|
$
|
9
|
|
|
$
|
1,891
|
|
For additional information related to the August 2018 acquisition of A. Schulman and related goodwill, see Note 3 to the Consolidated Financial Statements.
9. Investment in PO Joint Ventures
We share ownership with Covestro PO LLC, a subsidiary of Covestro AG (collectively “Covestro”), in a U.S. propylene oxide (“PO”) manufacturing joint venture (the “U.S. PO joint venture”). The U.S. PO joint venture owns a PO/styrene monomer (“SM” or “styrene”) and a PO/tertiary butyl alcohol (“TBA”) manufacturing facility. Covestro’s ownership interest represents an undivided interest in certain U.S. PO joint venture assets with correlative PO capacity reservation that resulted in ownership of annual in-kind cost-based PO production of approximately 680 thousand tons in 2019 and 2018. We take in-kind the remaining cost-based PO and co-product production.
In addition, we and Covestro each have a 50% interest in a separate manufacturing joint venture (the “European PO joint venture”), which owns a PO/SM plant at Maasvlakte near Rotterdam, The Netherlands. In substance, each partner’s ownership interest represents an undivided interest in all of the European PO joint venture assets with correlative capacity reservation that resulted in ownership of annual in-kind cost-based PO and SM production.
We and Covestro do not share marketing or product sales under the U.S. PO joint venture. We operate the U.S. PO joint venture’s and the European PO joint venture’s (collectively the “PO joint ventures”) plants and arrange and coordinate the logistics of product delivery. The partners share in the cost of production and logistics is based on their product offtake.
We account for both the U.S. PO joint venture and the European PO joint venture using the equity method. We report the cost of our product offtake as inventory and equity loss as cost of sales in our Consolidated Financial Statements. Related production cash flows are reported in the operating cash flow section of the Consolidated Statements of Cash Flows.
Our equity investment in the PO joint ventures represents our share of the manufacturing plants and is decreased by recognition of our share of equity loss, which is equal to the depreciation and amortization of the assets of the PO joint ventures. Other changes in the investment balance are principally due to our additional capital contributions to the PO joint ventures to fund capital expenditures. Such contributions are reported in the investing cash flow section of the Consolidated Statements of Cash Flows.
Our product offtake of PO and its co-products was 2,431 thousand tons in 2019, 2,623 thousand tons in 2018 and 2,807 thousand tons in 2017.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Changes in our investments in the U.S. and European PO joint ventures for 2019 and 2018 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
U.S. PO
Joint Venture
|
|
European PO
Joint Venture
|
|
Total PO
Joint Ventures
|
|
Investments in PO joint ventures—January 1, 2019
|
$
|
363
|
|
|
$
|
106
|
|
|
$
|
469
|
|
|
Cash contributions
|
27
|
|
|
59
|
|
|
86
|
|
|
Depreciation and amortization
|
(41
|
)
|
|
(8
|
)
|
|
(49
|
)
|
|
Effect of exchange rate changes
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
Investments in PO joint ventures—December 31, 2019
|
$
|
349
|
|
|
$
|
155
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
|
Investments in PO joint ventures—January 1, 2018
|
$
|
310
|
|
|
$
|
110
|
|
|
$
|
420
|
|
|
Cash contributions
|
85
|
|
|
10
|
|
|
95
|
|
|
Depreciation and amortization
|
(32
|
)
|
|
(9
|
)
|
|
(41
|
)
|
|
Effect of exchange rate changes
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
Investments in PO joint ventures—December 31, 2018
|
$
|
363
|
|
|
$
|
106
|
|
|
$
|
469
|
|
10. Equity Investments
Our PO joint ventures, which are also accounted for using the equity method of accounting, are discussed in Note 9 to the accompanying Consolidated Financial Statements and are, therefore, not included in the following discussion.
Our remaining principal direct and indirect equity investments are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
Percent of Ownership
|
2019
|
|
2018
|
|
Basell Orlen Polyolefins Sp. Z.o.o.
|
50.00
|
%
|
|
50.00
|
%
|
|
PolyPacific Pty. Ltd.
|
50.00
|
%
|
|
50.00
|
%
|
|
Saudi Polyolefins Company
|
25.00
|
%
|
|
25.00
|
%
|
|
Saudi Ethylene & Polyethylene Company Ltd.
|
25.00
|
%
|
|
25.00
|
%
|
|
Al-Waha Petrochemicals Ltd.
|
25.00
|
%
|
|
25.00
|
%
|
|
Polymirae Co. Ltd.
|
50.00
|
%
|
|
50.00
|
%
|
|
HMC Polymers Company Ltd.
|
28.56
|
%
|
|
28.56
|
%
|
|
Indelpro S.A. de C.V.
|
49.00
|
%
|
|
49.00
|
%
|
|
Ningbo ZRCC Lyondell Chemical Co. Ltd.
|
26.65
|
%
|
|
26.65
|
%
|
|
Ningbo ZRCC Lyondell Chemical Marketing Co.
|
50.00
|
%
|
|
50.00
|
%
|
|
NOC Asia Ltd.
|
—
|
%
|
|
40.00
|
%
|
The changes in our equity investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Beginning balance
|
$
|
1,611
|
|
|
$
|
1,635
|
|
|
Income from equity investments
|
225
|
|
|
289
|
|
|
Distribution of earnings, net of tax
|
(247
|
)
|
|
(307
|
)
|
|
Business combination
|
—
|
|
|
16
|
|
|
Currency exchange effects
|
13
|
|
|
(28
|
)
|
|
Other
|
—
|
|
|
6
|
|
|
Ending balance
|
$
|
1,602
|
|
|
$
|
1,611
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In November 2019, we sold our 40% interest in our NOC Asia Ltd. joint venture and received proceeds of $5 million.
Summarized balance sheet information of the Company’s investments accounted for under the equity method are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Current assets
|
$
|
2,591
|
|
|
$
|
2,824
|
|
|
Noncurrent assets
|
4,491
|
|
|
4,625
|
|
|
Total assets
|
7,082
|
|
|
7,449
|
|
|
Current liabilities
|
1,640
|
|
|
1,485
|
|
|
Noncurrent liabilities
|
1,060
|
|
|
1,592
|
|
|
Net assets
|
$
|
4,382
|
|
|
$
|
4,372
|
|
Summarized income statement information of the Company’s investments accounted for under the equity method are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Revenues
|
$
|
6,753
|
|
|
$
|
7,449
|
|
|
$
|
6,632
|
|
|
Cost of sales
|
(5,499
|
)
|
|
(5,899
|
)
|
|
(5,119
|
)
|
|
Gross profit
|
1,254
|
|
|
1,550
|
|
|
1,513
|
|
|
Net operating expenses
|
(253
|
)
|
|
(310
|
)
|
|
(223
|
)
|
|
Operating income
|
1,001
|
|
|
1,240
|
|
|
1,290
|
|
|
Interest income
|
5
|
|
|
6
|
|
|
7
|
|
|
Interest expense
|
(63
|
)
|
|
(70
|
)
|
|
(74
|
)
|
|
Foreign currency translation
|
4
|
|
|
1
|
|
|
11
|
|
|
Other income, net
|
(24
|
)
|
|
25
|
|
|
11
|
|
|
Income before income taxes
|
923
|
|
|
1,202
|
|
|
1,245
|
|
|
Provision for income taxes
|
(194
|
)
|
|
(260
|
)
|
|
(153
|
)
|
|
Net income
|
$
|
729
|
|
|
$
|
942
|
|
|
$
|
1,092
|
|
The difference between our carrying value and the underlying equity in the net assets of our equity investments are assigned to the assets and liabilities of the investment, based on an analysis of the factors giving rise to the basis difference. The amortization of the basis difference is included in Income from equity investments in the Consolidated Statements of Income.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. Prepaid Expenses, Other Current Assets and Other Assets
The components of Prepaid expenses and other current assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Loans receivable
|
$
|
—
|
|
|
$
|
544
|
|
|
VAT receivables
|
178
|
|
|
218
|
|
|
Income tax receivable
|
175
|
|
|
169
|
|
|
Financial derivatives
|
54
|
|
|
80
|
|
|
Advances to suppliers
|
54
|
|
|
57
|
|
|
Renewable identification numbers
|
39
|
|
|
65
|
|
|
Prepaid insurance
|
26
|
|
|
25
|
|
|
Other
|
210
|
|
|
97
|
|
|
Total prepaid expenses and other current assets
|
$
|
736
|
|
|
$
|
1,255
|
|
The renewable identification numbers reflected above represent a U.S. government established credit used to show compliance in meeting the Environmental Protection Agency’s Renewable Fuel Standard.
The components of Other assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Derivative contracts
|
$
|
255
|
|
|
$
|
118
|
|
|
Company-owned life insurance
|
61
|
|
|
62
|
|
|
Deferred tax assets
|
38
|
|
|
31
|
|
|
Pension assets
|
22
|
|
|
39
|
|
|
Debt issuance costs
|
11
|
|
|
12
|
|
|
Other
|
52
|
|
|
91
|
|
|
Total other assets
|
$
|
439
|
|
|
$
|
353
|
|
12. Accrued Liabilities
Accrued liabilities consisted of the following components at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Payroll and benefits
|
$
|
385
|
|
|
$
|
534
|
|
|
Operating lease liabilities
|
273
|
|
|
—
|
|
|
Taxes other than income taxes
|
202
|
|
|
186
|
|
|
Financial derivatives
|
183
|
|
|
30
|
|
|
Interest
|
161
|
|
|
154
|
|
|
Product sales rebates
|
142
|
|
|
163
|
|
|
Contract liabilities
|
103
|
|
|
128
|
|
|
Income taxes
|
66
|
|
|
16
|
|
|
Renewable identification numbers
|
46
|
|
|
72
|
|
|
Other
|
261
|
|
|
253
|
|
|
Total accrued liabilities
|
$
|
1,822
|
|
|
$
|
1,536
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. Debt
Long-term loans, notes and other debt net of unamortized discount and debt issuance cost consisted of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Senior Notes due 2019, $1,000 million, 5.0%
|
$
|
—
|
|
|
$
|
988
|
|
|
Senior Notes due 2021, $1,000 million, 6.0% ($3 million of debt issuance cost)
|
998
|
|
|
975
|
|
|
Senior Notes due 2024, $1,000 million, 5.75% ($5 million of debt issuance cost)
|
995
|
|
|
993
|
|
|
Senior Notes due 2055, $1,000 million, 4.625% ($16 million of discount; $11 million of debt issuance cost)
|
973
|
|
|
973
|
|
|
Term Loan due 2022, $4,000 million
|
1,950
|
|
|
—
|
|
|
Guaranteed Notes due 2022, €750 million, 1.875% ($1 million of discount; $2 million of debt issuance cost)
|
841
|
|
|
855
|
|
|
Guaranteed Notes due 2023, $750 million, 4.0% ($4 million of discount; $2 million of debt issuance cost)
|
744
|
|
|
742
|
|
|
Guaranteed Notes due 2026, €500 million, 0.875% ($2 million of discount; $4 million of debt issuance cost)
|
555
|
|
|
—
|
|
|
Guaranteed Notes due 2027, $1,000 million, 3.5% ($8 million of discount; $6 million of debt issuance cost)
|
1,023
|
|
|
964
|
|
|
Guaranteed Notes due 2027, $300 million, 8.1%
|
300
|
|
|
300
|
|
|
Guaranteed Notes due 2031, €500 million, 1.625% ($6 million of discount; $3 million of debt issuance cost)
|
552
|
|
|
—
|
|
|
Guaranteed Notes due 2043, $750 million, 5.25% ($20 million of discount; $7 million of debt issuance cost)
|
723
|
|
|
722
|
|
|
Guaranteed Notes due 2044, $1,000 million, 4.875% ($11 million of discount; $9 million of debt issuance cost)
|
980
|
|
|
980
|
|
|
Guaranteed Notes due 2049, $1,000 million, 4.2% ($15 million of discount; $10 million of debt issuance cost)
|
975
|
|
|
—
|
|
|
Other
|
8
|
|
|
10
|
|
|
Total
|
11,617
|
|
|
8,502
|
|
|
Less current maturities
|
(3
|
)
|
|
(5
|
)
|
|
Long-term debt
|
$
|
11,614
|
|
|
$
|
8,497
|
|
Fair value hedging adjustments associated with the fair value hedge accounting of our fixed-for-floating interest rate swaps for the applicable periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Inception
Year
|
|
Gains (Losses)
|
|
Cumulative Fair Value Hedging Adjustments Included in Carrying Amount of Debt
|
|
|
|
|
|
|
Year Ended December 31,
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
Senior Notes due 2019, 5.0%
|
2014
|
|
$
|
(11
|
)
|
|
$
|
(25
|
)
|
|
$
|
—
|
|
|
$
|
11
|
|
|
|
Senior Notes due 2021, 6.0%
|
2016
|
|
(21
|
)
|
|
8
|
|
|
(1
|
)
|
|
20
|
|
|
|
Guaranteed Notes due 2027, 3.5%
|
2017
|
|
(58
|
)
|
|
22
|
|
|
(37
|
)
|
|
21
|
|
|
|
Guaranteed Notes due 2022, 1.875%
|
2018
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
|
Total
|
|
|
$
|
(91
|
)
|
|
$
|
4
|
|
|
$
|
(40
|
)
|
|
$
|
51
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The cumulative fair value hedging adjustments remaining at December 31, 2018 associated with our Senior Notes due 2019 included $7 million for hedges that have been discontinued. These fair value adjustments are recognized in Interest expense in the Consolidated Statements of Income.
Short-term loans, notes and other debt consisted of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Senior Revolving Credit Facility, $2,500 million
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Receivables Facility, $900 million
|
—
|
|
|
—
|
|
|
Commercial paper
|
262
|
|
|
809
|
|
|
Precious metal financings
|
181
|
|
|
71
|
|
|
Other
|
2
|
|
|
5
|
|
|
Total Short-term debt
|
$
|
445
|
|
|
$
|
885
|
|
Aggregate maturities of debt during the next five years are $448 million in 2020, $1,002 million in 2021, $2,793 million in 2022, $751 million in 2023, $1,000 million in 2024 and $6,173 million thereafter.
Long-Term Debt
Guaranteed Notes due 2049—In October 2019, LYB International Finance III, LLC (“LYB Finance III”), a wholly owned finance subsidiary of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X, issued $1,000 million of 4.2% guaranteed notes due 2049 at a discounted price of 98.488%. Net proceeds from the sale of the notes which totaled $974 million were used to repay indebtedness outstanding under our Term Loan due 2020 discussed below.
These unsecured notes, which are fully and unconditionally guaranteed by LyondellBasell N.V., rank equally in right of payment to all of LYB Finance III’s 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 LyondellBasell N.V., as 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 six 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 or the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable treasury yield plus 35 basis points) on the notes to be redeemed. The notes may also be redeemed on or after the date that is six 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.
Guaranteed Notes due 2026 and 2031—In September 2019, LYB International Finance II B.V. (“LYB Finance II”), a wholly owned finance subsidiary of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X, issued €500 million of 0.875% guaranteed notes due 2026 (the “2026 Notes”) at a discounted price of 99.642%, and €500 million of 1.625% guaranteed notes due 2031 (the “2031 Notes”) at a discounted price of 98.924%. In September 2019, we used the net proceeds from the sale of the notes to repay $1,000 million of indebtedness outstanding under the $4,000 million three-year Term Loan due 2022 and a portion of borrowings from our commercial paper program.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
These unsecured notes, which are fully and unconditionally guaranteed by LyondellBasell N.V., rank equally in right of payment to all of LYB Finance II’s 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 LyondellBasell N.V., as 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 30 basis points in the case of the 2026 Notes and 35 basis points in the case of the 2031 Notes) on the notes to be redeemed. The notes may also be redeemed on or after the date that is three months prior to the scheduled 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.
Three-Year Term Loan due 2022—In March 2019, LYB Americas Finance Company LLC (“LYB Americas Finance”), a wholly owned subsidiary of LyondellBasell N.V., entered into a three-year $4,000 million senior unsecured delayed draw term loan credit facility that matures in March 2022. Proceeds under this credit agreement, which is fully and unconditionally guaranteed by LyondellBasell N.V., were used for general corporate purposes.
In July 2019, we borrowed $1,000 million under this facility to fund a portion of the share repurchase price paid pursuant to a modified Dutch Auction tender offer (“tender offer”). The remainder of the repurchase price was funded through borrowings of $500 million from our U.S. Receivables Facility, $1,280 million from our commercial paper program and the remainder from operating cash. See Note 20 to the Consolidated Financial Statements for additional information on the tender offer.
In September 2019, we repaid $1,000 million with proceeds from the 2026 and 2031 Notes.
In December 2019, we borrowed $1,950 million from this facility to repay amounts outstanding under our commercial paper program and $500 million outstanding under our U.S. Receivables Facility.
Borrowings under the credit agreement bear interest at either a base rate or LIBOR rate, as defined, plus in each case, an applicable margin determined by reference to LyondellBasell N.V.’s current credit ratings.
The credit agreement contains customary representations and warranties and contains certain restrictive covenants regarding, among other things, secured indebtedness, subsidiary indebtedness, mergers and sales of assets. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
Borrowings under the credit agreement were available through December 31, 2019, subsequent to which no further borrowings may be made under the agreement.
Senior Notes due 2019—In February 2019, proceeds from the 364-day term loan due 2020 were used to redeem the remaining $1,000 million outstanding of our 5% Senior Notes due 2019 at par. In conjunction with the redemption of these notes, we recognized non-cash charges of less than $1 million for unamortized debt issuance costs and $8 million for the write-off of the cumulative fair value hedge accounting adjustment related to the redeemed notes.
In March 2017, we redeemed $1,000 million aggregate principal amount of our outstanding 5% senior notes due 2019, and paid $65 million in make-whole premiums. In conjunction with the redemption of these notes, we recognized non-cash charges of $4 million for the write-off of unamortized debt issuance costs and $44 million for the write-off of the cumulative fair value hedge accounting adjustment related to the redeemed notes.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Guaranteed Notes due 2027, $1,000 million—In March 2017, LYB Finance II issued $1,000 million of 3.5% guaranteed notes due 2027 at a discounted price of 98.968%. In March 2017, the net proceeds from these notes, together with available cash, were used to redeem $1,000 million aggregate principal amount of our outstanding 5% senior notes due 2019.
These unsecured notes, which are fully and unconditionally guaranteed by LyondellBasell N.V., rank equally in right of payment to all of LYB Finance II’s 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 LyondellBasell N.V., as 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 treasury yield plus 20 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 scheduled 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.
Senior Notes due 2021 and 2024—We have outstanding $1,000 million of 6% senior notes due 2021 and $1,000 million aggregate principal amount of 5.75% senior notes due 2024.
The indentures governing the 5.75% and 6% Senior Notes contain limited covenants, including those restricting our ability and the ability of our subsidiaries to incur indebtedness secured by any property or assets, enter into certain sale and lease-back transactions with respect to any assets or enter into consolidations, mergers or sales of all or substantially all of our assets.
These notes may be redeemed and repaid, in whole or in part, at any time and from time to time prior to the date that is 90 days prior to the scheduled maturity date of the notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus a premium for each note redeemed equal to the greater of 1.00% of the then outstanding principal amount of the note and the excess of: (a) the present value at such redemption date of (i) the principal amount of the note at maturity plus (ii) all required interest payments due on the note through maturity (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over (b) the outstanding principal amount of the note. These notes may also be redeemed, in whole or in part, at any time on or after the date which is 90 days 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.
Guaranteed Notes due 2022—In March 2016, LYB Finance II 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 N.V., rank equally in right of payment to all of LYB Finance II’s 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 LyondellBasell N.V., as 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 scheduled 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.
Senior Notes due 2055—In March 2015, we issued $1,000 million of 4.625% Notes due 2055 at a discounted price of 98.353%. These unsecured notes rank equally in right of payment to all of LyondellBasell N.V.’s existing and future unsubordinated indebtedness.
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 six 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 treasury yield plus 35 basis points) on the notes to be redeemed. The notes may also be redeemed on or after the date that is six 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.
Guaranteed Notes due 2044—In February 2014, LYB International Finance B.V. (“LYB Finance”), a wholly owned finance subsidiary of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X, issued $1,000 million of 4.875% guaranteed notes due 2044 at a discounted price of 98.831%.
These unsecured notes, which are fully and unconditionally guaranteed by LyondellBasell N.V., rank equally in right of payment to all of LYB Finance’s existing and future unsecured indebtedness and to all of LyondellBasell’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. Subsidiaries are generally prohibited from entering into arrangements that would limit their ability to make dividends to or enter into loans with the Guarantor.
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 six 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 treasury yield plus 20 basis points) on the notes to be redeemed. The notes may also be redeemed on or after the date that is six 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.
Guaranteed Notes due 2023 and 2043—In July 2013, LYB Finance issued $750 million of 4% guaranteed notes due 2023 and $750 million of 5.25% Notes due 2043 at discounted prices of 98.678% and 97.004%, respectively.
These unsecured notes, which are fully and unconditionally guaranteed by LyondellBasell N.V., rank equally in right of payment to all of LYB Finance’s existing and future unsecured indebtedness and to all of LyondellBasell’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. Subsidiaries are generally prohibited from entering into arrangements that would limit their ability to make dividends to or enter into loans with the Guarantor.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 and repaid, in whole or in part, at any time and from time to time prior to maturity 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 on the notes to be redeemed. Such interest will be discounted to the date of redemption on a semi-annual basis at the applicable treasury yield plus 25 basis points in the case of the 4% Notes due 2023 and plus 30 basis points in the case of the 5.25% Notes due 2043.
Guaranteed Notes due 2027, $300 million—We have outstanding $300 million aggregate principal amount of 8.1% Guaranteed Notes due 2027. These notes, which are guaranteed by LyondellBasell Industries Holdings B.V., a subsidiary of LyondellBasell N.V., contain certain restrictions with respect to the level of maximum debt that can be incurred and security that can be granted by certain operating companies that are direct or indirect wholly owned subsidiaries of LyondellBasell Industries Holdings B.V.
The 2027 Notes contain customary provisions for default, including, among others, the non-payment of principal and interest, certain failures to perform or observe obligations under the Agreement on the notes, the occurrence of certain defaults under other indebtedness, failure to pay certain indebtedness and the insolvency or bankruptcy of certain LyondellBasell N.V. subsidiaries.
Short-Term Debt
Term Loan due 2020—In February 2019, LYB Americas Finance entered into a 364-day, $2,000 million senior unsecured term loan credit agreement and borrowed the entire amount. The proceeds of this term loan, which was fully and unconditionally guaranteed by LyondellBasell N.V. were used for general corporate purposes, including the repayment of debt. In October 2019, we repaid the $2,000 million of indebtedness outstanding under this term loan using $974 million net proceeds from the sale of the Guaranteed Notes due 2049, $726 million of borrowings of commercial paper and the remainder from operating cash. This repayment terminated our commitment under the credit agreement.
Senior Revolving Credit Facility—Our $2,500 million senior revolving credit facility which expires June 2022 may be used for dollar and euro denominated borrowings, has a $500 million sublimit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. The aggregate balance of outstanding borrowings, including amounts outstanding under our commercial paper program, and letters of credit under this facility may not exceed $2,500 million at any given time. Borrowings under the facility bear interest at either a base rate or LIBOR rate, plus an applicable margin. Additional fees are incurred for the average daily unused commitments. At December 31, 2019, we had no borrowings or letters of credit outstanding under this facility.
The facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00 or less for the period covering the most recent four quarters. We are in compliance with these covenants as of December 31, 2019.
Commercial Paper Program—We have a commercial paper program under which we may issue up to $2,500 million of privately placed, unsecured, short-term promissory notes (“commercial paper”). This program is backed by our $2,500 million Senior Revolving Credit Facility. Proceeds from the issuance of commercial paper may be used for general corporate purposes, including dividends and share repurchases. Interest rates on the commercial paper outstanding at December 31, 2019 are based on the terms of the notes and range from 1.87% to 1.99%. At December 31, 2019, we had $262 million of outstanding commercial paper.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
U.S. Receivables Facility—In July 2018, we amended our $900 million U.S. Receivables Facility to, among other things, extend the term of the facility to July 2021. The facility has a purchase limit of $900 million in addition to a $300 million uncommitted accordion feature. This facility provides liquidity through the sale or contribution of trade receivables by certain of our U.S. subsidiaries to a wholly owned, bankruptcy-remote subsidiary on an ongoing basis and without recourse. The bankruptcy-remote subsidiary may then, at its option and subject to a borrowing base of eligible receivables, sell undivided interests in the pool of trade receivables to financial institutions participating in the facility (“Purchasers”). The sale of the undivided interest in the pool of trade receivables is accounted for as a secured borrowing in the Consolidated Balance Sheets. We are responsible for servicing the receivables. We pay variable interest rates on our secured borrowings. In the event of liquidation, the bankruptcy-remote subsidiary’s assets will be used to satisfy the claims of the Purchasers prior to any assets or value in the bankruptcy-remote subsidiary becoming available to us. This facility also provides for the issuance of letters of credit up to $200 million. The term of the facility may be extended in accordance with the terms of the agreement. The facility is also subject to customary warranties and covenants, including limits and reserves and the maintenance of specified financial ratios. We are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters. Performance obligations under the facility are guaranteed by LyondellBasell N.V. Additional fees are incurred for the average daily unused commitments. At December 31, 2019, there were no borrowings or letters of credit outstanding under the facility.
Precious Metal Financings—We enter into lease agreements for precious metals which are used in our production processes. All precious metal borrowings are classified as Short-term debt.
Weighted Average Interest Rate—At December 31, 2019 and 2018, our weighted average interest rates on outstanding Short-term debt were 3.3% and 3.1%, respectively.
Additional Information
Debt Discount and Issuance Costs—Amortization of debt discount and debt issuance costs resulted in amortization expense of $11 million, $14 million and $15 million for the years ended December 31, 2019, 2018 and 2017, respectively, which is included in Interest expense in the Consolidated Statements of Income.
Other Information—LYB International Finance B.V., LYB International Finance II B.V. and LYB International Finance III, LLC are direct, 100% owned finance subsidiaries of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X. Any debt securities issued by LYB International Finance B.V., LYB International Finance II B.V. and LYB International Finance III, LLC will be fully and unconditionally guaranteed by LyondellBasell N.V.
As of December 31, 2019, we are in compliance with our debt covenants.
14. Leases
Operating Leases—The majority of our leases are operating leases. We lease storage tanks, terminal facilities, land, office facilities, railcars, pipelines, barges, plant equipment and other equipment. As of December 31, 2019, our Operating lease assets were $1,468 million. Operating lease liabilities totaled $1,489 million of which $273 million is current and recorded in Accrued liabilities. These values were derived using a weighted average discount rate of 4.2%.
Our operating leases have remaining lease terms ranging from less than 1 year to 30 years and have a weighted-average remaining lease term of 7 years. While extension clauses included in our leases do not materially impact our Operating lease assets or Operating lease liabilities, certain leases include options to extend the lease for up to 20 years.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Maturities of operating lease liabilities as of December 31, 2019, are as follows:
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
|
|
2020
|
|
$
|
326
|
|
|
2021
|
|
275
|
|
|
2022
|
|
231
|
|
|
2023
|
|
198
|
|
|
2024
|
|
171
|
|
|
Thereafter
|
|
530
|
|
|
Total lease payments
|
|
1,731
|
|
|
Less: Imputed interest
|
|
(242
|
)
|
|
Present value of lease liabilities
|
|
$
|
1,489
|
|
The following table presents the components of operating lease cost:
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
Year Ended
December 31, 2019
|
|
Operating lease cost
|
|
$
|
366
|
|
|
Short-term lease cost
|
|
152
|
|
|
Variable lease cost
|
|
61
|
|
|
Net operating lease cost
|
|
$
|
579
|
|
Cash paid for operating lease liabilities totaled $363 million for the year ended December 31, 2019. Leased assets obtained in exchange for new operating lease liabilities, including all leases recognized upon adoption of the new lease accounting standard, totaled $1,833 million for the year ended December 31, 2019.
As of December 31, 2019, we have entered into additional operating leases, with an undiscounted value of $539 million, primarily for storage tanks related to our new PO/TBA plant at our Channelview, Texas facility. These leases, which will commence between the first quarter of 2020 and 2022, have lease terms ranging from 2 to 20 years.
Lease Commitments—As of December 31, 2018, the undiscounted aggregate future estimated payments for our operating lease commitments, including those which have not commenced, and those with an initial term of 12 months or less, were as follows:
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
|
|
2019
|
|
$
|
365
|
|
|
2020
|
|
288
|
|
|
2021
|
|
256
|
|
|
2022
|
|
236
|
|
|
2023
|
|
204
|
|
|
Thereafter
|
|
1,126
|
|
|
Total minimum lease payments
|
|
$
|
2,475
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Financial Instruments and Fair Value Measurements
Market Risks—We are exposed to market risks, such as changes in commodity pricing, interest rates and currency exchange rates. To manage the volatility related to these exposures, we selectively enter into derivative contracts pursuant to our risk management policies.
Commodity Prices—We are exposed to commodity price volatility related to purchases of various feedstocks 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.
Interest Rates—We are exposed to fluctuations in interest rates through the company’s debt portfolio in the form of both floating rate debt instruments and the periodic need to refinance fixed-rate debt. We use interest rate derivative products such as forward-starting and interest rate swaps to manage these exposures.
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 estimation of expected impacts of changes in foreign currency rates on our Comprehensive income. We enter into foreign currency forward and swap contracts to reduce the effects of our net currency exchange exposures.
For foreign currency forward and swap contracts that economically hedge recognized foreign currency monetary assets and liabilities, hedge accounting is not applied. Changes in the fair value of such forward and swap contracts, which are reported in the Consolidated Statements of Income, are offset in part by the currency remeasurement results recognized within earnings on the assets and liabilities.
Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency gains of $9 million and $24 million in 2019 and 2018, respectively, and foreign currency losses of $1 million in 2017.
Cash and Cash Equivalents—At December 31, 2019 and 2018, we had marketable securities classified as Cash and cash equivalents of $389 million and $19 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes outstanding financial instruments that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
Notional
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Fair
Value
|
|
Balance Sheet
Classification
|
|
Millions of dollars
|
|
Assets—
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
472
|
|
|
$
|
12
|
|
|
Prepaid expenses and other current assets
|
|
Foreign currency
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|
Prepaid expenses and other current assets
|
|
Foreign currency
|
2,000
|
|
|
214
|
|
|
2,000
|
|
|
117
|
|
|
Other assets
|
|
Interest rates
|
—
|
|
|
22
|
|
|
600
|
|
|
33
|
|
|
Prepaid expenses and other current assets
|
|
Interest rates
|
1,940
|
|
|
41
|
|
|
143
|
|
|
1
|
|
|
Other assets
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
3
|
|
|
—
|
|
|
35
|
|
|
5
|
|
|
Prepaid expenses and other current assets
|
|
Foreign currency
|
580
|
|
|
5
|
|
|
599
|
|
|
3
|
|
|
Prepaid expenses and other current assets
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
162
|
|
|
162
|
|
|
567
|
|
|
567
|
|
|
Short-term investments
|
|
Equity securities
|
34
|
|
|
34
|
|
|
322
|
|
|
325
|
|
|
Short-term investments
|
|
Total
|
$
|
4,719
|
|
|
$
|
505
|
|
|
$
|
4,738
|
|
|
$
|
1,090
|
|
|
|
|
Liabilities—
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
Accrued liabilities
|
|
Foreign currency
|
—
|
|
|
16
|
|
|
—
|
|
|
17
|
|
|
Accrued liabilities
|
|
Foreign currency
|
950
|
|
|
53
|
|
|
950
|
|
|
75
|
|
|
Other liabilities
|
|
Interest rates
|
1,000
|
|
|
154
|
|
|
1,400
|
|
|
16
|
|
|
Accrued liabilities
|
|
Interest rates
|
700
|
|
|
77
|
|
|
2,500
|
|
|
45
|
|
|
Other liabilities
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
224
|
|
|
34
|
|
|
63
|
|
|
14
|
|
|
Accrued liabilities
|
|
Foreign currency
|
200
|
|
|
1
|
|
|
1,165
|
|
|
7
|
|
|
Accrued liabilities
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
Performance share units
|
—
|
|
|
—
|
|
|
29
|
|
|
29
|
|
|
Accrued liabilities
|
|
Total
|
$
|
3,074
|
|
|
$
|
335
|
|
|
$
|
6,111
|
|
|
$
|
203
|
|
|
|
Commodity derivatives designated as hedges are classified as Level 1. All other financial instruments in the tables above, including equity securities held at December 31, 2019, are classified as Level 2. Equity securities at December 31, 2018, are measured at fair value using the net asset value per share, or its equivalent, practical expedient and have not been classified in the fair value hierarchy.
At December 31, 2019, our outstanding foreign currency contracts not designated as hedges mature from January 2020 to September 2020. Our commodity contracts, not designated as hedges, mature from January 2020 to March 2020.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of December 31, 2019 and 2018. Due to the short maturity, the fair value of all non-derivative financial instruments included in Current assets and Current liabilities approximates the applicable carrying value and are excluded from the table below. 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 and commercial paper.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
Millions of dollars
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Short-term loans receivable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
544
|
|
|
$
|
544
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
181
|
|
|
$
|
215
|
|
|
$
|
70
|
|
|
$
|
77
|
|
|
Long-term debt
|
11,609
|
|
|
12,561
|
|
|
8,492
|
|
|
8,476
|
|
|
Total
|
$
|
11,790
|
|
|
$
|
12,776
|
|
|
$
|
8,562
|
|
|
$
|
8,553
|
|
All financial instruments in the table above are classified as Level 2. There were no transfers between Level 1 and Level 2 for any of our financial instruments during the years ended December 31, 2019 and 2018.
Net Investment Hedges—At December 31, 2019 and 2018, we had outstanding foreign currency contracts with an aggregate notional value of €617 million ($650 million) designated as net investment hedges. We also had outstanding foreign-currency denominated debt designated as a net investment hedge, with notional amounts totaling €750 million ($842 million) and €750 million ($858 million), as of December 31, 2019 and 2018, respectively.
In 2018, foreign currency contracts with an aggregate notional value of €925 million expired, related to €800 million entered in 2018 and €125 million entered into prior to 2018, that were designated as net investment hedges. Upon settlement of these foreign currency contracts in 2018, we paid €925 million ($1,078 million at the expiry spot rate) to our counterparties and received $1,108 million from our counterparties.
Cash Flow Hedges—The following table summarizes our outstanding cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Millions of dollars
|
Notional
Value
|
|
Notional
Value
|
|
Expiration
Date
|
|
Foreign currency
|
$
|
2,300
|
|
|
$
|
2,300
|
|
|
2021
|
to
|
2027
|
|
Interest rates
|
1,500
|
|
|
1,500
|
|
|
2020
|
to
|
2021
|
|
Commodities
|
—
|
|
|
476
|
|
|
2019
|
In February 2019, we entered into forward-starting interest rate swaps with a total notional amount of $1,000 million expiring in February 2020 (the “Swaps”). As of December 31, 2019, the Swaps were designated as cash flow hedges to mitigate the risk of variability in interest rates of future expected debt issuance by July 2023 and April 2024. In January 2020, we amended the terms of the Swaps to extend their maturities to July 2023 and April 2024. Concurrently with the amendment of the Swaps, we posted collateral of $238 million related to the liability position held with our counterparties as of the amendment date.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In February 2019, concurrent with the redemption of $1,000 million of our then outstanding 5% senior notes due 2019, we received $4 million in settlement of $1,000 million of forward-starting interest rate swaps that we designated as cash flow hedges of forecasted interest payments. There were no other settlements of our forward-starting swap agreements in 2019, 2018 or 2017.
In 2018, we entered into forward-starting interest rate swaps with a total notional amount of $500 million to mitigate the risk of variability in interest rates for an expected debt issuance by November 2021. These swaps were designated as cash flow hedges and will be terminated upon debt issuance.
As of December 31, 2019, on a pre-tax basis, $3 million is scheduled to be reclassified from Accumulated other comprehensive loss as an increase to interest expense over the next twelve months.
In 2019 and 2018, we entered into commodity futures contracts to mitigate the risk of variability in feedstock and product sales prices. During the year ended December 31, 2019, we paid $20 million in settlement of commodity futures contracts that hedge the risk of variability in feedstock prices with a total notional amount of $336 million. Additionally, we received $26 million in settlement of commodity futures contracts that hedge the risk of variability in product sales prices with a total notional amount of $437 million. As of December 31, 2019, we had no commodity futures contracts outstanding and designated as cash flow hedges.
Fair Value Hedges—We had outstanding interest rate contracts with aggregate notional amounts of $2,140 million and $3,143 million at December 31, 2019 and December 31, 2018, respectively. These fair value hedges have maturities ranging from 2021 to 2027 as of December 31, 2019.
In February 2019, concurrent with the redemption of $1,000 million of our outstanding 5% senior notes due 2019, we paid $5 million in settlement of $1,000 million of fixed-for-floating interest rate swaps.
In 2018, we entered into a euro fixed-for-floating interest rate swap to mitigate the change in the fair value of €125 million ($147 million) of our €750 million notes payable due 2022 associated with the risk of variability in the 6-month EURIBOR rate (the benchmark interest rate). The fixed-rate and variable-rate are settled annually and semi-annually, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impact on Earnings and Other Comprehensive Income—The following tables summarize the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive loss (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Financial Instruments
|
|
|
Year Ended December 31, 2019
|
|
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 hedges:
|
|
|
|
|
|
|
|
|
Commodities
|
$
|
(34
|
)
|
|
$
|
(26
|
)
|
|
$
|
—
|
|
|
Sales and other operating revenues
|
|
Commodities
|
28
|
|
|
20
|
|
|
—
|
|
|
Cost of sales
|
|
Foreign currency
|
119
|
|
|
(40
|
)
|
|
65
|
|
|
Other income, net; Interest expense
|
|
Interest rates
|
(223
|
)
|
|
(4
|
)
|
|
75
|
|
|
Interest expense
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Commodities
|
—
|
|
|
—
|
|
|
3
|
|
|
Sales and other operating revenues
|
|
Commodities
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
Cost of sales
|
|
Foreign currency
|
—
|
|
|
—
|
|
|
33
|
|
|
Other income, net
|
|
Non-derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Long-term debt
|
16
|
|
|
—
|
|
|
—
|
|
|
Other income, net
|
|
Total
|
$
|
(94
|
)
|
|
$
|
(50
|
)
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Financial Instruments
|
|
|
Year Ended December 31, 2018
|
|
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 hedges:
|
|
|
|
|
|
|
|
|
Commodities
|
$
|
60
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Sales and other operating revenues
|
|
Commodities
|
(30
|
)
|
|
(11
|
)
|
|
—
|
|
|
Cost of sales
|
|
Foreign currency
|
190
|
|
|
(100
|
)
|
|
68
|
|
|
Other income, net; Interest expense
|
|
Interest rates
|
43
|
|
|
(1
|
)
|
|
(30
|
)
|
|
Interest expense
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Commodities
|
—
|
|
|
—
|
|
|
3
|
|
|
Sales and other operating revenues
|
|
Commodities
|
—
|
|
|
—
|
|
|
1
|
|
|
Cost of sales
|
|
Foreign currency
|
—
|
|
|
—
|
|
|
43
|
|
|
Other income, net
|
|
Non-derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Long-term debt
|
41
|
|
|
—
|
|
|
—
|
|
|
Other income, net
|
|
Total
|
$
|
304
|
|
|
$
|
(112
|
)
|
|
$
|
85
|
|
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Financial Instruments
|
|
|
Year Ended December 31, 2017
|
|
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 hedges:
|
|
|
|
|
|
|
|
|
Commodities
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cost of sales
|
|
Foreign currency
|
(466
|
)
|
|
265
|
|
|
42
|
|
|
Other income, net; Interest expense
|
|
Interest rates
|
(25
|
)
|
|
(1
|
)
|
|
2
|
|
|
Interest expense
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Commodities
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
Sales and other operating revenues
|
|
Commodities
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
Cost of sales
|
|
Foreign currency
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
Other income, net
|
|
Non-derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Long-term debt
|
(109
|
)
|
|
—
|
|
|
—
|
|
|
Other income, net
|
|
Total
|
$
|
(611
|
)
|
|
$
|
264
|
|
|
$
|
(20
|
)
|
|
|
The derivative amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in other comprehensive income for the years ended December 31, 2019 and 2018 were gains of $3 million and $19 million, respectively. The derivative amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in interest expense for the years ended December 31, 2019 and 2018 were gains of $19 million and $27 million, respectively.
The pre-tax effect of the periodic receipt of fixed interest and payment of variable interest associated with our fixed-for-floating interest rate swaps resulted in a $6 million and $5 million increase in interest expense for the years ended December 31, 2019 and 2018, respectively, and reduced interest expense by $23 million for the year ended December 31, 2017.
Investments in Available-for-Sale Debt Securities—The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of our outstanding available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
Bonds at December 31, 2019
|
$
|
162
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
162
|
|
|
Bonds at December 31, 2018
|
567
|
|
|
—
|
|
|
—
|
|
|
567
|
|
No allowance for credit losses related to our available-for-sale debt securities was recorded for the year ended December 31, 2019. No losses related to other-than-temporary impairments of our available-for-sale debt securities were recorded in Accumulated other comprehensive loss during the years ended December 31, 2018 and 2017.
As of December 31, 2019, bonds classified as available-for-sale debt securities had maturities between 3 months and 45 months.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The proceeds from maturities and sales of our available-for-sale debt securities are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Proceeds from maturities of available-for-sale debt securities
|
$
|
331
|
|
|
$
|
423
|
|
|
$
|
499
|
|
|
Proceeds from sales of available-for-sale debt securities
|
180
|
|
|
—
|
|
|
—
|
|
The gross realized gains and losses associated with the sale of available-for-sale debt securities during the year ended December 31, 2019, were less than $1 million. No gain or loss was realized in connection with the sales of our available-for-sale debt securities during the years ended December 31, 2018, and 2017, respectively. We use the specific identification method to identify the cost of the securities we sell and the amounts we reclassify out of Accumulated other comprehensive loss into earnings.
We had no available-for-sale debt securities which were in a continuous unrealized loss position for less than or greater than twelve months as of December 31, 2019. The following table summarizes the fair value and unrealized losses related to available-for-sale debt securities that were in a continuous unrealized loss position for less than and greater than twelve months as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Millions of dollars
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
Bonds
|
$
|
118
|
|
|
$
|
(1
|
)
|
|
$
|
45
|
|
|
$
|
—
|
|
Investments in Equity Securities— Our equity securities primarily consist of limited partnership investments, which include investments in, among other things, equities and equity related securities, debt securities, credit instruments, supply chain finance, global interest rate products, currencies, commodities, futures, options, warrants and swaps. At December 31, 2019, we had investments in equity securities with a notional amount and a fair value of $34 million. These investments may be redeemed on a weekly basis. At December 31, 2018, we had investments in equity securities with a notional amount of $322 million and a fair value of $325 million.
We received proceeds of $332 million and $97 million related to the sale of our investments in equity securities during the years ended December 31, 2019 and 2018, respectively. No proceeds were received related to the sale of our investments in equity securities during the year ended December 31, 2017.
The following table summarizes the portion of unrealized gains and losses for the equity securities that were outstanding as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Net gains recognized during the period
|
$
|
9
|
|
|
$
|
11
|
|
|
Less: Net gains recognized during the period on securities sold
|
9
|
|
|
5
|
|
|
Unrealized gains recognized during the period
|
$
|
—
|
|
|
$
|
6
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16. Pension and Other Postretirement Benefits
We have defined benefit pension plans which cover employees in the U.S. and various non-U.S. countries. We also sponsor postretirement benefit plans other than pensions that provide medical benefits to certain of our U.S., Canadian and French employees. In addition, we provide other postemployment benefits such as early retirement and deferred compensation severance benefits to employees of certain non-U.S. countries. We use a measurement date of December 31 for all of our benefit plans.
Pension Benefits—The following tables provide a reconciliation of projected benefit obligations, plan assets and the funded status of our U.S. and non-U.S. defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of period
|
$
|
1,752
|
|
|
$
|
1,659
|
|
|
$
|
1,924
|
|
|
$
|
1,511
|
|
|
Service cost
|
53
|
|
|
36
|
|
|
51
|
|
|
35
|
|
|
Interest cost
|
70
|
|
|
33
|
|
|
60
|
|
|
32
|
|
|
Actuarial loss (gain)
|
241
|
|
|
331
|
|
|
(147
|
)
|
|
23
|
|
|
Plan amendments
|
—
|
|
|
24
|
|
|
—
|
|
|
4
|
|
|
Benefits paid
|
(151
|
)
|
|
(43
|
)
|
|
(129
|
)
|
|
(38
|
)
|
|
Participant contributions
|
—
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
Settlement
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
|
(20
|
)
|
|
Curtailment
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
Business combination
|
—
|
|
|
—
|
|
|
3
|
|
|
192
|
|
|
Foreign exchange effects
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(81
|
)
|
|
Benefit obligation, end of period
|
1,965
|
|
|
2,017
|
|
|
1,752
|
|
|
1,659
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of period
|
1,548
|
|
|
871
|
|
|
1,680
|
|
|
852
|
|
|
Actual return on plan assets
|
194
|
|
|
186
|
|
|
(37
|
)
|
|
18
|
|
|
Company contributions
|
46
|
|
|
51
|
|
|
44
|
|
|
56
|
|
|
Benefits paid
|
(151
|
)
|
|
(43
|
)
|
|
(129
|
)
|
|
(38
|
)
|
|
Participant contributions
|
—
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
Settlement
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
|
(20
|
)
|
|
Business combination
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
Foreign exchange effects
|
—
|
|
|
1
|
|
|
—
|
|
|
(46
|
)
|
|
Fair value of plan assets, end of period
|
1,637
|
|
|
1,058
|
|
|
1,548
|
|
|
871
|
|
|
Funded status of continuing operations, end of period
|
$
|
(328
|
)
|
|
$
|
(959
|
)
|
|
$
|
(204
|
)
|
|
$
|
(788
|
)
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts recognized in the Consolidated Balance Sheets consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Prepaid benefit cost, long-term
|
$
|
4
|
|
|
$
|
18
|
|
|
$
|
10
|
|
|
$
|
29
|
|
|
Accrued benefit liability, current
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
(27
|
)
|
|
Accrued benefit liability, long-term
|
(332
|
)
|
|
(949
|
)
|
|
(214
|
)
|
|
(790
|
)
|
|
Funded status of continuing operations, end of period
|
$
|
(328
|
)
|
|
$
|
(959
|
)
|
|
$
|
(204
|
)
|
|
$
|
(788
|
)
|
Amounts recognized in Accumulated other comprehensive loss include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Actuarial and investment loss
|
$
|
516
|
|
|
$
|
405
|
|
|
$
|
374
|
|
|
$
|
251
|
|
|
Prior service cost
|
1
|
|
|
32
|
|
|
2
|
|
|
11
|
|
|
Balance, end of period
|
$
|
517
|
|
|
$
|
437
|
|
|
$
|
376
|
|
|
$
|
262
|
|
The following additional information is presented for our U.S. and non-U.S. pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Accumulated benefit obligation for defined benefit plans
|
$
|
1,899
|
|
|
$
|
1,859
|
|
|
$
|
1,708
|
|
|
$
|
1,528
|
|
Pension plans with projected benefit obligations in excess of the fair value of assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Projected benefit obligations
|
$
|
1,915
|
|
|
$
|
1,778
|
|
|
$
|
1,618
|
|
|
$
|
1,456
|
|
|
Fair value of assets
|
1,583
|
|
|
801
|
|
|
1,404
|
|
|
639
|
|
Pension plans with accumulated benefit obligations in excess of the fair value of assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Accumulated benefit obligations
|
$
|
1,765
|
|
|
$
|
1,079
|
|
|
$
|
1,578
|
|
|
$
|
904
|
|
|
Fair value of assets
|
1,493
|
|
|
243
|
|
|
1,404
|
|
|
198
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Components of net periodic pension costs for our U.S. and Non-U.S Plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
53
|
|
|
$
|
51
|
|
|
$
|
47
|
|
|
Interest cost
|
70
|
|
|
60
|
|
|
60
|
|
|
Expected return on plan assets
|
(112
|
)
|
|
(122
|
)
|
|
(121
|
)
|
|
Settlement loss
|
—
|
|
|
2
|
|
|
—
|
|
|
Prior service cost amortization
|
—
|
|
|
—
|
|
|
1
|
|
|
Actuarial loss amortization
|
18
|
|
|
21
|
|
|
20
|
|
|
Net periodic benefit cost
|
$
|
29
|
|
|
$
|
12
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
36
|
|
|
$
|
35
|
|
|
$
|
39
|
|
|
Interest cost
|
33
|
|
|
32
|
|
|
23
|
|
|
Expected return on plan assets
|
(24
|
)
|
|
(24
|
)
|
|
(19
|
)
|
|
Settlement loss
|
1
|
|
|
1
|
|
|
2
|
|
|
Prior service cost amortization
|
2
|
|
|
1
|
|
|
2
|
|
|
Actuarial loss amortization
|
12
|
|
|
10
|
|
|
16
|
|
|
Net periodic benefit cost
|
$
|
60
|
|
|
$
|
55
|
|
|
$
|
63
|
|
The actual and target asset allocations for our plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Actual
|
|
Target
|
|
Actual
|
|
Target
|
|
Canada
|
|
|
|
|
|
|
|
|
Equity securities
|
50
|
%
|
|
50
|
%
|
|
49
|
%
|
|
50
|
%
|
|
Fixed income
|
50
|
%
|
|
50
|
%
|
|
51
|
%
|
|
50
|
%
|
|
United Kingdom—Lyondell Chemical Plans
|
|
|
|
|
|
|
|
|
Equity securities
|
36
|
%
|
|
37
|
%
|
|
49
|
%
|
|
50
|
%
|
|
Fixed income
|
64
|
%
|
|
63
|
%
|
|
51
|
%
|
|
50
|
%
|
|
United Kingdom—Basell Plans
|
|
|
|
|
|
|
|
|
Equity securities
|
40
|
%
|
|
40
|
%
|
|
49
|
%
|
|
50
|
%
|
|
Fixed income
|
60
|
%
|
|
60
|
%
|
|
51
|
%
|
|
50
|
%
|
|
United Kingdom—A. Schulman Plans
|
|
|
|
|
|
|
|
|
Growth assets
|
91
|
%
|
|
89
|
%
|
|
94
|
%
|
|
89
|
%
|
|
Matching assets
|
9
|
%
|
|
11
|
%
|
|
6
|
%
|
|
11
|
%
|
|
United States
|
|
|
|
|
|
|
|
|
Equity securities
|
34
|
%
|
|
32
|
%
|
|
32
|
%
|
|
32
|
%
|
|
Fixed income
|
38
|
%
|
|
38
|
%
|
|
39
|
%
|
|
38
|
%
|
|
Alternatives
|
28
|
%
|
|
30
|
%
|
|
29
|
%
|
|
30
|
%
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We estimate the following contributions to our pension plans in 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
U.S.
|
|
Non-U.S.
|
|
Defined benefit plans
|
|
$
|
46
|
|
|
$
|
71
|
|
|
Multi-employer plans
|
|
—
|
|
|
8
|
|
|
Total
|
|
$
|
46
|
|
|
$
|
79
|
|
As of December 31, 2019, future expected benefit payments by our pension plans which reflect expected future service, as appropriate, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
2020
|
$
|
145
|
|
|
$
|
59
|
|
|
2021
|
144
|
|
|
58
|
|
|
2022
|
145
|
|
|
59
|
|
|
2023
|
144
|
|
|
62
|
|
|
2024
|
143
|
|
|
64
|
|
|
2025 through 2029
|
676
|
|
|
339
|
|
The following tables set forth the principal assumptions on discount rates, projected rates of compensation increase and expected rates of return on plan assets, where applicable. These assumptions vary for the different plans, as they are determined in consideration of local conditions.
The weighted average assumptions used in determining the net benefit liabilities for our pension plans were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Discount rate
|
3.16
|
%
|
|
1.03
|
%
|
|
4.51
|
%
|
|
2.07
|
%
|
|
Rate of compensation increase
|
4.83
|
%
|
|
2.59
|
%
|
|
4.83
|
%
|
|
2.54
|
%
|
The weighted average assumptions used in determining net benefit costs for our pension plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Discount rate
|
4.51
|
%
|
|
2.07
|
%
|
|
3.73
|
%
|
|
2.13
|
%
|
|
4.20
|
%
|
|
1.52
|
%
|
|
Expected return on plan assets
|
7.50
|
%
|
|
2.79
|
%
|
|
7.50
|
%
|
|
2.92
|
%
|
|
8.00
|
%
|
|
2.15
|
%
|
|
Rate of compensation increase
|
4.83
|
%
|
|
2.54
|
%
|
|
4.00
|
%
|
|
2.94
|
%
|
|
4.00
|
%
|
|
2.93
|
%
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The discount rate assumptions reflect the rates at which the benefit obligations could be effectively settled, based on the yields of high quality long-term bonds where the term closely matches the term of the benefit obligations. At the beginning of 2017, we changed the approach used to measure service and interest costs for pension and other postretirement benefits under significant U.S. plans. We measure service and interest costs by applying the specific spot rates along that same yield curve to the projected cash flows of the plans. This approach provides a more precise measurement of service and interest costs. This change did not affect the measurement of our plan obligations. The weighted average expected long-term rate of return on assets in our U.S. plans of 7.50% is based on the average level of earnings that our independent pension investment adviser had advised could be expected to be earned over a fifteen to twenty year time period consistent with the target asset allocation of the plans, historical capital market performance, historical plan performance (since the 1997 inception of the U.S. Master Trust) and a forecast of expected future asset returns. The weighted average expected long-term rate of return on assets in our non-U.S. plans of 2.79% is based on expectations and asset allocations that vary by region. We review these long-term assumptions on a periodic basis.
Actual rates of return may differ from the expected rate due to the volatility normally experienced in capital markets. Assets are externally managed by professional investment firms over the long term to achieve optimal returns with an acceptable level of risk and volatility in order to meet the benefit obligations of the plans as they come due.
Our pension plans have not directly invested in securities of LyondellBasell N.V., and there have been no significant transactions between any of the pension plans and the Company or related parties thereof.
The pension investments that are measured at fair value are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Millions of dollars
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
U.S.
|
|
|
|
|
|
|
|
|
Common and preferred stock
|
$
|
338
|
|
|
$
|
338
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commingled funds measured at net asset value
|
446
|
|
|
|
|
|
|
|
|
Fixed income securities
|
218
|
|
|
—
|
|
|
218
|
|
|
—
|
|
|
Real estate measured at net asset value
|
106
|
|
|
|
|
|
|
|
|
Hedge funds measured at net asset value
|
219
|
|
|
|
|
|
|
|
|
Private equity measured at net asset value
|
130
|
|
|
|
|
|
|
|
|
U.S. government securities
|
149
|
|
|
149
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
33
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
Total U.S. Pension Assets
|
$
|
1,639
|
|
|
$
|
520
|
|
|
$
|
218
|
|
|
$
|
—
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Millions of dollars
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
Insurance arrangements
|
$
|
722
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
722
|
|
|
Commingled funds measured at net asset value
|
332
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
Total Non-U.S. Pension Assets
|
$
|
1,057
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Millions of dollars
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
U.S.
|
|
|
|
|
|
|
|
|
Common and preferred stock
|
$
|
330
|
|
|
$
|
330
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commingled funds measured at net asset value
|
411
|
|
|
|
|
|
|
|
|
Fixed income securities
|
204
|
|
|
—
|
|
|
204
|
|
|
—
|
|
|
Real estate measured at net asset value
|
107
|
|
|
|
|
|
|
|
|
Hedge funds measured at net asset value
|
241
|
|
|
|
|
|
|
|
|
Private equity measured at net asset value
|
108
|
|
|
|
|
|
|
|
|
U.S. government securities
|
133
|
|
|
133
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
26
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
Total U.S. Pension Assets
|
$
|
1,560
|
|
|
$
|
489
|
|
|
$
|
204
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Millions of dollars
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
Insurance arrangements
|
$
|
570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
570
|
|
|
Commingled funds measured at net asset value
|
298
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Total Non-U.S. Pension Assets
|
$
|
870
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
570
|
|
The Netherlands Defined Benefits pension plans has investments in a pooled asset portfolio which are treated as a nonparticipating insurance contract. The associated plan assets underlying the insurance arrangement are measured at the cash surrender value, which is derived primarily from an actuarial determination of the discounted benefits cash flows. As such, these assets are considered as using significant unobservable inputs (Level 3). The plan assets at December 31, 2018 were valued at $524 million and has increased to $675 million at December 31, 2019. The change is due primarily to a decrease of the discount rate from 2018 to 2019.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value measurements of the investments in certain entities that calculate net asset value per share as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Fair
Value
|
|
Unfunded
Commitments
|
|
Remaining
Life
|
|
Redemption Frequency
(if currently eligible)
|
|
Trade to
Settlement
Terms
|
|
Redemption
Notice Period
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled fund investing in Domestic Equity
|
$
|
132
|
|
|
$
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 to 4 days
|
|
Commingled fund investing in International Equity
|
65
|
|
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 days
|
|
Commingled fund investing in Fixed Income
|
249
|
|
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 to 7 days
|
|
Real Estate
|
106
|
|
|
8
|
|
|
10 years
|
|
quarterly
|
|
15 to 25 days
|
|
45 to 90 days
|
|
Hedge Funds
|
219
|
|
|
—
|
|
|
N/A
|
|
quarterly
|
|
10 to 30 days
|
|
20 to 90 days
|
|
Private Equity
|
130
|
|
|
72
|
|
|
10 years
|
|
Not eligible
|
|
N/A
|
|
N/A
|
|
Total U.S.
|
$
|
901
|
|
|
$
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Fair
Value
|
|
Unfunded
Commitments
|
|
Remaining
Life
|
|
Redemption Frequency
(if currently eligible)
|
|
Trade to
Settlement
Terms
|
|
Redemption
Notice
Period
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled fund investing in Domestic Equity
|
$
|
36
|
|
|
$
|
—
|
|
|
N/A
|
|
1 to 7 days
|
|
1 to 3 days
|
|
1 to 3 days
|
|
Commingled fund investing in International Equity
|
110
|
|
|
—
|
|
|
N/A
|
|
1 to 7 days
|
|
1 to 3 days
|
|
1 to 3 days
|
|
Commingled fund investing in Fixed Income
|
186
|
|
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 days
|
|
Total Non-U.S.
|
$
|
332
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value measurements of the investments in certain entities that calculate net asset value per share as of December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Fair
Value
|
|
Unfunded
Commitments
|
|
Remaining
Life
|
|
Redemption Frequency
(if currently eligible)
|
|
Trade to
Settlement
Terms
|
|
Redemption
Notice Period
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled fund investing in Domestic Equity
|
$
|
112
|
|
|
$
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 to 4 days
|
|
Commingled fund investing in International Equity
|
58
|
|
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 days
|
|
Commingled fund investing in Fixed Income
|
241
|
|
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 to 7 days
|
|
Real Estate
|
107
|
|
|
8
|
|
|
10 years
|
|
quarterly
|
|
15 to 25 days
|
|
45 to 90 days
|
|
Hedge Funds
|
241
|
|
|
—
|
|
|
N/A
|
|
quarterly
|
|
10 to 30 days
|
|
20 to 90 days
|
|
Private Equity
|
108
|
|
|
76
|
|
|
10 years
|
|
Not eligible
|
|
N/A
|
|
N/A
|
|
Total U.S.
|
$
|
867
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Fair
Value
|
|
Unfunded
Commitments
|
|
Remaining
Life
|
|
Redemption Frequency
(if currently eligible)
|
|
Trade to
Settlement
Terms
|
|
Redemption
Notice
Period
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
Commingled fund investing in Domestic Equity
|
$
|
33
|
|
|
$
|
—
|
|
|
N/A
|
|
1 to 7 days
|
|
1 to 3 days
|
|
1 to 3 days
|
|
Commingled fund investing in International Equity
|
122
|
|
|
—
|
|
|
N/A
|
|
1 to 7 days
|
|
1 to 3 days
|
|
1 to 3 days
|
|
Commingled fund investing in Fixed Income
|
143
|
|
|
—
|
|
|
N/A
|
|
daily
|
|
1 to 3 days
|
|
3 days
|
|
Total Non-U.S.
|
$
|
298
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Multi-employer Plan—The Company participates in a multi-employer arrangement with Pensionskasse der BASF WaG V.VaG (“Pensionskasse”) which provides for benefits to the majority of our employees in Germany. Up to a certain salary level, the benefit obligations are covered by contributions of the Company and the employees to the plan. Contributions made to the multi-employer plan are expensed as incurred.
The following table provides disclosure related to the Company’s multi-employer plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Contributions
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Pensionskasse
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
27
|
|
The Company-specific plan information for the Pensionskasse is not publicly available and the plan is not subject to a collective-bargaining agreement. The plan provides fixed, monthly retirement payments on the basis of the credits earned by the participating employees. To the extent that the Pensionskasse is underfunded, the future contributions to the plan may increase and may be used to fund retirement benefits for employees related to other employers. The Pensionskasse financial statements for the years ended December 31, 2018 and 2017 indicated total assets of
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$9,456 million and $9,093 million, respectively; total actuarial present value of accumulated plan benefits of $9,061 million and $8,747 million, respectively; and total contributions for all participating employers of $258 million and $653 million, respectively. Our plan contributions did not exceed 5 percent of the total contributions in 2019, 2018 or 2017.
Other Postretirement Benefits—We sponsor unfunded health care and life insurance plans covering certain eligible retired employees and their eligible dependents. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverage. Life insurance benefits are generally provided by insurance contracts. We retain the right, subject to existing agreements, to modify or eliminate these benefits.
The following tables provide a reconciliation of benefit obligations of our unfunded other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of period
|
$
|
234
|
|
|
$
|
59
|
|
|
$
|
280
|
|
|
$
|
62
|
|
|
Service cost
|
1
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
Interest cost
|
9
|
|
|
1
|
|
|
9
|
|
|
1
|
|
|
Actuarial (gain) loss
|
20
|
|
|
18
|
|
|
(46
|
)
|
|
(3
|
)
|
|
Benefits paid
|
(19
|
)
|
|
—
|
|
|
(26
|
)
|
|
(1
|
)
|
|
Participant contributions
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
Business combination
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
Foreign exchange effects
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
Benefit obligation, end of period
|
251
|
|
|
79
|
|
|
234
|
|
|
59
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Employer contributions
|
13
|
|
|
—
|
|
|
21
|
|
|
1
|
|
|
Participant contributions
|
6
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
Benefits paid
|
(19
|
)
|
|
—
|
|
|
(26
|
)
|
|
(1
|
)
|
|
Fair value of plan assets, end of period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Funded status, end of period
|
$
|
(251
|
)
|
|
$
|
(79
|
)
|
|
$
|
(234
|
)
|
|
$
|
(59
|
)
|
Amounts recognized in the Consolidated Balance Sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Accrued benefit liability, current
|
$
|
(17
|
)
|
|
$
|
(1
|
)
|
|
$
|
(18
|
)
|
|
$
|
(1
|
)
|
|
Accrued benefit liability, long-term
|
(234
|
)
|
|
(78
|
)
|
|
(216
|
)
|
|
(58
|
)
|
|
Funded status, end of period
|
$
|
(251
|
)
|
|
$
|
(79
|
)
|
|
$
|
(234
|
)
|
|
$
|
(59
|
)
|
Amounts recognized in Accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Actuarial and investment income (loss)
|
$
|
40
|
|
|
$
|
(32
|
)
|
|
$
|
65
|
|
|
$
|
(15
|
)
|
|
Balance, end of period
|
$
|
40
|
|
|
$
|
(32
|
)
|
|
$
|
65
|
|
|
$
|
(15
|
)
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The components of net periodic other postretirement costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
Interest cost
|
9
|
|
|
9
|
|
|
9
|
|
|
Actuarial gain amortization
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
$
|
5
|
|
|
$
|
11
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Interest cost
|
1
|
|
|
1
|
|
|
1
|
|
|
Actuarial loss amortization
|
1
|
|
|
1
|
|
|
3
|
|
|
Net periodic benefit cost
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
6
|
|
The following tables set forth the assumed health care cost trend rates for our U.S. and Non-U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Immediate trend rate
|
6.1
|
%
|
|
6.4
|
%
|
|
Ultimate trend rate (the rate to which the cost trend rate is assumed to decline)
|
4.5
|
%
|
|
4.5
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
2038
|
|
|
2038
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
Canada
|
|
France
|
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Immediate trend rate
|
5.0
|
%
|
|
5.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
|
Ultimate trend rate (the rate to which the cost trend rate is assumed to decline)
|
4.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
2021
|
|
|
2021
|
|
|
—
|
|
|
—
|
|
The health care cost trend rate assumption does not typically have a significant effect on the amounts reported due to limits on maximum contribution levels to the medical plans. However, changing the assumed health care cost trend rates by one percentage point in each year would increase or decrease the accumulated other postretirement benefit liability as of December 31, 2019 by $24 million or $15 million, respectively, for non-U.S. plans and by less than $1 million for U.S. plans. A one percentage point change would not have a material effect on the aggregate service and interest cost components of the net periodic other postretirement benefit cost for the year then ended.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average assumptions used in determining the net benefit liabilities for our other postretirement benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Discount rate
|
3.12
|
%
|
|
1.20
|
%
|
|
4.47
|
%
|
|
2.30
|
%
|
|
Rate of compensation increase
|
4.50
|
%
|
|
—
|
|
|
4.50
|
%
|
|
—
|
|
The weighted average assumptions used in determining the net benefit costs for our other postretirement benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Discount rate
|
4.47
|
%
|
|
2.30
|
%
|
|
3.66
|
%
|
|
2.48
|
%
|
|
4.07
|
%
|
|
1.69
|
%
|
|
Rate of compensation increase
|
4.50
|
%
|
|
—
|
|
|
4.00
|
%
|
|
—
|
|
|
4.00
|
%
|
|
—
|
|
As of December 31, 2019, future expected benefit payments by our other postretirement benefit plans, which reflect expected future service, as appropriate, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
2020
|
$
|
17
|
|
|
$
|
1
|
|
|
2021
|
17
|
|
|
1
|
|
|
2022
|
17
|
|
|
1
|
|
|
2023
|
17
|
|
|
1
|
|
|
2024
|
17
|
|
|
1
|
|
|
2025 through 2029
|
81
|
|
|
8
|
|
Accumulated Other Comprehensive Loss—The following pre-tax amounts were recognized in Accumulated other comprehensive loss as of and for the years ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
Millions of dollars
|
Actuarial
(Gain) Loss
|
|
Prior Service
Cost (Credit)
|
|
Actuarial
(Gain) Loss
|
|
Prior Service
Cost (Credit)
|
|
December 31, 2017
|
$
|
619
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Arising during the period
|
40
|
|
|
4
|
|
|
(49
|
)
|
|
—
|
|
|
Actuarial loss amortization
|
(31
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
Settlement loss
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
December 31, 2018
|
625
|
|
|
13
|
|
|
(50
|
)
|
|
—
|
|
|
Arising during the period
|
327
|
|
|
22
|
|
|
38
|
|
|
—
|
|
|
Actuarial (loss) gain amortization
|
(30
|
)
|
|
(2
|
)
|
|
4
|
|
|
—
|
|
|
Settlement loss
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
December 31, 2019
|
$
|
921
|
|
|
$
|
33
|
|
|
$
|
(8
|
)
|
|
$
|
—
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In 2019, pension benefits actuarial loss and other postretirement benefits actuarial loss of $327 million and $38 million, respectively, are primarily due to changes in discount rate assumption. In 2018, pension benefits actuarial loss of $40 million are primarily attributable to return on plan asset losses. Other postretirement benefits actuarial gains of $49 million are primarily due to favorable liability experience.
Deferred income taxes related to amounts in Accumulated other comprehensive loss include provisions of $236 million and $144 million as of December 31, 2019 and 2018, respectively.
At December 31, 2019, Accumulated other comprehensive loss of $22 million represents net actuarial and investment losses and $3 million of prior service cost related to non-U.S. pension plans that are expected to be recognized as a component of net periodic benefit cost in 2020. There are $29 million of net actuarial and investment losses in Accumulated other comprehensive loss at December 31, 2019 for U.S. pension plans expected to be recognized in net periodic benefit cost in 2020. At December 31, 2019, Accumulated other comprehensive loss included $3 million of net actuarial loss related to non-U.S. other postretirement benefits and $2 million net actuarial gain related to U.S. other post-retirement benefits that is expected to be recognized in net periodic benefit cost in 2020.
Defined Contribution Plans—Most employees in the U.S. and certain non-U.S. countries are eligible to participate in defined contribution plans (“Employee Savings Plan”) by contributing a portion of their compensation. We make employer contributions, such as matching contributions, to certain of these plans. The Company also has a nonqualified deferred compensation plan that covers senior management in the U.S. This plan was amended in April 2013 to provide for Company contributions on behalf of certain eligible employees who earn base pay above the IRS annual compensation limit.
The following table provides the Company contributions to the Employee Savings Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Contributions
|
|
|
2019
|
|
2018
|
|
2017
|
|
Millions of dollars
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
Employee Savings Plans
|
$
|
46
|
|
|
$
|
7
|
|
|
$
|
40
|
|
|
$
|
5
|
|
|
$
|
36
|
|
|
$
|
5
|
|
17. Incentive and Share-Based Compensation
We are authorized to grant restricted stock units, stock options, performance share units, and other cash and stock awards under our Long-Term Incentive Plan (“LTIP”). The Compensation Committee oversees our equity award grants, the type of awards, the required performance measures and the timing and duration of each grant. The maximum number of shares of our common stock reserved for issuance under the LTIP is 22,000,000 shares. As of December 31, 2019, there were 4,034,158 shares remaining available for issuance assuming maximum payout for performance share units awards.
Our share-based compensation awards, which are subject to customary partial or accelerated vesting or forfeiture in the event of certain termination events, are accounted for as equity awards with compensation cost recognized over the vesting period in the income statement. We use a straight-line vesting method for cliff-vested awards and a graded vesting method for step-vested awards. We have elected to recognize forfeitures as they occur for stock-based compensation. When options are exercised and awards are paid out, shares are issued from our treasury shares.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Total share-based compensation expense and the associated tax benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Compensation Expense:
|
|
|
|
|
|
|
Restricted stock units
|
$
|
21
|
|
|
$
|
15
|
|
|
$
|
13
|
|
|
Stock options
|
7
|
|
|
7
|
|
|
7
|
|
|
Performance share units
|
20
|
|
|
17
|
|
|
35
|
|
|
Total
|
$
|
48
|
|
|
$
|
39
|
|
|
$
|
55
|
|
|
Tax Benefit:
|
|
|
|
|
|
|
Restricted stock units
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
Stock options
|
2
|
|
|
2
|
|
|
2
|
|
|
Performance share units
|
4
|
|
|
4
|
|
|
12
|
|
|
Total
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
19
|
|
Restricted Stock Unit Awards (“RSUs”)—RSUs entitle the recipient to be paid out an equal number of ordinary shares upon vesting. RSUs generally cliff vest on the third anniversary of the grant date.
The holders of RSUs are entitled to nonforfeitable dividend equivalents settled in the form of cash payments. Total dividend equivalent payments for RSUs were $2 million in 2019 and 2018 and $1 million in 2017 and are recognized as dividends in Retained earnings.
The fair value of RSUs is based on the market price of the underlying stock on the date of grant. The weighted average grant date fair value for RSUs granted during the years ended December 31, 2019, 2018 and 2017 was $87.36, $108.52 and $91.14, respectively. The total fair value of RSUs vested during 2019 and 2018 was $13 million and during 2017 was $8 million.
The following table summarizes RSU activity:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Units (in thousands)
|
|
Weighted Average Grant
Date Fair Value
(per share)
|
|
Outstanding at January 1, 2019
|
462
|
|
|
$
|
95.69
|
|
|
Granted
|
338
|
|
|
87.36
|
|
|
Vested
|
(147
|
)
|
|
86.22
|
|
|
Forfeited
|
(40
|
)
|
|
95.67
|
|
|
Outstanding at December 31, 2019
|
613
|
|
|
$
|
93.37
|
|
As of December 31, 2019, the unrecognized compensation cost related to RSUs was $26 million, which is expected to be recognized over a weighted average period of 2 years.
Stock Option Awards (“Stock Options”)—Stock Options allow employees the opportunity in the future to purchase ordinary shares of stock at an exercise price equal to the market price at the date of grant. The awards generally have a three-year vesting period that vests in equal increments on the first, second and third anniversary of the grant date and have a contractual term of ten years. None of the Stock Options are designed to qualify as incentive Stock Options as defined in Section 422 of the Internal Revenue Code.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of each Stock Option is estimated, based on several assumptions, on the date of grant using the Black-Scholes option valuation model. The principal assumptions utilized in valuing Stock Options include the expected stock price volatility (based on our historical stock price volatility over the expected term); the expected dividend yield; and the risk-free interest rate (an estimate based on the yield of a United States Treasury zero coupon bond with a maturity equal to the expected term of the option).
The expected term of all Stock Options granted is estimated based on a simplified approach. In 2010, when the majority of our Stock Options were granted, we determined that the simplified method was appropriate because of the life of LyondellBasell N.V. and its relative stage of development. Similarly, we did not possess exercise patterns similar to our situation. The Stock Options that have been granted since 2010 have been limited in number and have occurred during periods of substantial share price volatility.
Weighted average fair values of Stock Options granted and the assumptions used in estimating those fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Weighted average fair value
|
$
|
15.76
|
|
|
$
|
21.58
|
|
|
$
|
21.55
|
|
|
Fair value assumptions:
|
|
|
|
|
|
|
Dividend yield
|
4.2
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
Expected volatility
|
27.2-28.1%
|
|
|
27.8-29.0%
|
|
|
34.9-35.1%
|
|
|
Risk-free interest rate
|
1.5-2.6%
|
|
|
2.6-2.9%
|
|
|
2.1-2.3%
|
|
|
Weighted average expected term, in years
|
6.0
|
|
|
6.0
|
|
|
6.0
|
|
The following table summarizes Stock Option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(in thousands)
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Term
|
|
Aggregate
Intrinsic
Value
(millions of
dollars)
|
|
Outstanding at January 1, 2019
|
1,281
|
|
|
$
|
90.30
|
|
|
|
|
|
|
Granted
|
604
|
|
|
89.78
|
|
|
|
|
|
|
Exercised
|
(18
|
)
|
|
70.33
|
|
|
|
|
|
|
Forfeited
|
(64
|
)
|
|
94.39
|
|
|
|
|
|
|
Expired
|
(21
|
)
|
|
98.82
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
1,782
|
|
|
$
|
90.08
|
|
|
7.3 years
|
|
$
|
13
|
|
|
Exercisable at December 31, 2019
|
942
|
|
|
$
|
87.25
|
|
|
6.2 years
|
|
$
|
9
|
|
The aggregate intrinsic value of Stock Options exercised during the years ended December 31, 2019, 2018 and 2017 was less than $1 million, $3 million and $6 million, respectively.
As of December 31, 2019, the unrecognized compensation cost related to Stock Options was $6 million, which is expected to be recognized over a two-year period. During 2019, cash received from the exercise of Stock Options was $1 million and the tax benefit associated with these exercises was less than $1 million.
Performance Share Units Awards (“PSUs”)—A target number of PSUs are granted to participants at the beginning of each performance period. These awards cliff vest after a three-year performance cycle and are settled in shares of common stock, where the ultimate payout can be between 0% and 200% of the target shares granted. Each unit is equivalent to one share of our common stock.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For PSUs granted beginning in 2017, the final number of shares payable is determined after the performance period based on the relative Total Shareholder Return (“TSR”). TSR is an objective calculation that takes into account our TSR rank within its peer group and whether our specific TSR is positive or negative. The fair value of PSUs is estimated on the grant date using a Monte-Carlo simulation.
For PSUs granted prior to 2017, the final number of shares payable was determined at the end of the performance period by the Compensation Committee based generally on subjective criteria established at the beginning of the performance period. These share awards were treated as liability awards and fair value adjustments were based on the market price of the underlying stock on the date of payment.
Outstanding PSUs accrue dividend equivalent units, which will be converted to shares upon payment at the end of the performance period and are classified as Accrued liabilities and Other liabilities on the Consolidated Balance Sheets. Dividend equivalents for PSUs granted in 2016 were recorded as compensation expense while PSUs granted beginning in 2017 were recorded in Retained earnings.
The weighted average fair value of PSUs granted in each respective year and the assumptions used in the Monte Carlo simulation to estimate those fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Weighted average fair value
|
$
|
76.35
|
|
|
$
|
89.32
|
|
|
$
|
93.28
|
|
|
Fair value assumptions:
|
|
|
|
|
|
|
Expected volatility of LyondellBasell N.V. common stock
|
24.11
|
%
|
|
27.15
|
%
|
|
30.98
|
%
|
|
Expected volatility of peer companies
|
14.57-40.55%
|
|
|
17.45-42.99%
|
|
|
16.98-39.89%
|
|
|
Average correlation coefficient of peer companies
|
0.50
|
|
|
0.50
|
|
|
0.51
|
|
|
Risk-free interest rate
|
2.48
|
%
|
|
2.40
|
%
|
|
1.46
|
%
|
The following table summarizes PSU activity, which assumes target payout at 100%:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Awards
|
|
Liability Awards
|
|
|
Number of
Units (in thousands)
|
|
Weighted Average
Grant Date Fair Value (per share)
|
|
Number of
Units (in thousands)
|
|
Weighted Average
Grant Date Fair Value (per share)
|
|
Outstanding at January 1, 2019
|
430
|
|
|
$
|
91.33
|
|
|
349
|
|
|
$
|
78.01
|
|
|
Granted
|
307
|
|
|
76.35
|
|
|
—
|
|
|
—
|
|
|
Vested
|
—
|
|
|
—
|
|
|
(349
|
)
|
|
78.01
|
|
|
Forfeited
|
(54
|
)
|
|
82.27
|
|
|
—
|
|
|
—
|
|
|
Outstanding at December 31, 2019
|
683
|
|
|
$
|
85.32
|
|
|
—
|
|
|
$
|
—
|
|
The total fair value of PSUs vested during 2019, 2018 and 2017 was $22 million, $25 million, and $21 million, respectively. As of December 31, 2019, the unrecognized compensation cost related to PSUs was $23 million, which is expected to be recognized over a weighted average period of 2 years.
Employee Stock Purchase Plan—We have an Employee Share Purchase Plan (“ESPP”) which includes a 10% discount and a look-back provision. These provisions allow participants to purchase our stock at a discount on the lower of the fair market value at either the beginning or end of the purchase period. As a result of the 10% discount and the look-back provision, the ESPP is considered a compensatory plan under generally accepted accounting principles.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Income Taxes
LyondellBasell Industries N.V. is tax resident in the United Kingdom pursuant to a mutual agreement procedure determination ruling between the Dutch and United Kingdom competent authorities and therefore subject solely to the United Kingdom corporate income tax system.
LyondellBasell Industries N.V. has little or no taxable income of its own because, as a holding company, it does not conduct any operations. Through our subsidiaries, we have substantial operations world-wide. Taxes are paid on the earnings generated in various jurisdictions where our subsidiaries operate, including primarily the U.S., the Netherlands, Germany, France, and Italy.
We monitor income tax developments and the potential impact to our results of operations. In 2017, the U.S. enacted “H.R.1”, also known as the “Tax Cuts and Jobs Act” (the “Tax Act”) materially impacting our Consolidated Financial Statements by, among other things, decreasing the tax rate, and significantly affecting future periods. The Tax Act reduced the federal corporate tax rate from 35% to 21% for years beginning after 2017, which resulted in the remeasurement of our U.S. net deferred income tax liabilities. As a result, we recognized a tax benefit of $819 million in 2017. Following adjustments made in 2018, the cumulative impact of the remeasurement of our U.S. net deferred income tax liabilities and tax accruals was an $814 million income tax benefit. Adjustments to the 2017 provisional amount were reported as a component of income tax expense in the reporting period in which the adjustments were identified.
In 2019, as a result of the U.S. Section 245A temporary regulations following the Tax Act, the Company intends to permanently reinvest approximately $550 million of our non-U.S. earnings. Repatriation of these earnings to the U.S. in the future could result in a tax impact of approximately $60 million. Prior to the issuance of the retroactive temporary regulations, the non-U.S. earnings could have been distributed tax free. In prior years, the Company did not assert permanent reinvestment of our foreign earnings.
Under the Tax Act, U.S. Treasury was provided expanded regulatory authority. Based on regulations proposed to date, we do not believe there will be further material impact to our financial statements. However, we will continue to analyze the effects of the new law as additional regulations are proposed and finalized.
Interest income earned by certain of our European subsidiaries through intercompany financings is either untaxed or taxed at rates substantially lower than the U.S. statutory rate. In 2016, the U.S. Treasury issued final Section 385 debt-equity regulations that impact our internal financings beginning in 2017. In October 2019 the US Treasury announced that it intended to propose modifying these debt-equity regulations, but the scope of such changes is uncertain and new regulations could impact our internal financings in future years. In addition, there has been increased attention, both in the U.S. and globally, to the tax practices of multinational companies, including the European Union’s state aid investigations, proposals by the Organization for Economic Cooperation and Development with respect to base erosion and profit shifting, and European Union tax directives and their implementation. Other than the Tax Act, 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The significant components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
U.S. federal
|
$
|
122
|
|
|
$
|
(89
|
)
|
|
$
|
543
|
|
|
Non-U.S.
|
296
|
|
|
404
|
|
|
595
|
|
|
State
|
21
|
|
|
38
|
|
|
47
|
|
|
Total current
|
439
|
|
|
353
|
|
|
1,185
|
|
|
Deferred:
|
|
|
|
|
|
|
U.S. federal
|
124
|
|
|
197
|
|
|
(637
|
)
|
|
Non-U.S.
|
75
|
|
|
48
|
|
|
22
|
|
|
State
|
10
|
|
|
15
|
|
|
28
|
|
|
Total deferred
|
209
|
|
|
260
|
|
|
(587
|
)
|
|
Provision for income taxes before tax effects of other comprehensive income
|
648
|
|
|
613
|
|
|
598
|
|
|
Tax effects of elements of other comprehensive income:
|
|
|
|
|
|
|
Pension and postretirement liabilities
|
(92
|
)
|
|
63
|
|
|
29
|
|
|
Financial derivatives
|
(38
|
)
|
|
16
|
|
|
(14
|
)
|
|
Foreign currency translation
|
8
|
|
|
18
|
|
|
(33
|
)
|
|
Unrealized gains (losses) from available-for-sale debt securities
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
Total income tax expense in comprehensive income
|
$
|
526
|
|
|
$
|
710
|
|
|
$
|
577
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Since the proportion of U.S. revenues, assets, operating income and associated tax provisions is significantly greater than any other single taxing jurisdiction within the worldwide group, the reconciliation of the differences between the provision for income taxes and the statutory rate is presented on the basis of the U.S. statutory federal income tax rate of 21% as opposed to the United Kingdom statutory rate of 19%. Our effective tax rate for the year ended December 31, 2019 is 16.0%. This summary is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Income before income taxes:
|
|
|
|
|
|
|
U.S.
|
$
|
1,581
|
|
|
$
|
2,795
|
|
|
$
|
2,438
|
|
|
Non-U.S.
|
2,471
|
|
|
2,516
|
|
|
3,055
|
|
|
Total
|
$
|
4,052
|
|
|
$
|
5,311
|
|
|
$
|
5,493
|
|
|
|
|
|
|
|
|
|
Income tax at U.S. statutory rate
|
$
|
851
|
|
|
$
|
1,115
|
|
|
$
|
1,923
|
|
|
Increase (reduction) resulting from:
|
|
|
|
|
|
|
Non-U.S. income taxed at different statutory rates
|
64
|
|
|
89
|
|
|
(164
|
)
|
|
Remeasurement of U.S. net deferred tax liability
|
—
|
|
|
—
|
|
|
(819
|
)
|
|
State income taxes, net of federal benefit
|
29
|
|
|
53
|
|
|
40
|
|
|
Exempt income
|
(182
|
)
|
|
(296
|
)
|
|
(385
|
)
|
|
Liquidation loss
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
Patent box ruling
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
Uncertain tax positions
|
(42
|
)
|
|
(320
|
)
|
|
28
|
|
|
U.S. manufacturing deduction
|
—
|
|
|
—
|
|
|
(57
|
)
|
|
Other, net
|
44
|
|
|
(28
|
)
|
|
32
|
|
|
Income tax provision
|
$
|
648
|
|
|
$
|
613
|
|
|
$
|
598
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The deferred tax effects of tax loss, credit and interest carryforwards (“tax attributes”) and the tax effects of temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements, reduced by a valuation allowance where appropriate, are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Deferred tax liabilities:
|
|
|
|
|
Accelerated tax depreciation
|
$
|
1,973
|
|
|
$
|
1,809
|
|
|
Investment in joint venture partnerships
|
141
|
|
|
147
|
|
|
Intangible assets
|
116
|
|
|
151
|
|
|
Inventory
|
319
|
|
|
285
|
|
|
Operating lease asset
|
322
|
|
|
—
|
|
|
Other liabilities
|
45
|
|
|
22
|
|
|
Total deferred tax liabilities
|
2,916
|
|
|
2,414
|
|
|
Deferred tax assets:
|
|
|
|
|
Tax attributes
|
$
|
168
|
|
|
$
|
180
|
|
|
Employee benefit plans
|
397
|
|
|
334
|
|
|
Operating lease liability
|
326
|
|
|
—
|
|
|
Other assets
|
133
|
|
|
76
|
|
|
Total deferred tax assets
|
1,024
|
|
|
590
|
|
|
Deferred tax asset valuation allowances
|
(85
|
)
|
|
(120
|
)
|
|
Net deferred tax assets
|
939
|
|
|
470
|
|
|
Net deferred tax liabilities
|
$
|
1,977
|
|
|
$
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Balance sheet classifications:
|
|
|
|
|
Deferred tax assets—long-term
|
$
|
38
|
|
|
$
|
31
|
|
|
Deferred tax liabilities—long-term
|
2,015
|
|
|
1,975
|
|
|
Net deferred tax liabilities
|
$
|
1,977
|
|
|
$
|
1,944
|
|
Deferred taxes on the unremitted earnings of certain equity joint ventures and subsidiaries of $95 million and $96 million at December 31, 2019 and 2018, respectively, have been provided.
At December 31, 2019 and 2018, we had total tax attributes available in the amount of $877 million and $938 million, respectively, for which a deferred tax asset was recognized at December 31, 2019 and 2018 of $168 million and $180 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The scheduled expiration of the tax attributes and the related deferred tax assets, before valuation allowance, as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Tax
Attributes
|
|
Deferred Tax
on Tax
Attributes
|
|
2020
|
$
|
28
|
|
|
$
|
1
|
|
|
2021
|
16
|
|
|
1
|
|
|
2022
|
28
|
|
|
2
|
|
|
2023
|
9
|
|
|
1
|
|
|
2024
|
4
|
|
|
1
|
|
|
Thereafter
|
152
|
|
|
16
|
|
|
Indefinite
|
640
|
|
|
146
|
|
|
Total
|
$
|
877
|
|
|
$
|
168
|
|
The tax attributes are primarily related to operations in the United States, United Kingdom and France. The related deferred tax assets by primary jurisdictions are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
United States
|
$
|
68
|
|
|
$
|
14
|
|
|
$
|
10
|
|
|
United Kingdom
|
36
|
|
|
36
|
|
|
17
|
|
|
France
|
30
|
|
|
64
|
|
|
92
|
|
|
Spain
|
8
|
|
|
11
|
|
|
32
|
|
|
The Netherlands
|
4
|
|
|
12
|
|
|
13
|
|
|
Canada
|
—
|
|
|
28
|
|
|
31
|
|
|
Other
|
22
|
|
|
15
|
|
|
1
|
|
|
Total
|
$
|
168
|
|
|
$
|
180
|
|
|
$
|
196
|
|
To fully realize these net deferred tax assets, we will need to generate sufficient future taxable income in the countries where these tax attributes exist during the periods in which the attributes can be utilized. Based upon projections of future taxable income over the periods in which the attributes can be utilized and/or temporary differences can be reversed, management believes it is more likely than not that $83 million of these deferred tax assets at December 31, 2019 will be realized.
Prior to the close of each reporting period, management considers the weight of all evidence, both positive and negative, to determine if a valuation allowance is necessary for each jurisdictions’ net deferred tax assets. We place greater weight on historical evidence over future predictions of our ability to utilize net deferred tax assets. We consider future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income in prior carryback year(s) if carryback is permitted under applicable law, as well as available prudent and feasible tax planning strategies that would, if necessary, be implemented to ensure realization of the net deferred tax asset.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the valuation allowances by primary jurisdiction is shown below, reflecting the valuation allowances for all the net deferred tax assets, including deferred tax assets for tax attributes and other temporary differences.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
United Kingdom
|
$
|
36
|
|
|
$
|
33
|
|
|
$
|
17
|
|
|
France
|
23
|
|
|
23
|
|
|
25
|
|
|
United States
|
13
|
|
|
13
|
|
|
10
|
|
|
The Netherlands
|
3
|
|
|
12
|
|
|
12
|
|
|
Canada
|
—
|
|
|
28
|
|
|
32
|
|
|
Other
|
10
|
|
|
11
|
|
|
—
|
|
|
|
$
|
85
|
|
|
$
|
120
|
|
|
$
|
96
|
|
Historically, we have maintained a full valuation allowance against the net deferred tax asset in Canada. In 2019, we liquidated this Canadian entity resulting in the write-off of both the deferred tax asset and the associated valuation allowance.
During 2018, the valuation allowance increased in the United Kingdom due to disallowed interest deductions where we do not expect to realize a future benefit. This increase also includes the addition of valuation allowances associated with A. Schulman entities acquired in 2018 where management assessed that deferred tax attributes are not likely to be realized.
During 2017, the valuation allowance decreased in the U.S. due to the remeasurement of our U.S. net deferred income tax liability. This reduction was offset by increases in the valuation allowances of other jurisdictions due primarily to currency translation adjustments.
Tax benefits totaling $238 million, $269 million and $544 million relating to uncertain tax positions, which are reflected in Other liabilities, were unrecognized as of December 31, 2019, 2018 and 2017, respectively. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
Balance, beginning of period
|
$
|
269
|
|
|
$
|
544
|
|
|
$
|
546
|
|
|
Additions for tax positions of current year
|
49
|
|
|
16
|
|
|
15
|
|
|
Additions for tax positions of prior years
|
20
|
|
|
23
|
|
|
3
|
|
|
Reductions for tax positions of prior years
|
(100
|
)
|
|
(299
|
)
|
|
(20
|
)
|
|
Settlements (payments/refunds)
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
Balance, end of period
|
$
|
238
|
|
|
$
|
269
|
|
|
$
|
544
|
|
The majority of the uncertain tax positions, if recognized, will affect the effective tax rate. We operate in multiple jurisdictions throughout the world, and our tax returns are periodically audited or subjected to review by tax authorities. We are currently under examination in a number of tax jurisdictions. As a result, there is an uncertainty in income taxes recognized in our financial statements. Positions challenged by the tax authorities may be settled or appealed by us. During 2019, we recognized a $113 million non-cash benefit to our effective tax rate consisting of $100 million of previously unrecognized tax benefits as a reduction for tax positions of a prior year and the release of $13 million of previously accrued interest. These benefits were largely due to the expiration of certain statutes of limitations. During 2018, we entered into various audit settlements impacting specific uncertain tax positions. These audit settlements resulted in a $358 million non-cash benefit to our effective tax rate consisting of the recognition of
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$299 million of previously unrecognized tax benefits as a reduction for tax positions of prior years and the release of $59 million of previously accrued interest. These non-cash reductions in unrecognized tax benefits are reflected on our Consolidated Balance Sheets in Other liabilities and on our Consolidated Statements of Cash Flows in Other operating activities.
We are no longer subject to any significant income tax examinations by tax authorities for the years prior to 2017 in the Netherlands, prior to 2014 in Italy, prior to 2005 in Germany, prior to 2010 in France, prior to 2016 in the United Kingdom, and prior to 2016 in the U.S., our principal tax jurisdictions. It is reasonably possible that, within the next twelve months, due to the settlement of uncertain tax positions with various tax authorities and the expiration of statutes of limitations, unrecognized tax benefits could decrease by up to approximately $100 million.
We recognize interest associated with unrecognized tax benefits in income tax expense. Income tax expense includes a benefit of interest and penalties totaling $1 million and $47 million in 2019 and 2018, respectively, and interest expense totaling $16 million in 2017.
We had accrued approximately $15 million, $16 million and $63 million for interest and penalties as of December 31, 2019, 2018 and 2017, respectively.
19. Commitments and Contingencies
Commitments—We have various purchase commitments for materials, supplies and services incidental to the ordinary conduct of business, generally for quantities required for our businesses and at prevailing market prices. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. As of December 31, 2019, we had capital expenditure commitments which we incurred in our normal course of business, including commitments of approximately $449 million related to building our new PO/TBA plant on the Texas Gulf Coast.
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 $132 million and $90 million as of December 31, 2019 and 2018, respectively. At December 31, 2019, the accrued liabilities for individual sites range from less than $1 million to $17 million. The remediation expenditures are expected to occur over a number of years, and not 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the activity in our accrued environmental liability included in “Accrued liabilities” and “Other liabilities:”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
|
2019
|
|
2018
|
|
Beginning balance
|
|
$
|
90
|
|
|
$
|
102
|
|
|
Additional provisions
|
|
44
|
|
|
—
|
|
|
Changes in estimates
|
|
15
|
|
|
4
|
|
|
Amounts paid
|
|
(16
|
)
|
|
(13
|
)
|
|
Foreign exchange effects
|
|
(1
|
)
|
|
(3
|
)
|
|
Ending balance
|
|
$
|
132
|
|
|
$
|
90
|
|
Additional provisions recognized during the year ended December 31, 2019 are primarily associated with our acquisition of A. Schulman in August 2018.
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 December 31, 2019, 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 5 to 10 years.
Legal Proceedings—We are subject to various lawsuits and claims, including but not limited to, matters involving contract disputes, environmental damages, personal injury and property damage. We vigorously defend ourselves and prosecute these matters as appropriate.
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor legal proceedings in which we are a party. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial, mediation or other resolution. We regularly assesses the adequacy of legal accruals based on our professional judgment, experience and the information available regarding our cases.
Based on a consideration of all relevant facts and circumstances, we do not believe the ultimate outcome of any currently pending lawsuit against us will have a material adverse effect upon our operations, financial condition or financial statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20. Shareholders’ Equity and Redeemable Non-controlling Interests
Shareholders’ Equity
Dividend Distributions—The following table summarizes the dividends paid to common shareholders in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars, except per share amounts
|
Dividend Per
Ordinary
Share
|
|
Aggregate
Dividends
Paid
|
|
Date of Record
|
|
For the year 2019:
|
|
|
|
|
|
|
March
|
$
|
1.00
|
|
|
$
|
372
|
|
|
March 4, 2019
|
|
June
|
1.05
|
|
|
388
|
|
|
June 10, 2019
|
|
September
|
1.05
|
|
|
351
|
|
|
September 4, 2019
|
|
December
|
1.05
|
|
|
351
|
|
|
December 2, 2019
|
|
|
$
|
4.15
|
|
|
$
|
1,462
|
|
|
|
|
For the year 2018:
|
|
|
|
|
|
|
March
|
$
|
1.00
|
|
|
$
|
395
|
|
|
March 5, 2018
|
|
June
|
1.00
|
|
|
392
|
|
|
June 11, 2018
|
|
September
|
1.00
|
|
|
389
|
|
|
September 5, 2018
|
|
December
|
1.00
|
|
|
378
|
|
|
December 10, 2018
|
|
|
$
|
4.00
|
|
|
$
|
1,554
|
|
|
|
Share Repurchase Authorization—In May 2019, our shareholders approved a proposal to authorize us to repurchase up to 37.0 million of our ordinary shares through November 30, 2020 (“May 2019 Share Repurchase Authorization”), which superseded the remaining authorization under our 2018 Share Repurchase Authorization.
Upon the completion of the tender offer in July 2019, we repurchased 35.1 million ordinary shares, under the May 2019 Share Repurchase Authorization, at a tender offer price of $88.00 per share for a total of $3,099 million, including $6 million of fees and expenses related to the tender offer. The remaining 1.9 million shares under the May 2019 Share Repurchase Authorization were repurchased from the open market in August 2019.
In September 2019, our shareholders approved a proposal to authorize us to repurchase up to 33.3 million ordinary shares through March 12, 2021 (“September 2019 Share Repurchase Authorization”), which superseded any prior repurchase authorizations. The timing and amount of these repurchases, which are determined based on our evaluation of market conditions and other factors, may be executed from time to time through open market or privately negotiated transactions. The repurchased shares, which are recorded at cost, are classified as Treasury stock and may be retired or used for general corporate purposes, including for various employee benefit and compensation plans. As of December 31, 2019, there were no repurchases under the September 2019 Share Repurchase Authorization.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes our share repurchase activity for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars, except shares and per share amounts
|
Shares
Repurchased
|
|
Average
Purchase
Price
|
|
Total Purchase Price, Including Commissions and Fees
|
|
For the year 2019:
|
|
|
|
|
|
|
2018 Share Repurchase Authorization
|
5,648,900
|
|
|
$
|
86.38
|
|
|
$
|
488
|
|
|
May 2019 Share Repurchase Authorization
|
37,032,594
|
|
|
87.50
|
|
|
3,240
|
|
|
|
42,681,494
|
|
|
$
|
87.35
|
|
|
$
|
3,728
|
|
|
For the year 2018:
|
|
|
|
|
|
|
2017 Share Repurchase Authorization
|
4,004,753
|
|
|
$
|
106.05
|
|
|
$
|
425
|
|
|
2018 Share Repurchase Authorization
|
15,215,966
|
|
|
95.49
|
|
|
1,453
|
|
|
|
19,220,719
|
|
|
$
|
97.69
|
|
|
$
|
1,878
|
|
|
For the year 2017:
|
|
|
|
|
|
|
2016 Share Repurchase Authorization
|
3,501,084
|
|
|
$
|
85.71
|
|
|
$
|
300
|
|
|
2017 Share Repurchase Authorization
|
6,516,917
|
|
|
83.54
|
|
|
545
|
|
|
|
10,018,001
|
|
|
$
|
84.30
|
|
|
$
|
845
|
|
Due to the timing of settlements, total cash paid for share repurchases for the years ended December 31, 2019, 2018 and 2017 was $3,752 million, $1,854 million and $866 million, respectively.
Ordinary Shares—The changes in the outstanding amounts of ordinary shares are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Ordinary shares outstanding:
|
|
|
|
|
|
|
Beginning balance
|
375,696,661
|
|
|
394,512,054
|
|
|
404,046,331
|
|
|
Share-based compensation
|
295,984
|
|
|
307,335
|
|
|
371,980
|
|
|
Warrants exercised
|
—
|
|
|
—
|
|
|
4,184
|
|
|
Employee stock purchase plan
|
165,743
|
|
|
121,398
|
|
|
107,560
|
|
|
Purchase of ordinary shares
|
(42,681,505
|
)
|
|
(19,244,126
|
)
|
|
(10,018,001
|
)
|
|
Ending balance
|
333,476,883
|
|
|
375,696,661
|
|
|
394,512,054
|
|
Treasury Shares—The changes in the amounts of treasury shares held by the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Ordinary shares held as treasury shares:
|
|
|
|
|
|
|
Beginning balance
|
24,513,619
|
|
|
183,928,109
|
|
|
174,389,139
|
|
|
Share-based compensation
|
(295,984
|
)
|
|
(307,335
|
)
|
|
(371,980
|
)
|
|
Warrants exercised
|
—
|
|
|
—
|
|
|
509
|
|
|
Employee stock purchase plan
|
(165,743
|
)
|
|
(121,398
|
)
|
|
(107,560
|
)
|
|
Purchase of ordinary shares
|
42,681,505
|
|
|
19,244,126
|
|
|
10,018,001
|
|
|
Treasury shares canceled
|
(60,164,652
|
)
|
|
(178,229,883
|
)
|
|
—
|
|
|
Ending balance
|
6,568,745
|
|
|
24,513,619
|
|
|
183,928,109
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2019 and 2018, following approval by our management and shareholders, we canceled 60,164,652 and 178,229,883 ordinary shares, respectively, held in our treasury account in accordance with cancellation requirements under Dutch law.
Purchase of ordinary shares during 2019 and 2018 includes 11 shares and 23,407 shares, respectively, that were returned to us at no cost resulting from unclaimed distributions to creditors.
Accumulated Other Comprehensive Loss—The components of, and after-tax changes in, Accumulated other comprehensive loss as of and for the years ended December 31, 2019, 2018 and 2017 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Financial
Derivatives
|
|
Unrealized
Gains
(Losses) on Available-for-Sale Debt
Securities
|
|
Unrealized
Gains
on Equity
Securities and Equity Securities Held by Equity Investees
|
|
Defined
Benefit
Pension
and Other
Postretirement
Benefit Plans
|
|
Foreign
Currency
Translation
Adjustments
|
|
Total
|
|
Balance—January 1, 2017
|
$
|
(75
|
)
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(498
|
)
|
|
$
|
(939
|
)
|
|
$
|
(1,511
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(323
|
)
|
|
(2
|
)
|
|
15
|
|
|
62
|
|
|
145
|
|
|
(103
|
)
|
|
Tax (expense) benefit before reclassifications
|
86
|
|
|
1
|
|
|
2
|
|
|
(15
|
)
|
|
33
|
|
|
107
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
264
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
308
|
|
|
Tax expense
|
(72
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(86
|
)
|
|
Net other comprehensive income (loss)
|
(45
|
)
|
|
(1
|
)
|
|
17
|
|
|
77
|
|
|
178
|
|
|
226
|
|
|
Balance—December 31, 2017
|
$
|
(120
|
)
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
(421
|
)
|
|
$
|
(761
|
)
|
|
$
|
(1,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—January 1, 2018
|
$
|
(120
|
)
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
(421
|
)
|
|
$
|
(761
|
)
|
|
$
|
(1,285
|
)
|
|
Adoption of accounting standards
|
(2
|
)
|
|
—
|
|
|
(17
|
)
|
|
(51
|
)
|
|
—
|
|
|
(70
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
180
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
(74
|
)
|
|
111
|
|
|
Tax (expense) benefit before reclassifications
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(18
|
)
|
|
(59
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
(74
|
)
|
|
Tax (expense) benefit
|
27
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
14
|
|
|
Net other comprehensive income (loss)
|
54
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
(92
|
)
|
|
(8
|
)
|
|
Balance—December 31, 2018
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(442
|
)
|
|
$
|
(853
|
)
|
|
$
|
(1,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—January 1, 2019
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(442
|
)
|
|
$
|
(853
|
)
|
|
$
|
(1,363
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(120
|
)
|
|
—
|
|
|
—
|
|
|
(390
|
)
|
|
(12
|
)
|
|
(522
|
)
|
|
Tax (expense) benefit before reclassifications
|
25
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
(8
|
)
|
|
115
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
(21
|
)
|
|
Tax (expense) benefit
|
13
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
7
|
|
|
Net other comprehensive income (loss)
|
(132
|
)
|
|
—
|
|
|
—
|
|
|
(269
|
)
|
|
(20
|
)
|
|
(421
|
)
|
|
Balance—December 31, 2019
|
$
|
(200
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(711
|
)
|
|
$
|
(873
|
)
|
|
$
|
(1,784
|
)
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The amounts reclassified out of each component of Accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
Year Ended December 31,
|
|
Affected Line Items on
the Consolidated
Statements of Income
|
|
2019
|
|
2018
|
|
2017
|
|
|
Reclassification adjustments for:
|
|
|
|
|
|
|
|
|
Financial derivatives
|
$
|
(50
|
)
|
|
$
|
(110
|
)
|
|
$
|
264
|
|
|
Other income, net
|
|
Income tax expense (benefit)
|
(13
|
)
|
|
(27
|
)
|
|
72
|
|
|
Provision for income taxes
|
|
Financial derivatives, net of tax
|
(37
|
)
|
|
(83
|
)
|
|
192
|
|
|
|
|
Amortization of defined pension items:
|
|
|
|
|
|
|
|
|
Prior service cost
|
2
|
|
|
1
|
|
|
3
|
|
|
Other income, net
|
|
Actuarial loss
|
26
|
|
|
32
|
|
|
39
|
|
|
Other income, net
|
|
Settlement loss
|
1
|
|
|
3
|
|
|
2
|
|
|
Other income, net
|
|
Income tax expense (benefit)
|
6
|
|
|
13
|
|
|
14
|
|
|
Provision for income taxes
|
|
Defined pension items, net of tax
|
23
|
|
|
23
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, before tax
|
(21
|
)
|
|
(74
|
)
|
|
308
|
|
|
|
|
Income tax expense (benefit)
|
(7
|
)
|
|
(14
|
)
|
|
86
|
|
|
Provision for income taxes
|
|
Total reclassifications, after tax
|
$
|
(14
|
)
|
|
$
|
(60
|
)
|
|
$
|
222
|
|
|
Amount included in net income
|
Amortization of prior service cost and actuarial loss are included in the computation of net periodic pension and other postretirement benefit costs (see Note 16 to the Consolidated Financial Statements).
Non-Controlling Interests—In February 2019, we increased our interest in our subsidiary La Porte Methanol Company, L.P., from 85% to 100%, for cash consideration of $63 million. In April 2017, we increased our interest in the entity that holds our equity interest in Al Waha Petrochemicals Ltd. from 83.79% to 100% by paying $21 million to exercise a call option to purchase the remaining 16.21% interest held by a third party.
Redeemable Non-controlling Interests
Our redeemable non-controlling interests relate to shares of cumulative perpetual special stock issued by our consolidated subsidiary, formerly known as A. Schulman. As of December 31, 2019 and 2018, we had 115,374 shares of redeemable non-controlling interest stock outstanding.
In February, May, August and November 2019, we paid a cash dividend of $15.00 per share to our redeemable non-controlling interest shareholders of record as of January 15, 2019, April 15, 2019, July 15, 2019, and October 15, 2019, respectively. In 2019 and 2018, we paid a total of $7 million and $2 million, respectively, related to dividends on redeemable non-controlling interest stock.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21. Per Share Data
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 options 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
Continuing
|
|
Discontinued
|
|
Continuing
|
|
Discontinued
|
|
Continuing
|
|
Discontinued
|
|
Millions of dollars
|
Operations
|
|
Operations
|
|
Operations
|
|
Operations
|
|
Operations
|
|
Operations
|
|
Net income (loss)
|
$
|
3,404
|
|
|
$
|
(7
|
)
|
|
$
|
4,698
|
|
|
$
|
(8
|
)
|
|
$
|
4,895
|
|
|
$
|
(18
|
)
|
|
Less: net loss attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Net income (loss) attributable to the Company shareholders
|
3,404
|
|
|
(7
|
)
|
|
4,698
|
|
|
(8
|
)
|
|
4,897
|
|
|
(18
|
)
|
|
Dividends on redeemable non-controlling interest stock
|
(7
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income attributable to participating securities
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
Net income (loss) attributable to ordinary shareholders—basic
|
$
|
3,391
|
|
|
$
|
(7
|
)
|
|
$
|
4,690
|
|
|
$
|
(8
|
)
|
|
$
|
4,892
|
|
|
$
|
(18
|
)
|
|
Potential diluted effect of performance share units
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to ordinary shareholders— diluted
|
$
|
3,391
|
|
|
$
|
(7
|
)
|
|
$
|
4,685
|
|
|
$
|
(8
|
)
|
|
$
|
4,892
|
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of shares,
except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common stock outstanding
|
353
|
|
|
353
|
|
|
389
|
|
|
389
|
|
|
398
|
|
|
398
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Potential dilutive shares
|
353
|
|
|
353
|
|
|
389
|
|
|
389
|
|
|
399
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
9.61
|
|
|
$
|
(0.02
|
)
|
|
$
|
12.06
|
|
|
$
|
(0.02
|
)
|
|
$
|
12.28
|
|
|
$
|
(0.05
|
)
|
|
Diluted
|
$
|
9.60
|
|
|
$
|
(0.02
|
)
|
|
$
|
12.03
|
|
|
$
|
(0.02
|
)
|
|
$
|
12.28
|
|
|
$
|
(0.05
|
)
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
22. Segment and Related Information
Our operations are managed by senior executives who report 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 Polyolefins—Americas (“O&P—Americas”). Our O&P–Americas segment produces and markets olefins and co-products, polyethylene and polypropylene.
|
|
|
|
|
•
|
Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”). Our O&P—EAI segment produces and markets olefins and co-products, polyethylene, and polypropylene.
|
|
|
|
|
•
|
Intermediates and Derivatives (“I&D”). Our I&D segment produces and markets propylene oxide and its derivatives; oxyfuels and related products; and intermediate chemicals such as styrene monomer, acetyls, ethylene oxide and ethylene glycol.
|
|
|
|
|
•
|
Advanced Polymer Solutions (“APS”). Our APS segment produces and markets compounding and solutions, such as polypropylene compounds, engineered plastics, masterbatches, engineered composites, colors and powders, and advanced polymers, which includes Catalloy and polybutene-1.
|
|
|
|
|
•
|
Refining. Our Refining segment refines heavy, high-sulfur crude oil and other crude oils of varied types and sources available on the U.S. Gulf Coast into refined products, including gasoline and distillates.
|
|
|
|
|
•
|
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 profitability of our segments, and therefore, we have presented EBITDA for all segments. We define EBITDA as earnings before interest, income taxes, and depreciation and amortization.
“Other” includes intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other postretirement benefit costs other than service costs. Sales between segments are made primarily at prices approximating prevailing market prices.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized financial information concerning reportable segments is shown in the following tables for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
O&P –
Americas
|
|
O&P –
EAI
|
|
I&D
|
|
APS
|
|
Refining
|
|
Technology
|
|
Other
|
|
Total
|
|
Millions of dollars
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
$
|
5,311
|
|
|
$
|
8,764
|
|
|
$
|
7,642
|
|
|
$
|
4,846
|
|
|
$
|
7,599
|
|
|
$
|
565
|
|
|
$
|
—
|
|
|
$
|
34,727
|
|
|
Intersegment
|
3,124
|
|
|
740
|
|
|
192
|
|
|
4
|
|
|
652
|
|
|
98
|
|
|
(4,810
|
)
|
|
—
|
|
|
|
8,435
|
|
|
9,504
|
|
|
7,834
|
|
|
4,850
|
|
|
8,251
|
|
|
663
|
|
|
(4,810
|
)
|
|
34,727
|
|
|
Depreciation and amortization expense
|
470
|
|
|
208
|
|
|
295
|
|
|
133
|
|
|
169
|
|
|
37
|
|
|
—
|
|
|
1,312
|
|
|
Other income, net
|
9
|
|
|
9
|
|
|
6
|
|
|
1
|
|
|
6
|
|
|
—
|
|
|
8
|
|
|
39
|
|
|
Income from equity investments
|
46
|
|
|
172
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
225
|
|
|
Capital expenditures
|
1,099
|
|
|
213
|
|
|
1,064
|
|
|
59
|
|
|
149
|
|
|
94
|
|
|
16
|
|
|
2,694
|
|
|
EBITDA
|
2,302
|
|
|
1,062
|
|
|
1,557
|
|
|
424
|
|
|
(65
|
)
|
|
411
|
|
|
1
|
|
|
5,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Millions of dollars
|
O&P –
Americas
|
|
O&P –
EAI
|
|
I&D
|
|
APS
|
|
Refining
|
|
Technology
|
|
Other
|
|
Total
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
$
|
6,883
|
|
|
$
|
9,984
|
|
|
$
|
9,426
|
|
|
$
|
4,022
|
|
|
$
|
8,221
|
|
|
$
|
468
|
|
|
$
|
—
|
|
|
$
|
39,004
|
|
|
Intersegment
|
3,525
|
|
|
854
|
|
|
162
|
|
|
2
|
|
|
936
|
|
|
115
|
|
|
(5,594
|
)
|
|
—
|
|
|
|
10,408
|
|
|
10,838
|
|
|
9,588
|
|
|
4,024
|
|
|
9,157
|
|
|
583
|
|
|
(5,594
|
)
|
|
39,004
|
|
|
Depreciation and amortization expense
|
442
|
|
|
208
|
|
|
287
|
|
|
69
|
|
|
192
|
|
|
43
|
|
|
—
|
|
|
1,241
|
|
|
Other income, net
|
11
|
|
|
48
|
|
|
2
|
|
|
2
|
|
|
3
|
|
|
1
|
|
|
39
|
|
|
106
|
|
|
Income from equity investments
|
58
|
|
|
225
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
289
|
|
|
Capital expenditures
|
1,079
|
|
|
248
|
|
|
409
|
|
|
62
|
|
|
250
|
|
|
48
|
|
|
9
|
|
|
2,105
|
|
|
EBITDA
|
2,762
|
|
|
1,163
|
|
|
2,011
|
|
|
400
|
|
|
167
|
|
|
328
|
|
|
36
|
|
|
6,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Millions of dollars
|
O&P –
Americas
|
|
O&P –
EAI
|
|
I&D
|
|
APS
|
|
Refining
|
|
Technology
|
|
Other
|
|
Total
|
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
$
|
7,265
|
|
|
$
|
9,445
|
|
|
$
|
8,346
|
|
|
$
|
2,922
|
|
|
$
|
6,165
|
|
|
$
|
341
|
|
|
$
|
—
|
|
|
$
|
34,484
|
|
|
Intersegment
|
2,739
|
|
|
773
|
|
|
126
|
|
|
—
|
|
|
683
|
|
|
109
|
|
|
(4,430
|
)
|
|
—
|
|
|
|
10,004
|
|
|
10,218
|
|
|
8,472
|
|
|
2,922
|
|
|
6,848
|
|
|
450
|
|
|
(4,430
|
)
|
|
34,484
|
|
|
Depreciation and amortization expense
|
433
|
|
|
210
|
|
|
279
|
|
|
35
|
|
|
177
|
|
|
40
|
|
|
—
|
|
|
1,174
|
|
|
Other income (expense), net
|
42
|
|
|
138
|
|
|
1
|
|
|
(2
|
)
|
|
2
|
|
|
—
|
|
|
(2
|
)
|
|
179
|
|
|
Income from equity investments
|
42
|
|
|
271
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
321
|
|
|
Capital expenditures
|
741
|
|
|
163
|
|
|
332
|
|
|
55
|
|
|
213
|
|
|
32
|
|
|
11
|
|
|
1,547
|
|
|
EBITDA
|
2,899
|
|
|
1,927
|
|
|
1,490
|
|
|
438
|
|
|
157
|
|
|
223
|
|
|
—
|
|
|
7,134
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In 2019, EBITDA for our O&P—Americas segment and APS segment results include non-cash, LCM inventory valuation charges of $25 million and $8 million, respectively, primarily due to a decline in domestic polyethylene prices. Additionally, our APS segment results include charges totaling $116 million for integration costs associated with our acquisition of A. Schulman.
In 2018, EBITDA for our O&P—EAI segment includes a $36 million gain from the fourth quarter 2018 sale of our carbon black subsidiary in France. Our APS segment results include charges totaling $69 million for acquisition-related transaction and integration costs associated with our acquisition of A. Schulman.
In 2017, our O&P—Americas results include a $31 million gain on the first quarter sale of property in Lake Charles, Louisiana. EBITDA for our O&P—EAI segment includes a $108 million gain on the sale of our 27% interest in Geosel and also includes a $21 million non-cash gain stemming from the elimination of an obligation associated with a lease.
A reconciliation of EBITDA to Income from continuing operations before income taxes is shown in the following table for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
2017
|
|
EBITDA:
|
|
|
|
|
|
|
Total segment EBITDA
|
$
|
5,691
|
|
|
$
|
6,831
|
|
|
$
|
7,134
|
|
|
Other EBITDA
|
1
|
|
|
36
|
|
|
—
|
|
|
Less:
|
|
|
|
|
|
|
Depreciation and amortization expense
|
(1,312
|
)
|
|
(1,241
|
)
|
|
(1,174
|
)
|
|
Interest expense
|
(347
|
)
|
|
(360
|
)
|
|
(491
|
)
|
|
Add:
|
|
|
|
|
|
|
Interest income
|
19
|
|
|
45
|
|
|
24
|
|
|
Income from continuing operations before income taxes
|
$
|
4,052
|
|
|
$
|
5,311
|
|
|
$
|
5,493
|
|
The following assets are summarized and reconciled to consolidated totals in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
O&P –
Americas
|
|
O&P –
EAI
|
|
I&D
|
|
APS
|
|
Refining
|
|
Technology
|
|
Total
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
6,454
|
|
|
$
|
1,706
|
|
|
$
|
3,640
|
|
|
$
|
806
|
|
|
$
|
1,190
|
|
|
$
|
334
|
|
|
$
|
14,130
|
|
|
Investment in PO joint ventures
|
—
|
|
|
—
|
|
|
504
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
504
|
|
|
Equity investments
|
193
|
|
|
1,335
|
|
|
71
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
1,602
|
|
|
Goodwill
|
162
|
|
|
112
|
|
|
228
|
|
|
1,380
|
|
|
—
|
|
|
9
|
|
|
1,891
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
5,769
|
|
|
$
|
1,745
|
|
|
$
|
2,663
|
|
|
$
|
818
|
|
|
$
|
1,216
|
|
|
$
|
266
|
|
|
$
|
12,477
|
|
|
Investment in PO joint ventures
|
—
|
|
|
—
|
|
|
469
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
469
|
|
|
Equity investments
|
196
|
|
|
1,326
|
|
|
73
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
1,611
|
|
|
Goodwill
|
162
|
|
|
114
|
|
|
229
|
|
|
1,300
|
|
|
—
|
|
|
9
|
|
|
1,814
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-lived assets include Property, plant and equipment, net, Intangible assets, net, Investments in PO joint ventures, and Equity investments (see Notes 8, 9 and 10 to the Consolidated Financial Statements). The following long-lived assets data is based upon the location of the assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Millions of dollars
|
2019
|
|
2018
|
|
Long-lived assets:
|
|
|
|
|
United States
|
$
|
11,999
|
|
|
$
|
10,346
|
|
|
Germany
|
1,476
|
|
|
1,527
|
|
|
The Netherlands
|
814
|
|
|
757
|
|
|
France
|
540
|
|
|
565
|
|
|
Italy
|
326
|
|
|
343
|
|
|
Mexico
|
249
|
|
|
254
|
|
|
Other
|
1,701
|
|
|
1,730
|
|
|
Total
|
$
|
17,105
|
|
|
$
|
15,522
|
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
23. Unaudited Quarterly Results
The following table presents selected quarterly financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 2019 Quarter Ended
|
|
Millions of dollars, except per share amounts
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Sales and other operating revenues
|
$
|
8,778
|
|
|
$
|
9,048
|
|
|
$
|
8,722
|
|
|
$
|
8,179
|
|
|
Gross profit(a)
|
1,332
|
|
|
1,506
|
|
|
1,453
|
|
|
1,135
|
|
|
Operating income(b)
|
1,017
|
|
|
1,177
|
|
|
1,124
|
|
|
798
|
|
|
Income from equity investments
|
64
|
|
|
64
|
|
|
51
|
|
|
46
|
|
|
Income from continuing operations(b)(c)
|
817
|
|
|
1,006
|
|
|
969
|
|
|
612
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(3
|
)
|
|
(4
|
)
|
|
—
|
|
|
Net income(b)(c)
|
817
|
|
|
1,003
|
|
|
965
|
|
|
612
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
2.19
|
|
|
2.70
|
|
|
2.85
|
|
|
1.83
|
|
|
Diluted
|
2.19
|
|
|
2.70
|
|
|
2.85
|
|
|
1.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 2018 Quarter Ended
|
|
Millions of dollars, except per share amounts
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Sales and other operating revenues
|
$
|
9,767
|
|
|
$
|
10,206
|
|
|
$
|
10,155
|
|
|
$
|
8,876
|
|
|
Gross profit(a)
|
1,755
|
|
|
1,916
|
|
|
1,656
|
|
|
1,148
|
|
|
Operating income(b)
|
1,494
|
|
|
1,626
|
|
|
1,317
|
|
|
794
|
|
|
Income from equity investments
|
96
|
|
|
68
|
|
|
89
|
|
|
36
|
|
|
Income from continuing operations(b)(c)
|
1,231
|
|
|
1,655
|
|
|
1,115
|
|
|
697
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(5
|
)
|
|
Net income(b)(c)
|
1,231
|
|
|
1,654
|
|
|
1,113
|
|
|
692
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
3.12
|
|
|
4.23
|
|
|
2.86
|
|
|
1.81
|
|
|
Diluted
|
3.11
|
|
|
4.22
|
|
|
2.85
|
|
|
1.79
|
|
|
|
|
|
(a)
|
Represents Sales and other operating revenues less Cost of sales.
|
|
|
|
|
(b)
|
The three months ended March, June, September and December 2019 include charges for integration costs associated with our acquisition of A. Schulman of $16 million, $19 million, $43 million and $38 million ($12 million, $15 million, $33 million and $29 million, after tax), respectively. Includes a pretax LCM inventory valuation charge of $33 million ($25 million, after tax) in the three months ended December 31, 2019.
|
The three months ended September 30, 2018 includes charges for acquisition-related transaction and integration costs associated with our acquisition of A. Schulman of $53 million ($42 million, after tax). The three months ended December 31, 2018 includes charges for integration costs of $20 million ($15 million, after tax).
|
|
|
|
(c)
|
The three months ended September 2019 and June 2018 include a non-cash benefit of $85 million and $346 million benefits, respectively, related to previously unrecognized tax benefits and the release of associated accrued interest. The three months ended December 31, 2019 includes an after tax gain of $5 million on the sale of a joint venture interest in Asia. The three months ended December 31, 2018 includes a $34 million after tax gain on the sale of our carbon black subsidiary in France.
|